Most states have certain protections in place for those selling structured settlement payments to a third party. All state laws regarding such transfers differ slightly. In general, however, all state regulations require:
You can learn more about your state’s structured settlement protection act below:
CALIFORNIA CODES
INSURANCE CODE
SECTION 10134-10139.5
10134. For the purposes of this article, the following terms have
the following meanings:
(a) “Buyer’s first right of refusal” means any provision in the
transfer agreement or related documents that obligate the payee to
give to the buyer the first choice or option to purchase any
remaining structured settlement rights belonging to the payee.
(b) “Dependents” include the payee’s spouse and minor children and
all other family members and other persons for whom the payee is
legally obligated to provide support, including alimony.
(c) “Discounted present value” means the fair present value of
future payments, as determined by discounting those payments to the
present using the most recently published applicable federal rate for
determining the present value of an annuity, as issued by the United
States Internal Revenue Service.
(d) “Effective equivalent interest rate,” with respect to a
transfer of structured settlement payment rights, means the
annualized rate of interest on the net advance amount, calculated by
treating the transferred structured settlement payments as if they
were installment payments on a loan, with each payment applied first
to accrued unpaid interest and then to principal.
(e) “Expenses” means all broker’s commissions, service charges,
application or processing fees, closing costs, filing or
administrative charges, legal fees, notary fees and other
commissions, fees, costs, and charges that a payee would have to pay
to transfer the structured settlement payment rights of a structured
settlement agreement or that would be deducted from the gross
consideration that would be paid to the payee in connection with the
transfer of the structured settlement payment rights of a structured
settlement agreement.
(f) “Independent professional advice” means advice of an attorney,
certified public accountant, actuary, or other licensed professional
adviser meeting all of the following requirements:
(1) The adviser is engaged by a claimant or payee to render advice
concerning the legal, tax, or financial implications of a structured
settlement or a transfer of structured settlement payment rights.
(2) The adviser’s compensation for rendering independent
professional advice is not affected by occurrence or lack of
occurrence of a settlement or transfer.
(3) A particular adviser is not referred to the payee by the
transferee or its agent, except that the transferee may refer the
payee to a lawyer referral service or agency operated by a state or
local bar association.
(g) “Interested parties” means, with respect to a structured
settlement agreement, the payee, the payee’s attorney, any
beneficiary designated under the annuity contract to receive payments
following the payee’s death, the annuity issuer, the structured
settlement obligor, and any other party who has continuing rights or
obligations under the structured settlement agreement. If the
designated beneficiary is a minor, the beneficiary’s parent or
guardian shall be an interested party.
(h) “Payee” means an individual who received tax-free payments
pursuant to a structured settlement agreement.
(i) “Qualified assignment agreement” means an agreement providing
for a qualified assignment within the meaning of Section 130 of Title
26 of the United States Code, as amended from time to time.
(j) “Structured settlement agreement” means an arrangement for
periodic payment of damages established by settlement or judgment in
resolution of a tort claim in which the payment of the judgment or
award is paid in whole, or in part, in periodic tax-free payments
rather than a lump-sum payment. A structured settlement agreement
entered into pursuant to Section 667.7 of the Code of Civil Procedure
or Section 970.6 or 984 of the Government Code is not subject to the
provisions of this article other than the requirements of Section
10138.
(k) “Structured settlement obligor” means the party that has the
continuing periodic payment obligation to the payee under a
structured settlement agreement or a qualified assignment agreement.
(l) “Structured settlement payment rights” means rights to receive
periodic payments, including lump-sum payments, pursuant to a
structured settlement agreement, whether from the settlement obligor
or an annuity issuer.
(m) “Terms of the structured settlement” include, with respect to
a structured settlement agreement, the terms of the structured
settlement agreement, annuity contract, qualified assignment
agreement, and any order or approval of a court or responsible
administrative authority or other governmental authority authorizing
or approving the structured settlement.
(n) “Transfer” means any sale, assignment, pledge, hypothecation,
or other form of alienation or encumbrance made for consideration.
(o) “Transfer agreement” means the agreement providing for the
transfer, and any other document used to effectuate the transfer,
from the payee to the transferee of structured settlement payment
rights of a structured settlement agreement.
(p) “Transferee” means any person receiving structured settlement
payment rights resulting from a transfer.
10135. (a) This article is only applicable to transfers entered
into on or after January 1, 2000.
(b) Notwithstanding subdivision (a), the changes to this article
made by the act amending this section in the 2001-02 Regular Session
shall only be applicable to transfers entered into on or after
January 1, 2002.
