You’ve just received a $25,000 personal injury case Settlement in California. Sounds like a great check. But now that you have the money, what are you really going to receive?
Let’s see how many dollars from this check will make their way into your pocket. We’ll show you the total amount of money (if any) that you’ll be able to save after you pay for all your legal expenses.
What Lawyers Take: Contingency Fees Explained
A contingency fee means that you will have to pay no money before an attorney takes your case and your attorney will only be able to receive payment for their time and effort based upon the amount recovered as compensation from either winning your case or settling.
The majority of personal injury lawyers in California, including many of the lawyers here at A1 Accident Lawyer, take advantage of contingency fees in the way that they handle personal injury claims.
In general, a standard contingency fee agreement would call for the lawyer to earn somewhere in the neighborhood of 33% of the recovery should the case settle during the course of litigation (prior to going to court), however, if the case does ultimately proceed to trial, the contingency fee could rise to 40%.
In addition to being subject to a percentage of the overall award obtained, some contingency fee agreements are structured so that there is a sliding scale (or “tier”) used by the lawyer when determining how much of the award to keep; and this typically results in the lawyer earning a smaller percentage of larger awards.
$25,000 Settlement Breakdown: What You Actually Take Home
| Scenario | Legal Costs | Contingent Fees | Estimated Take-Home |
|---|---|---|---|
| Early Settlement (33% Attorney Fee) | $0 (assumed) | $25,000 x 33% = $8,250 | $16,750 |
| Typical Case (33% Attorney Fee) | $2,000 | ($25,000 – $2,000) x 33% = $7,590 | $15,410 |
| Trial Case (40% Attorney Fee) | $1,500 | ($25,000 – $1,500) x 40% = $9,400 | $14,100 |
What About Taxes
Good news: compensation for medical bills, pain and suffering, or property damage is not taxable. California follows federal rules on this.
However, lost income is treated like wages and is taxed. Your net may reduce if your settlement includes wage replacement.
Why Case Type Matters
There is a difference in how every single lawyer handles each and every one of their client’s personal injury cases.
For example, when it comes to Car Accidents, Minor Injuries & Fast Settlements (the Fees) for lawyers can be as low as 33%.
The Lawyers’ Fee can be as high as 40% or Even More For Complex Cases such as Medical Malpractice, Severe Injuries, Litigation & Trial.
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$25K Settlement: A Real World Example
For example, if an average car accident claim settled for $25,000 in California, after deducting $2,000 in costs (court fees, etc.) as well as taking into account a 33% attorney’s fee, the client may be left with approximately $15,000.
However, this figure could drop even further by $1,000 to $2,000 when considering medical liens. Therefore, it is possible for two individuals who receive the same settlement amount to have very different amounts of money paid out.
Hidden Deductions That Can Lower Your Payout
The majority of people are unaware of this particular deduction; the potential amount deducted by way of one of the deductibles mentioned above could be substantial enough (sometimes as much as thousands) at times to reduce an individual’s settlement significantly.
Medical bills are typically the largest expense. Hospitals/physicians will put a lien on medical expenses if you have not already paid for them prior to receiving treatment. Likewise, your health insurance company has a right to seek payment for any portion of your care, which was covered by their policies. Additionally, there are government programs (e.g., Medi-cal or medicare), that may also attempt to collect their share of any monies associated with your case.
It is vital to obtain a detailed list of estimated fees/costs/liens, etc., prior to commencing a lawsuit. Your attorney should provide you with a written estimate of all the costs associated with your case. Once you know exactly how much money you will have available to you after your case settles, you will not be surprised when you do finally settle your claim.
Keeping Most of the Money from Your Lawsuit
You should consider the following tips:
Try to negotiate the amount of the fee as a percent before signing
If your lawsuit seems clear-cut, has already settled quickly or will resolve quickly; you could possibly get a lower percent of your settlement by agreeing upon that amount prior to signing an agreement.
Avoid high legal costs by settling your lawsuit quickly
As cases extend over time (and particularly when lawsuits go to trial), they become increasingly expensive. The sooner you settle, the less chance there is for additional costs.
Carefully review all cost reductions
Do not simply accept a bulk reduction. Request a detailed explanation regarding what each cost was used for.
Prior to finalizing a settlement ask about medical liens
Find out as soon as possible if any health care provider(s) or insurance company plans to place a lien against any portion of your settlement and how much they plan to charge.
Write down your entire settlement breakdown
By getting a written breakdown, you have all of the details of the fees, other charges and the total amount of the settlement paid to you so there is little or no surprise at the end.
Are Settlement Funds Taxable in CA?
Most of the time, settlements in California do NOT have to be reported as income (taxed) since most of what is included is compensation for:
- Medical bills
- Suffering you went through
- Damage to property
In general none of these things will ever be subject to taxation so that preserves a portion of your total recovery.
But some items will be taxable including:
- Loss of earnings
- Punitive damages
- Interest
Also Read: What are the 3 Types of Malpractice?
Key Takeaways
- The average person receives somewhere around $14,000 to $17,000 in actual cash from a $25,000 settlement
- A normal contingency fee for an attorney would be approximately 33-40%, which also includes legal costs and medical liens
- In most cases, the amount of money you receive as part of a settlement is not subject to taxes; however, any amount of lost wages received during the time period while you were recovering may be taxable
- Communicating clearly with your attorney early on will help to prevent future surprise or unexpected issues related to your case
Final Thought
Although receiving a $25,000 settlement sounds wonderful initially, there are many important items such as contingency fees and other legal costs, etc., that greatly affect how much money you ultimately take-home.
Always ask for a complete written breakdown of all monies paid before you accept any type of settlement, so you have a clear understanding of the total amount of money you will receive.
FAQs
Why is my settlement amount lower than expected?
Payouts are reduced by attorney fees, legal costs, and medical liens. These significantly lower your final amount.
How long does it take to receive settlement?
You will generally receive payment within 2 to 4 weeks.
Can I increase my settlement amount after accepting an offer?
No. Once accepted, the case is closed and cannot be reopened for more compensation.
Do I receive the settlement check directly?
Typically, the check goes to your attorney first and they deduct fees and costs.
Will my settlement be lower if I was partially responsible?
Yes. As California follows comparative fault rules, compensation is reduced based on percentage of responsibility for the accident.
What happens if I lose my personal injury case?
You typically don’t owe attorney fees, but you may still be responsible for certain case costs.