What You Need to Know Before Deciding to Settle a Lawsuit

Not every lawsuit is worth fighting. There are times in which it simply makes sense to settle. Below are a few things you need to know before you can realistically think about settling your lawsuit.

What Happens if You Don’t Settle

The first thing to consider when you think about a settlement is what will happen if you don’t settle. How likely are you to win a lawsuit? If you lose, what’s likely to happen next? Can you really afford to take that chance, and if so, what makes taking a settlement more appealing than going forward with a suit? You’ll need to know the answer to all of these questions in order to make an informed decision.

Tax Consequences

You’ll need to know the tax consequences of taking a settlement, particularly if you are a business or representing a business. This can be quite complex, as not all types of settlements are taxed. A settlement for a personal injury suit in which there is observable bodily harm is usually untaxed, while a settlement for the infliction of emotional distress may be taxed. You’ll need to consult with a tax professional to see what kind of impact the settlement might have on your finances, especially come tax filing season.

How the Settlement Will Be Funded

It’s also a good idea to look at where the settlement will come from if you’re the party that’s paying. There are certain types of quick, easy lawsuit settlement funding out there, and you need to know which ones will be the most beneficial in your case. Whether you’re counting on insurance for help or if you’re going to have to pay out of pocket, you need to know where this money is going to come from before you can make any type of agreement. Keep in mind that if you are part of the party that will be receiving the settlement, you will likely need to pay your legal representative a fee from the rewarded settlement.

The Consequences of Moving Forward

Finally, you’ll want to look at the consequences of choosing to settle. If you’re agreeing to a settlement after you have been injured, you’ll want to ensure that you’ll get enough to cover your medical bills and other expenses. If you are offering a settlement because of an injury on your premises, though, you’ll want to ensure that offering a settlement won’t further harm the reputation of your business. While you cannot predict the future, you’ll want to be assured that choosing to settle won’t cause more harm than losing a case.

If you’re going to settle, you need to have a firm idea of the practical and financial impacts of doing so. Additionally, depending on whether you are the plaintiff or the defendant, settling will cost you drastically different amounts of money. No matter what side of the settlement you’re on, you need to understand that there will be consequences for making this choice. Your goal is to ensure that the consequences you face are better than those you’d face if you lost the lawsuit.


Dixie Somers is a freelance writer and blogger for business, home, and family niches. Dixie lives in Phoenix, Arizona, and is the proud mother of three beautiful girls.

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