Personal Injury Settlement Check: a California Guide

In this article, you’ll find the answer to many of the most common questions related to a personal injury settlement check applied to the State of California. How are they paid out? How long does it take to receive them? Do you have to pay taxes for them? Those and some extra considerations are covered in this mini guide provided to you by My Lawyer Mark.

If you were injured in an accident provoked by somebody else’s negligence, you may be entitled to compensation. Hiring an experienced personal injury lawyer in California​ increases your chances of obtaining full compensation and provides you with extra peace of mind and support. Schedule a free consultation with My Lawyer Mark at (866) 721-5808 and team up with a fighter lawyer who knows how to win.

What is a Personal Injury Settlement Check?

In California, a personal injury settlement check is the payment you receive after resolving a personal injury claim, compensating for damages like medical expenses, lost wages, and pain and suffering. Settlement checks must meet the following format:

• • Issued by a Valid Source: The check is usually drawn from the insurance company or the defendant’s legal representative.

• Must Show Clear Details:

• • The payee(s) (who the check is made out to).
  • The settlement amount in both words and numbers.
  • A reference to the case or claim number.
  • The signature of an authorized issuer.
• Funds Availability: The check should be backed by sufficient funds to avoid issues like a bounced check.

How Are PI Settlement Checks Paid Out?

In California, personal injury settlements are typically paid out in one of two ways: a lump sum payment or a structured settlement. Here’s a detailed explanation of how the process works:

Payment Methods

Lump Sum Payment

The entire settlement amount is paid in one payment. This method is common for smaller settlements or when the injured party prefers immediate access to all funds.

• Advantages:
  • Immediate access to the full amount (after deductions).
  • Flexibility to use the funds as needed.
• Disadvantages:
  • Risk of mismanaging the funds or running out too quickly.

Structured Settlement

The settlement is paid in installments over a specified period or even a lifetime. Common for larger settlements or cases involving long-term or catastrophic injuries.

• Advantages:
  • Provides consistent income for ongoing needs (e.g., medical care, living expenses).
  • Payments may include interest, increasing the overall amount received.
• Disadvantages:
  • Less flexibility to access large sums immediately.
  • Payments depend on the schedule agreed upon during settlement negotiations.

Settlement Payment Process

Step 1: Reaching a Settlement

Once a settlement is agreed upon, both parties sign a release agreement waiving your right to pursue further legal action for the injury. The defendant or their insurer then prepares to issue the payment.

Step 2: Check Issuance

The insurance company or defendant issues the settlement check. In California, insurers are required to send payment within 30 days of receiving the signed release form.

Step 3: Deposit into Your Lawyer’s Trust Account

The check is typically made payable to you and the attorney and deposited into an Interest on Lawyer Trust Account (IOLTA). This ensures the funds are properly managed, and all required deductions are made before distribution.

Step 4: Deductions and Liens

Your attorney deducts the following from the settlement:

• Attorney’s Fees: Usually a percentage of the settlement, as agreed in your contract.
• Legal Costs: Filing fees, expert witness fees, or court costs.
• Liens: Payments owed to medical providers, insurance companies, or others who paid for your treatment.

Step 5: Final Payment to You

After deductions, the remaining amount is distributed to you either as a lump sum or via periodic payments (if it’s a structured settlement).

How Long Does it Take to Get a Settlement Check?

The time it takes to receive a settlement check in California varies depending on several factors. Still, generally, you can expect the process to take 2 to 6 weeks after reaching a settlement agreement. Here’s a breakdown of the timeline:

Signing the Settlement Agreement

• Once both parties agree on a settlement, you must sign a release form waiving your right to pursue further legal action for the same claim.
• Typical Timeframe: 1–2 weeks, depending on how quickly the paperwork is completed and returned.

Issuance of the Check

• After the release form is signed and sent to the insurance company or defendant, they are responsible for issuing the settlement check.
• California Law requires insurance companies to issue the check within 30 days of receiving the signed release form. Delays beyond this time could constitute bad faith, allowing you to take legal action.

Processing by Your Lawyer

• The check is usually deposited into your lawyer’s trust account (IOLTA). Typical Timeframe: 5–10 business days for the funds to clear and to make deductions.

Final Payment to You

• After all deductions are handled, your attorney will disburse the remaining funds to you.
• Typical Timeframe: 1–2 weeks after the check clears, depending on the complexity of the case (e.g., negotiating with lienholders).

What Could Delay Your Payment?

1. Incomplete Paperwork: Delays in signing or returning the release form.
2. Lien Negotiations: Outstanding medical or insurance liens may take time to resolve.
3. Check Processing Delays: Large settlement amounts may undergo additional review by the payer.
4. Bank Clearing Times: Once deposited into the attorney’s trust account, the check may take a few days to clear.

