Who Cashes Settlement Checks and How Does the Process Work?
Navigate the process of receiving and accessing funds from a legal settlement. Learn how settlement checks are handled, from initial receipt to your bank account.
A settlement check represents a financial award received following the resolution of a legal claim or dispute. This payment serves as compensation for various damages, which can include economic losses like medical expenses and lost wages, as well as non-economic damages such as pain and suffering. Understanding the process of cashing these checks is important for recipients to access their awarded funds.
Identifying the Payee on the Check
The individual or individuals named as the payee on a settlement check determine who is authorized to cash or deposit it. When a check is made out solely to the individual client, that person is typically the only one required to endorse it.
Many settlement checks, particularly in personal injury cases, are made out jointly to both the client and their attorney. This common practice ensures both parties endorse the check, often to cover the attorney’s fees and any outstanding liens or costs. In situations where multiple individuals are co-claimants, the check might be issued to all named parties, requiring each person’s endorsement. For checks intended for minors or incapacitated individuals, a guardian, conservator, or a specific court order is usually necessary to authorize the funds.
Understanding Settlement Check Characteristics and Cashing Options
Settlement checks can originate from different sources. Some checks are issued directly by an insurance company or the defendant. Other checks may be issued from an attorney’s client trust account, meaning the funds have already passed through the attorney’s regulated account. Checks from a trust account are generally drawn on a specific bank, while insurance checks might be drawn on a larger financial institution.
Several venues are available for cashing or depositing a settlement check. Utilizing your own bank where you have an established account is often the most straightforward method. It is also possible to cash a check at the bank it is drawn on, even if you do not have an account there, though they may require identification and could charge a fee. Check cashing services offer another option, but they typically charge higher fees, sometimes up to 10% of the check amount, and require valid identification. Banks generally require valid photo identification, such as a driver’s license or passport, and may place holds on large deposits.
Steps for Cashing or Depositing Your Settlement Check
Cashing or depositing a settlement check involves several procedural steps. First, gather valid government-issued photo identification, such as a driver’s license, state ID, or passport, as this will be required by any financial institution. The check must be properly endorsed by signing the back in the designated area. If the check is made out to multiple parties, all named payees must typically endorse the check.
When deciding whether to deposit the check into an account or seek immediate cash, consider that banks may place holds on large deposits. For instance, banking regulations allow for holds on amounts exceeding $6,725, which can delay the availability of funds for several business days. If the settlement is for a minor or an incapacitated individual, presenting court orders or guardianship documents will be necessary to process the check.
The Attorney’s Role in Settlement Check Disbursement
When a settlement is reached, the attorney typically receives the initial settlement check directly from the defendant or insurance company. Upon receipt, the attorney is ethically and legally required to deposit these funds into a dedicated client trust account, often known as an Interest on Lawyers’ Trust Account (IOLTA). This practice ensures that client funds are kept separate from the law firm’s operating funds, preventing commingling.
After the check clears, which can take several business days, the attorney deducts their agreed-upon legal fees and any litigation costs from the trust account. The attorney also pays any outstanding liens, such as medical bills or subrogation claims, from these funds. Only after these deductions are made does the attorney issue a separate check from the trust account to the client for their net share of the settlement.