We all are familiar with the term ‘structured settlement’. Advertisement hoardings, commercials on television, emails all prompting you to get hold of your cash right now. Reading one such mail, made me wonder how did structured settlements evolve and I decided to do some basic research. Read through to find out what I found!

There is no hard and fast rule governing a settlement of dispute. It depends on the terms of agreement arrived at between the two parties whether they opt for one time settlement or periodic payments. As such there is no recorded history indicating towards how and when structured settlements begin. The most logical explanation that can be offered is that inability of a defendant to pay lump sum cash to the claimant led to the claimant accepting a promise from the defendant to pay over a period of time.

The first case in which periodic payments were reported was in the 1960′s in Canada. Women who had used Thalidomide during their pregnancies gave birth to children who were suffering from birth defects. In the United States it was in the 1970′s that the trend for structured settlements began to pick up. It was the year 1977 that can be considered as landmark for the development of structured settlements in U.S. The Internal Revenue Services issued several revenue rulings to the effect that structured settlement payments became tax free. Increase in the quantum of compensation awards further led to victims preferring structured settlement over onetime payment.

Well, the next question that comes to my mind is what led to their growth? Read through to find out what led to the growth in the trend of structured settlements.

Structured Settlements were seen as a win-win situation for all. Structured settlements for the plaintiff were tax free whereas when he received one time settlement he was required to pay tax; companies that funded them were also given tax benefits and the Congress believed that this arrangement would ease the burden on the state exchequer. Surveys indicated towards plaintiffs ending up utilizing the money received by way of lump sum settlement quickly for reasons like excessive spending and bad financial management. Structured settlements were seen as one the best options available for minors.

The next best thing about structured settlements is that one can transfer them for a payment. By a law passed in the year 2001, it was made mandatory for the structured settlement buyer to disclose the essentials of the contract to the seller and issue adequate notices to all parties that may be interested in the transaction.  A transfer (sale) is approved only once the court makes an observation that it is in the best interest of the seller including his dependents if any. Today all transactions involving sale and purchase of structured settlements have to be got approved by the Court. From the year 2009 onwards, 46 states of the country have laws regulating sale of structured settlements.

With all the laws regulating structured settlements there are a number of settlement funding companies that buy in the market. It is recommended that professional advice be sought while transferring a structured settlement. It is equally important that one obtain quotes for different companies and opt for a factoring company offering the best deal within the shortest possible time period.