Courts and Judges

Judges play an important role in the selling of structured settlement and annuity payments because they make the ultimate ruling on whether your reason for selling payments is valid and in your best interest.

Because structured settlement awards often involve large sums of money, federal and state legislators closely regulate the sale and transfer of payments to protect annuity recipients. The ultimate regulation is that every state that permits secondary market sales mandates the sales be approved in court by a judge.

Federal law and statutes in 48 states require this judicial approvaland no money can change hands until a judge is satisfied. In many cases, the person selling or transferring payments rights must go to court and answer any questions a judge might have.

By law, the judge’s guiding principle is to ensure that settlement owners only make transfers that meet a “best interest” standard, in other words that the transfer serves the needs of the individual as well as the interests of any affected family members or dependents.

Although the majority of transfer and sales requests that make it to court get approved, they’re not rubber-stamped. Knowing about situations in which a judge might deny a transfer can help you evaluate how likely you are to get your sale approved.

Questions a Judge Might Ask

If you go to court for an annuity sale or transfer, you should expect the judge to ask you questions about your case. You’ll need to respond with honest, well-thought-out answers. Among the questions a judge is likely to ask are:

  • Are you sure that you shopped around for the best deal?
  • Are you comfortable working with the funding company you have chosen?
  • Do you understand that you are selling these payments at a discount and that you will receive a lump sum that is less than the total amount of future payments?
  • Do you have any ongoing medical or physical needs? If so, how will you take care of those needs if you sell some or all of your future payments?
  • Do you understand the transfer agreement?
  • Have you reviewed your agreement carefully and with a professional not connected to the structured settlement buying company?
  • Have you contacted anyone who might oppose this transfer, giving them an opportunity to appear before the court?

Prepare for these questions and others.

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Examples of Judges Saying No

If a judge doesn’t like your answers and decides your proposed agreement isn’t in your “best interest,” the court can deny the transfer.

Here are some examples of transfers that were turned down by various courts:

  • 1In February 2012, a New York state judge rejected a proposed transfer totaling $70,000. The court determined the proposed transfer was neither “fair nor reasonable” nor in the “best interests” of the seller. The seller’s cash-out was to be $6,000, and the judge ruled it violated New York’s Structured Settlement Protection Act (SSPA).
  • 2In another recent New York case, a court deemed unacceptable a proposed transfer of approximately $76,600 for a buyout of $31,000. In addition to objecting to the amount offered by the funding company, the judge was not satisfied the seller had thought out the potential consequences. The judge decided the seller had not thought enough about her plans for her money and ruled that by selling her future payments she “would compromise [her] future financial security.”
  • 3A Minnesota court in 2011 rejected a proposed transfer on the grounds that it was not in the owner’s best interests – $25,000 in exchange for $96,000 worth of future payments. It also found that the owner had not received independent professional advice as a necessary precondition to signing the transfer contract – a stipulation in the state’s SSPA. In addition, the court noted that the payee had been involved in two previous proposed transfers with the same funding company, one of which was denied, and was now appearing before the court with the same reasons for wanting the transfer that he had in his previous applications.
  • 4In some states, a court can block a proposed transfer if it determines the transfer would violate another state law or a federal statute. In a recent case in Florida, the judge denied approval of a proposed transfer of an injured individual’s workers’ compensation claim that was filed under the Longshore and Harbor Workers’ Compensation Act. That federal law restricts any reassignment of benefits payable under the act. Because of the provision in the Florida law, the court was compelled to reject the petitioner’s request.

Develop a Court-Friendly Plan

Even the small possibility that a court can block your proposed transfer makes it worth your while to craft a sale plan that’s fair, reasonable, in your best interest – and one you can explain to a judge.

In most cases, the lawyer presenting your case in court will know – or know of – the judge presiding over structured settlement transfers in your area. That makes it wise for you to listen to their recommendations and to conduct yourself in a manner most likely to gain a judge’s approval. Your strategy should be one of respect and understanding. Don’t take anything for granted.

Each judge will have a distinct personality and way of carrying out his or her responsibilities under the law. Some judges may be brisk and businesslike, while others show more sympathy to those who come before them. If you appear before the former, you may get peppered with questions. It can be intimidating, but realize that this is the judge’s job – making sure you’re not being taken advantage of in some way you can’t see.

If you find yourself standing before the latter, you may get fewer questions and are likely to leave court fairly quickly. Chances are, you’ll be a part of the majority who get their cash now.

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