Summary Timeline

• Best-Case Scenario: 2–3 weeks after signing the release form.
• Average Scenario: 4–6 weeks after the settlement is finalized.
• Longer Delays: If liens or paperwork issues arise, it could take several months.

If you’re experiencing delays beyond 30 days, consult your lawyer to determine the cause and explore your legal options.

Do I Have to Pay Taxes for my Personal Injury Settlement Check?

Whether you have to pay taxes on your personal injury settlement check in California depends on what the settlement compensates you for. 

In general, the portion of the settlement meant to compensate for physical injuries or physical illnesses is not taxable under both federal and California state law. This includes amounts awarded for medical expenses, pain and suffering, and emotional distress directly tied to the physical injury. Similarly, reimbursement for medical expenses is tax-free as long as you did not previously deduct those expenses on a prior tax return.

However, certain portions of your settlement may be taxable. For instance, compensation for lost wages is taxable since it replaces earnings you would have received if you had not been injured. You must report this portion on your federal and state tax returns, and it may be subject to income, Social Security, and Medicare taxes. 

Similarly, if you receive compensation for emotional distress or mental anguish that is not directly caused by a physical injury, that portion of the settlement is taxable. Additionally, any interest accrued on delayed settlement payments is treated as taxable income, as are punitive damages, which are awarded to punish the defendant rather than compensate for your injuries.

You should review the settlement agreement to determine which parts of your settlement are taxable. The document should clearly outline the allocation of damages. If it does not, the IRS may assess taxes on portions of the settlement it considers taxable. If your settlement includes taxable components such as lost wages or punitive damages, the payer might issue you a Form 1099-MISC or a Form 1099-INT, which you would need to include in your tax return for the relevant year.

Bonus Information: How to Manage Your Settlement Payment Wisely

One of the biggest concerns individuals face after receiving a settlement check is ensuring that the funds last and provide long-term financial stability. Settlements are often substantial but finite, and recipients may not have experience managing large sums of money. 

For example, for those with ongoing medical needs, disabilities, or chronic injuries, ensuring that the settlement covers both immediate expenses and long-term needs can be challenging.

What Usually Leads to Financial Instability?

• Overspending or Mismanagement: Receiving a lump sum can lead to overspending, especially if no clear financial plan is in place. Recipients might need to pay more attention to how quickly funds can be depleted without careful budgeting.
• Underestimating Future Expenses: Settlement recipients may focus on immediate costs, such as outstanding medical bills, and must account for future expenses, including long-term medical care, therapy, or living adjustments.
• Inflation and Cost of Living Increases: Settlement amounts may not account for inflation or rising medical costs, potentially reducing the funds’ value over time.
• Lack of Financial Education: Many individuals need to become more familiar with investment strategies or savings plans that could help them stretch the settlement over a longer period.
• Unplanned Emergencies: Unforeseen circumstances, such as a medical emergency or a major life event, can strain or deplete settlement funds.

Tips to Make the Best Out of Your Settlement Money

• Work with a Financial Advisor: A financial advisor experienced in personal injury settlements can help recipients create a long-term plan for managing the funds. They can advise on investments, savings plans, and strategies to maximize the settlement’s value over time.
• Consider a Structured Settlement: A structured settlement provides regular income over time, which can help with financial stability, especially for those concerned about overspending or managing a lump sum. Structured settlements are particularly beneficial for individuals with long-term medical needs or disabilities.
• Set a Budget and Financial Plan: Developing a detailed budget that outlines expected expenses (e.g., medical care, rehabilitation, daily living costs) ensures that funds are allocated appropriately.
• Emergency Fund: Setting aside a portion of the settlement as an emergency fund can provide a financial safety net for unexpected expenses, reducing the risk of depleting the primary funds.
• Pay Off Debt Strategically: While it may be tempting to use the settlement to pay off all debts, it’s important to prioritize high-interest debts while maintaining enough liquidity for future needs.
• Evaluate Long-Term Care Costs: For recipients with chronic injuries, estimating the cost of future treatments, home modifications, assistive devices, or in-home care is critical to ensure the settlement covers these needs.
• Avoid Risky Investments or Scams: Large settlements can make recipients targets for financial scams or risky investment opportunities. Working with trusted financial professionals can help mitigate these risks.
• Use Trusts for Protection: Creating a trust, such as a special needs trust (for individuals receiving government benefits) or a standard trust, can help protect the settlement funds from misuse and ensure they are used responsibly.

Do you have any specific concerns about your personal injury settlement check? Do you intend to start a personal injury claim and want to know if you have a case? Call My Lawyer Mark at (866) 721-5808 to schedule a free consultation. Take the first step to obtaining compensation to cover all your damages.