10136. No transfer of structured settlement payment rights, either
directly or indirectly, shall be effective by a payee domiciled in
this state, or by a payee entitled to receive payments under a
structured settlement funded by an insurance contract issued by an
insurer domiciled in this state or owned by an insurer or corporation
domiciled in this state, and no structured settlement obligor or
annuity issuer shall be required to make any payment directly or
indirectly to a transferee, unless all of the following subdivisions
are satisfied:
(a) Ten or more days prior to the effective date of a transfer
agreement, the transferee provides the payee with a separate written
disclosure statement, in at least 14-point boldface type, disclosing
all of the following:
(1) The effective date of the transfer.
(2) The amounts and due dates of the structured settlement
payments to be transferred.
(3) The aggregate amount of the structured settlement payments to
be transferred.
(4) The gross amount of all expenses, if any, to be deducted from
the amount to be paid to the payee in exchange for the payments to be
transferred.
(5) The amount payable to the payee, net of all expenses, in
exchange for the payments to be transferred.
(6) The discounted present value of all structured settlement
payments to be transferred and the discount rate used in determining
that discounted present value.
(7) The effective equivalent interest rate, which shall be
disclosed in the following statement:
“YOU WILL BE PAYING THE EQUIVALENT TO AN INTEREST RATE OF ____ %
PER YEAR.
Based on the net amount that you will receive from us and the
amounts and timing of the structured settlement payments that you are
transferring to us, if the transferred structured settlement
payments were installment payments on a loan, with each payment
applied first to accrued unpaid interest and then to principal, it
would be as if you were paying interest to us of ____ % per year,
assuming funding on the effective date of transfer.”
(8) The quotient (expressed as a percentage) obtained by dividing
the net payment amount by the discounted present value of the
payments.
(9) A statement that the payee should obtain independent
professional advice regarding any federal and state income tax
consequences arising from the proposed transfer, and that the
transferee may not refer the payee to any specific adviser for that
purpose.
(10) A statement of the payee’s irrevocable and nonwaivable right
of rescission pursuant to paragraph (2) of subdivision (b).
(11) The following statement in capital letters: “IF YOU BELIEVE
YOU WERE TREATED UNFAIRLY OR WERE MISLED AS TO THE NATURE OF THE
OBLIGATIONS YOU ASSUMED UPON ENTERING INTO THIS AGREEMENT, YOU
SHOULD REPORT THOSE CIRCUMSTANCES TO YOUR LOCAL DISTRICT ATTORNEY OR
THE OFFICE OF THE ATTORNEY GENERAL.”
(12) If court approval of the transfer agreement is required, all
of the following shall apply:
(A) The effective date of the transfer agreement shall be deemed
to be the date that the agreement was signed by the payee.
(B) The payee shall be advised that payment to the payee pursuant
to the transfer agreement is contingent upon court approval of the
transfer agreement.
(C) The payee shall be advised that payment to the payee pursuant
to the transfer agreement will be delayed up to 30 days or more in
order for the court to review and approve the transfer agreement.
No contract for the transfer of structured settlement payment
rights shall be valid unless the seller has separately acknowledged
that he or she has read all of the disclosures required by this
subdivision.
(b) (1) The transferee provides written notice of the proposed
transfer to all other interested parties 10 or more days prior to the
date specified in the transfer agreement as the date on which the
transfer agreement first becomes binding upon the payee and 60 or
more days prior to the date on which the first payment is due under a
schedule established by the structured settlement agreement.
Notice shall not be required by this paragraph if court approval
of the transfer is required and notice is given pursuant to paragraph
(6) of subdivision (c) of Section 10139.5.
(2) At any time prior to the date on which the transfer agreement
first becomes binding upon the payee, the payee may cancel the
transfer agreement without cost or further obligation, by providing
written notice of cancellation to the transferee.
(3) The notice to interested parties shall include the effective
date of the transfer and identify the structured settlement payment
rights being transferred and the due dates of those payments.
(4) Any notice required by this subdivision shall be deemed to
have been given if addressed to the recipient’s last known address
and deposited, first-class postage prepaid, in the United States mail
not less than five calendar days prior to the date on which the
notice is required to be provided.
(c) The contract for transferring the structured settlement
payment rights does not violate the provisions of Section 10138.
10137. A transfer of structured settlement payment rights is void
unless all of the following conditions are met:
(a) The transfer of the structured settlement payment rights is
fair and reasonable and in the best interest of the payee, taking
into account the welfare and support of his or her dependents.
(b) The transfer complies with the requirements of this article
and will not contravene other applicable law.
(c) Notice is given in compliance with subdivision (b) of Section
10136 or, when applicable, court approval of the transfer is required
and notice is given pursuant to paragraph (6) of subdivision (c) of
Section 10139.5.
10138. (a) A transfer agreement, as defined in subdivision (o) of
Section 10134, shall not include any provision described in the
paragraphs below. Any inclusion of a prohibited provision, with
respect to a seller who is a California resident, shall make the
contract void and unenforceable.
