How Does a Non-Qualified Assignment Work?
Generally a non qualified assignment works like this:
- The parties come to an agreement.
- The parties then execute a settlement agreement and release (sales agreement in the case of structured sales) that includes periodic payments as part of the consideration.
- With an annuity funded non qualified assignment the payments are fixed and determinable as to amounts and payment dates.
- With a non qualified assignment not funded by an annuity, the periodic payments are set as to payment date. Payment amounts are based on a fixed and determinable formula. For more details please contact us.
- The non qualified assignee accepts the funds with which it purchases the funding instrument(s), along with the obligation to make the periodic payments to the plaintiff, or payee. Annuity funded non-qualified assignments include a guarantee by a large A.M. Best rated “A” (Excellent) domestic US insurance company and a separate Agreement to Pay by a 105+ year old A.M. Best A XV (Excellent) domestic US insurance company, backing the obligations of the non-qualified assignment company with the obligations of the Annuity Issuer.
- Alternate non-qualified assignment solutions are available through relationships with Structured Assignments, Inc., Havelet Assignments Ltd and Kenmare Assignments, Ltd. Some non qualified assignees couple a deferred payment mechanism with a customized portfolio that, for example, could include fixed income from structured settlement payment rights purchased in the structured settlement secondary market). Contact John Darer for details.
- For the most conservative, another non annuity alternative is a non-qualified assignment using Treasury Funded Structured Settlements. United States Treasury obligation are purchased by a trust to back up the assigned periodic payment obligation. At the very least this offers an opportunity to diversify risk.
The assignment in this type of transaction is a general assignment unrelated to qualified assignments under IRC §130.
Payments are generally fully taxable to the payee in the tax year that each periodic payment is received. The type of tax applied will depend on the transaction. Damages in wrongful conviction or wrongful imprisonment cases, while excluded under IRC §139F, can be paid using a structured settlement, but must be established using a non-qualified assignment because IRC §130 only covers assignments of damages that are excluded under IRC §104(a)(1) and §104(a)(2), namely damages payable for physical injury, physical sickness, wrongful death or workers compensation.
Where Can a Non-Qualified Assignment Be Used?
Examples of cases involving taxable damages or payouts, where settling parties to a lawsuit, claim, dispute, or contract, may benefit from a non-qualified structured settlement/non-qualified assignment:
- Age, Gender, Race or Religious Discriminations settlements
- Disability Buyout settlements
- Failure to Promote
- Sexual Harassment settlements
- Wrongful Termination settlements
- Company paid LTD Settlements
- Construction Defects settlements
- Director’s & Officers and related claim settlements
- Errors & Omissions claim settlements
- Environmental claims
including clean up and monitoring of cleanup sites
- Funding of Lotteries and Contest Winnings
- Intellectual Property Claims
of Inventors and Copyright and Trademark Holders
- Lease Buyouts (cash basis tax payer, other solutions for accrual basis taxpayers)
- Pre August 5, 1997 Workers' Compensation Claims
- Punitive Damages Awards
Non Qualified Structured Settlement Benefits For the Plaintiff
- Breach of Contract claims
- Wrongful imprisonment/False Arrest ( Note that per IRC 139F such damages are exempt, but IRC 139F is not part of IRC 130 so a qualified assignment can't be used).
- Fraud Claims
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 may end up being taxed at the highest rates, or may be even be subject to Alternative Minimum Tax (AMT). 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.
'But I Can Do Better on My Investments'
If you think you can do better on investments, remember that you must first earn enough
just to catch up
to the amount you would have started with had you structured. Moreover, there are 'have your cake and eat it too' options.
Non Qualified Structured Settlement Benefits 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 to solve your problems and to accommodate specific cash flow needs and preferences of our clients.
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.
Contact us for more details 888-325-8640