The non qualified assignment (often referred to as a non qualified structured settlement 1) is a form of settlement used to resolve disputes, claims for damages that do not fall within the realm of physical injury, physical sickness or wrongful death, to secure installment sales of businesses or real estate, divorce payments, or professional athlete or celebrity endorsement fees. The tax benefits vary with the type of transaction. In a non physical injury tort or attorney fee scenario, the plaintiff releases the defendant from the claim or dispute in return for an immediate cash payment and future periodic payments and benefits from income tax deferral. Another application example is for structured business and property installment sales, where the non qualified assignment serves helps to make capital gains deferral more secure. For each type of application and purpose there may be a different nuance and procedure and we can help you achieve your objectives.

Generally a non qualified assignment works like this. Subsequent to executing a settlement agreement and non qualified assignment, the defendant, insurer, or payor transfers sufficient consideration to an non qualified assignee to purchase the funding instrument, along with the obligation to make the future periodic payments to the plaintiff, or payee. The non qualified assignee accepts the funds with which it purchases the funding instrument for the non qualified structure. Annuity funded non qualified assignments include a guarantee ( or, for structured business and real estate installment sales and structured celebrity endorsement fees, a separate "Agreement to Pay"), by a large, A.M. Best rated A+ XV (Superior) domestic US insurance company, or Fortune 100 financial holding company, to back up the obligations of the non qualified assignee.

The assignment in this type of transaction is a general assignment unrelated to qualified assignments under IRC Section 130.

In the"non qualified structured settlement", each periodic payment is fully taxable to the payee in the year that each periodic payment is received. The type of tax applied will depend on the transaction. The non qualified assignment concept may also be used in a tax neutral transaction.

For the Plaintiff

The decision to accept distribution by way of a "non-qualified structured settlement" is based upon which form of distribution puts the largest amount of net settlement proceeds into his or her pocket. In a non qualified tort settlement, the net settlement proceeds represent the gross settlement less attorney fees, liens and taxes. With a lump sum settlement, the plaintiff is taxed at the highest rates and is taxed on the gross settlement amount before deductions. With a non qualified structured settlement, the plaintiff may be taxed at a lower rate that is applied to comparatively smaller periodic payments, thus producing a smaller tax burden than that created by a lump sum settlement. When used as part of the resolution of a divorce case, a non qualified structured settlement might be used to fund alimony, or spousal support, and child support , a non qualified structured settlement provides vital payment assurance to the recipient spouse.

For the Defendant

Unlike with a qualified structured settlement, the tax deduction here may be taken over time as payments are made to the plaintiff. This may be offset by the following advantages:

• Tax savings accruing to the Plaintiff may be so great that the Defendant or Payor gains leverage to negotiate a potentially lower settlement cost enabling the parties to bridge the gap in negotiations.
• Facilitated settlement thereby avoiding trial costs
• Avoid risk of punitive damages
• Avoid exposure to runaway jury verdicts
• Avoid adverse jury finding that could lead to appeal and post appeal expense

We have customized solutions (with insurance company guarantees) to solve your problem and to accommodate the specific cash flow needs and preferences of our clients.

Examples of cases where settling parties to a lawsuit, claim, dispute or contract may benefit from a non qualified assignment:

• Age discrimination
• American Disabilities Act
• Athlete Endorsement Fees
• Structured Attorney Fees or Legal Fees. Attorney Fees can be structured even if plaintiff does not structure.
• Celebrity Endorsement Fees
• Construction Defects
• Divestment
• Divorce settlements, to secure periodic payments of divorce alimony or spousal support, child support and equity distribution²
• Race Discrimination settlements
• Wrongful Termination settlements
• Sexual Harassment settlements
• Structured Property Sales (secure installment sales of property)³
• Structured Business Sales (secure installment sales of businesses)³
• Environmental claims and clean up settlements
• Legal Malpractice or Professional Errors and Omissions
• Legal Fee Disputes
• And let's explore any other settlement scenario you may have

Footnote

^1. While it has many of the same features of a structured settlement, and may commonly be referred to as such, since the introduction of IRC §5891 in 2001 a non qualified assignment is technically not a structured settlement. What is a structured settlement?

^2.The tax issues of certain aspects of divorce settlements may be different that the standard non qualified assignment described above. However, it is a extremely viable application. Follow link for more details.If interested in exploring how this strategy can be applied we can discuss with you in conjunction with your professional tax advisor.

^3. The documentation for structured installment sales of property or business differs from non qualified assignments in the other scenarios. However it is relatively simple. We have all of the necessary forms for you.