(1) Any provision that waives the seller’s right to sue under any
law, or in which the seller agrees not to sue, or that waives
jurisdiction or standing to sue under the contract.
(2) Any provision that requires the seller to indemnify and hold
harmless the buyer, or to pay the buyer’s costs of defense, in any
claim or action brought by the seller or on the seller’s behalf
contesting the sale for any reason.
(3) Any provision that waives benefits or rights conferred by law
with respect to garnishment of wages.
(4) Any provision providing that the contract is confidential or
proprietary, belonging to the buyer.
(5) Any provision in which the seller stipulates to a confession
of judgment.
(6) Any provision requiring the seller to pay the buyer’s attorney’
s fees and costs if the purchase agreement is not completed.
(7) Any provision requiring the seller to pay any tax liability
arising under the federal tax laws, other than the seller’s own tax
liability, if any, that results from the transfer.
(8) Any provision providing for brokerage fees incurred in the
contract to be deducted from the purchase price disclosed pursuant to
paragraph (5) of subdivision (a) of Section 10136.
(9) Any forum selection provision providing for jurisdiction to be
in a court outside of California for any action arising under the
contract.
(10) Any choice-of-law provision that provides for controlling law
to be other than California law in any action arising under the
contract.
(11) A provision that provides the transferee with a security
interest or collateral interest in any structured settlement payment
rights that exceed the actual dollar amount of the structured
settlement payment rights being transferred.
(12) Any provision that creates a “buyer’s first right of refusal”
to purchase any remaining structured payment rights that the payee
may desire to sell in the future.
(b) The provisions in this section may not be waived by agreement
of the parties.
10139. (a) At the time notice is provided to interested parties
pursuant to subdivision (b) of Section 10136, or subdivision (c) of
Section 10137, or, when applicable, at the time of filing a petition
pursuant to paragraph (5) of subdivision (c) of Section 10139.5 for
court approval when court approval of the transfer agreement is
required, the transferee shall file with the Attorney General a copy
of the transferee’s petition for approval, a copy of the written
disclosure statement required by subdivision (a) of Section 10136, a
copy of the transfer agreement as defined in subdivision (o) of
Section 10134, a copy of the annuity contract, a copy of any
qualified assignment agreement, a copy of the underlying structured
settlement agreement, a copy of any order or approval of any court or
responsible administrative authority authorizing or approving the
structured settlement, a copy and proof of notice to the interested
parties, and a verified statement from the transferee stating that
all of the conditions set forth in Sections 10136, 10137, and 10138
have been met.
(b) The Attorney General may, but is not required to, review any
transfer agreement in order to ensure that the transfer meets the
requirements of this article.
(c) The Attorney General may charge a reasonable fee for the
filing of the transfer agreement as provided in this section. The
fee shall be paid by the transferee.
10139.1. Any subsequent transfer of any additional structured
settlement payments between the payee and transferee may be made only
after compliance with all of the requirements of this article.
10139.2. Any notice required by this article shall be deemed to
have been given if addressed to the recipient’s last known address
and deposited, first class postage paid, in the United States mail
not less than five calendar days prior to the date on which notice is
required.
10139.3. (a) None of the provisions of this article may be waived.
(b) Compliance with the requirements set forth in Sections 10136,
10137, and 10138 shall be solely the responsibility of the transferee
in any transfer of structured settlement payment rights.
(c) A payee who proposes to make a transfer of structured
settlement payment rights shall not incur any penalty, shall not
forfeit any application fee or other payment, and shall not otherwise
incur any liability to the proposed transferee based on any failure
of that transfer to satisfy the requirements of Sections 10136,
10137, and 10138.
(d) The transferee and any assignee shall be liable to the
structured settlement obligor and the annuity issuer for any and all
taxes incurred as a consequence of the transfer or as a consequence
of any failure of the transferee or assignee to comply with this
article or the terms of the structured settlement agreement.
(e) Neither the annuity issuer nor the structured settlement
obligor may be required to divide any structured settlement payment
between the payee and any transferee or assignee or between two or
more transferees or assignees.
10139.4. A violation of this article by a transferee shall
constitute an unfair business practice pursuant to Chapter 5
(commencing with Section 17200) of Part 2 of Division 7 of the
Business and Professions Code and shall be subject to the penalties
and other remedies of that chapter.
10139.5. (a) This section shall become operative only upon
enactment into law of amendments to the Federal Internal Revenue Code
to impose an excise tax on a transfer of structured settlement
payment rights if the transfer is not approved by a court.
This section shall remain in effect only until January 1, 2005,
and as of that date is repealed, unless a later enacted statute, that
is enacted before January 1, 2005, deletes or extends that date.
