Structured settlement payments are received from an annuity that was created as part of a legal compromise. A plaintiff, having filed a lawsuit, and a defendant, responding to the claim, ultimately agree to settle the case and avoid further litigation. The settlement releases the defendant from future liability, and the release is exchanged for monetary compensation. An annuity is purchased from an insurance company and payments are made to the plaintiff, who is thereafter referred to as the "payee". Structured settlement payees, originally satisfied with the terms of the settlement, sometimes decide that waiting for future annuity payments is not in their best interest. The payee makes a decision to sell the rights to receive future payments. In legal terms, a structured settlement payee decides to "transfer" future payments at a contractually agreed upon price. In order to do so effectively, sellers must understand what is required legally when selling structured settlement payments and how the legal framework for selling payments actually protects them.
Forty-seven states have specific laws that regulate the sale of structured settlement payment rights. The laws vary slightly from state to state, but all require that a court approve the transaction. The relevant state law requires that a particular court and a particular judge determine that the reason for selling, and the terms of the sale, collectively represent the best interests of the seller.
Sellers should realize exactly what that means to the process and the deal. A seller of structured settlement payments should always request nothing less than what the market will bear. The seller may remind the purchaser that the better the terms of the deal, the more likely the judge is to approve the deal. This does not mean that these types of "transfers" exist outside the bounds of normal supply and demand. All purchasers are restricted by the underlying transaction costs, and the risk inherent in purchasing a future payment. It is understood that a purchaser pays for something today, but must wait until some future date to receive payment. Unlike the purchase of a car or a house, this transaction is scrutinized by a third-party, and is not approved in court unless it represents a real "win-win" situation. Purchasers cannot assume that courts will approve all structured settlement transactions, just as sellers should not assume that all offers to purchase payments are constrained by the legal process.
No one involved in the structured settlement transfer process should assume anything. Sellers use the requirement for court approval to their advantage, while accepting the reality that no sale is possible without a fair price. The market would not exist and will not exist in the future unless the purchaser is willing to take on some level of risk — but all risk comes at some cost.
Shannon Harvey writes for Annuity Transfers a buyer of structured settlement payments. If you are looking to sell your structured annuity payments visit Annuity Transfers.
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