Settlement Disbursement

What is a settlement disbursement?

A settlement disbursement is the distribution of settlement proceeds from a client trust account: medical liens and other third-party claims, case costs advanced by the firm, the attorney fee, and the client's net recovery. The firm is handling a large sum belonging to the client and to third parties with enforceable claims against it. Disbursing in the wrong order or the wrong amount creates liability well beyond a bookkeeping error.

Sequencing a disbursement

Deposit the settlement check into trust and wait for it to clear, which for a large check can take longer than the provisional credit suggests. Identify and resolve every lien and subrogation claim before distributing, because paying the client first and negotiating liens afterward leaves the firm exposed if the funds are gone. Then pay costs, the attorney fee per the fee agreement, and the client's net. Provide a written settlement statement showing every line.

Where firms get caught

Disbursing against an uncleared deposit is the classic error; if the check is returned, other clients' funds have covered your disbursements. Unresolved medical liens are the second, since providers and insurers can pursue the firm directly. A third is calculating the contingency fee on the wrong base, net or gross of costs, which the fee agreement should settle explicitly. Have the client sign the settlement statement before funds move.