(b) A direct or indirect transfer of structured settlement payment
rights is not effective and a structured settlement obligor or
annuity issuer is not required to make any payment directly or
indirectly to any transferee of structured settlement payment rights
unless the transfer has been approved in advance in a final court
order based on express findings by the court that:
(1) The transfer is in the best interest of the payee, taking into
account the welfare and support of the payee’s dependents.
(2) The payee has been advised in writing by the transferee to
seek independent professional advice regarding the transfer and has
either received that advice or knowingly waived that advice in
writing.
(3) The transferee has provided the payee with a disclosure form
consistent with Section 10136 and the transfer agreement complies
with Section 10138.
(4) The transfer does not contravene any applicable statute or the
order of any court or other government authority.
(c) Following a transfer of structured settlement payment rights
under this article:
(1) The structured settlement obligor and the annuity issuer
shall, as to all parties except the transferee, be discharged and
released from any and all liability for the transferred payments.
(2) The transferee shall be liable to the structured settlement
obligor and the annuity issuer if the transfer contravenes the terms
of the structured settlement for the following:
(A) Any taxes incurred by those parties as a consequence of the
transfer.
(B) Any other liabilities or costs, including reasonable costs and
attorneys’ fees, arising from compliance by those parties with the
order of the court or arising as a consequence of the transferee’s
failure to comply with this article.
(3) Neither the annuity issuer nor the structured settlement
obligor may be required to divide any periodic payment between the
payee and any transferee or assignee or between two, or more,
transferees or assignees.
(4) Any further transfer of structured settlement payment rights
by the payee may be made only after compliance with all of the
requirements of this article.
(5) An application under this article for approval of a transfer
of structured settlement payment rights shall be made by the
transferee and brought in the county in which the payee resides if
the payee is a resident of California. If the payee is not a
resident of California, the application for approval of a transfer of
structured settlement payment rights shall be made by the transferee
and may be brought as follows:
(A) In the county in which the payee resides.
(B) In the county in which the structured settlement obligor or
the annuity issuer maintains its principal place of business.
(C) In any court that approved the structured settlement
agreement.
(6) Not less than 20 days prior to the scheduled hearing on any
application for approval of a transfer of structured settlement
payment rights under this article, the transferee shall file with the
court and serve on all interested parties a notice of the proposed
transfer and the application for its authorization, and shall include
the following with that notice:
(A) A copy of the transferee’s application.
(B) A copy of the transfer agreement.
(C) A listing of each of the payee’s dependents, together with
each dependent’s age.
(D) A copy of the disclosure required in subdivision (a) of
Section 10136.
(E) A copy of the annuity contract.
(F) A copy of any qualified assignment agreement.
(G) A copy of the underlying structured settlement agreement.
(H) Notification that any interested party is entitled to support,
oppose, or otherwise respond to the transferee’s application, either
in person or by counsel, by submitting written comments to the court
or by participating in the hearing.
(I) Notification of the time and place of the hearing and
notification of the manner in which and the time by which written
responses to the application must be filed, which may not be less
than 15 days after service of the transferee’s notice, in order to be
considered by the court .
(7) All court costs and filing fees shall be paid by the
transferee.
(8) No later than the time of filing the petition for court
approval, the transferee shall advise the payee of the payee’s right
to seek counsel in connection with the transferee’s petition for
court approval of the transfer agreement, and shall further advise
the payee that if the payee retains counsel in connection with a
petition for an order approving the transfer agreement, that the
transferee shall pay the payee’s counsel’s fees, regardless of
whether the transfer agreement is approved, in an amount not to
exceed one thousand five hundred dollars ($1,500).
(d) The transferee shall, within 30 days of obtaining final court
approval, file with the Attorney General a copy of any final court
order approving or denying the transfer of structured settlement
payment rights. The transferee shall specify in written form the
following information:
(1) Whether the payee was represented by an attorney and the costs
paid or owed to that attorney by the transferee and, if known, by
the payee.
(2) The county and judicial district where the court approval was
filed.
(3) For approved agreements, whether any changes were made to the
transfer agreement.
(4) For rejected agreements, the general category for the
rejection.
(5) The total court costs and attorney’s fees paid by the
transferor to obtain court approval.
(6) The purchase prices of the transfer agreement and its
effective interest rate.
(e) Not later than March 31, 2004, the Attorney General shall file
a report with the Legislature to assist in the evaluation of the
impact of this section. The report shall include, based on
information the Attorney General has received from transferees, the
following:
(1) The number of petitions filed.
(2) The number of petitions approved without change.
(3) The number of petitions approved with changes and the general
category of the changes requested.
(4) The number of petitions rejected and the general categories
for rejection.
(5) The range of purchase prices, mean purchase price, median
purchase price mean, effective interest rate and median effective
interest rate.
(6) The number of petitions in which the payee was represented by
counsel, and if known, the amount of compensation paid to counsel by
the transferee and the payee.