settlement components

[I AM ALWAYS LIABLE]

What is the name of your state? CA

ok, so i win a wrongful termination or breach of contract case and realize a lump sum settlemnt based on future years lost earnings. i realize that there will be consideration of dollar value etc. my questions are:

will the settlemnt be increased to off set the increase in taxes? i.e. today i'm in say a 25 percent tax bracket, but a lump sum would place me in a 45 percent. fyi, i'm combining state and fed.

also, what about all the fees associated with the recovery of my earnings. will i receive attorney fees, etc. too?


thanks in advance....

My response:

It wouldn't matter if you took a lump sum, or had a settlement or judgment placed in an annuity. What matters is how the settlement or judgment is "denominated" and "allocated". To reduce taxes, your counsel may seek to allocate a large share of any settlement or judgment to "physical injury or physical sickness" (exempt income) rather than to lost wages or emotional distress (taxable income).

However, your employer will be very careful about unrealistic allocations because they are under a duty to withhold payroll taxes on whatever portion of the settlement or judgment represents lost wages. (There is no duty to withhold taxes on emotional distress damages.)

As part of the settlement or judgment, your employers will ask you in your settlement Release, or to make it a part of any judgment, to indemnify it for any tax liability incurred as a result of such allocations. Such indemnification will be subject to laws prohibiting indemnification for penalties.

IAAL