401k lawsuit funding is the latest development in personal finance management. It offers many advantages over traditional investment strategies, but also some significant limitations. Many of these advantages and limitations apply to structured settlement recipients as well, although the differences tend to be more pronounced for plaintiffs. Incoming capital (and repayment of incoming capital) from 401k lawsuit funding programs are based upon the value of the award, which is generally a percentage of the total face value of the annuity. While there are many different types of structured settlements, structured settlement funding is perhaps the most common among them.

The typical structured settlement is one in which the plaintiff and his or her lawyer agree to receive periodic payments, usually a percentage of the future settlement amount, as a result of the conclusion of a lawsuit. These agreements are typically entered into when the case is resolved, making the future settlement payments an attractive option for plaintiffs. Unfortunately, there are significant drawbacks inherent in the potential use of lawsuit funding.

One of the most obvious drawbacks is that it provides only a limited degree of funding. As with any other form of financial instrument, there will be risks associated with it. If the value of the settlement does not increase as expected, then the value of the lump sum payment received may not cover all of the plaintiffs’ expenses. There may also be tax penalties or other charges for the transfer of the funds. There are times when the anticipated benefits do not materialize, either because the funding did not reach the plaintiffs or the funding was used for purposes other than those intended. For this reason, plaintiffs should make certain that they understand all of the details of any agreement before signing on the dotted line.

Another potential drawback to lawsuit funding is that there are significant limitations that can affect the plaintiffs. The most important limitation is the limitation of the courts’ ability to order compensation for plaintiffs who suffer a substantial loss as the result of another’s negligence or reckless behavior. If the court rules in favor of a party against a plaintiff, the plaintiff may have little or no chance to recoup any damages. Because most people are aware that their rights are protected by both state and federal laws, few plaintiffs realize that their rights are also limited by lawsuit funding agreements. In some states, these agreements are preempted by certain statutes, which provide that the statute of limitations governing other types of damages (e.g., personal injury claims) does not apply to lawsuits involving injuries inflicted by other people.

Plaintiffs should be aware that lawsuit funding agreements may provide only a limited amount of protection. For example, in a case involving an employer’s negligence, it may be possible that the injured employee’s attorney will be unable to recoup any damages. If so, the injured employee may not be able to obtain any future damages from his or her employer. Similarly, even if the funding provided covers the cost of legal representation, there may be limits on the ability of the plaintiff to obtain additional compensation based upon what it costs to retain a lawyer. Therefore, plaintiffs should be sure to thoroughly examine any agreement regarding potential lawsuit funding before signing the agreement. There may be additional costs beyond what is outlined in the funding agreement, including payment to attorneys for their services and potential liability for filing fees.

Many companies that offer lawsuit funding services also offer other types of litigation assistance, such as financial expert consultation, settlement funding, and pro Bono representation. Because a substantial portion of potential monies provided to plaintiffs is based on their ability to pay their attorneys, individuals who have recently been awarded large compensations may wish to explore these other options. Before signing any agreement regarding either monies received under a lawsuit funding agreement or any other aspect of a lawsuit, individuals should carefully consider their actual financial situation and the ability to adequately pay their attorney. It is important that plaintiffs remain realistic about their ability to pay and be certain to not sign any agreement that will further drain on their already-suffering wallets.