Settlement Disbursement Statement: How Personal Injury Firms Pay Out a Settlement

What is a settlement disbursement statement?

You will also see it called a settlement disbursement sheet or a settlement statement. In a personal injury (PI) firm, the meaning is simple: disbursement is paying the money out of trust, and the statement is the written account of where each dollar went.

The rule behind it is the contingent fee rule. The fee agreement has to be in writing and signed by the client, and it has to say how the fee is figured and which expenses come out of the recovery. At the end of the matter, the lawyer owes the client the written statement described above.

The ABA records comment adds that settlement statements issued to the client belong in the records a firm keeps. You can read that in the comment to Rule 1 of the ABA Model Rules on Client Trust Account Records.

What does a settlement disbursement statement list?

The rule sets the minimum: outcome, amount remitted, and how it was figured. In practice, "how it was figured" means a table. Here is a common layout.

Example figures, not a real case.

The deductions add up to $53,000.00, and $90,000.00 less $53,000.00 is $37,000.00. If your statement does not foot like that, it is not ready.

Each line should trace to a document: the fee agreement, the cost records, or a provider or lienholder letter.

How do liens and third party claims change the statement?

They decide what the client receives. A creditor can have a lawful claim on a recovery. [Comment [4] to ABA Rule 1.15](https://www.americanbar.org/groups/professional_responsibility/publications/model_rules_of_professional_conduct/rule_1_15_safekeeping_property/comment_on_rule_1_15/) uses a lien on a personal injury recovery as its example. Where the claim is not frivolous, the lawyer must refuse to hand the money to the client until the claims are resolved, and may ask a court to decide when the dispute has substantial grounds.

California's Rule 1.15 is more specific in its comment [7]. It lists medical liens, statutory liens, prior attorney liens, costs, and fees as examples of possible disputes over who is entitled to funds.

If someone disputes their share, Rule 1.15(e) says the disputed property stays separate until the dispute is resolved. The undisputed portion must be distributed promptly.

For the bigger picture on what trust rules require, see law firm trust accounting. For why only the right money may sit in the account, see commingling client funds.

When does the money have to go out?

The ABA rule says "promptly." Under Rule 1.15(d), when money comes in that a client or third person has an interest in, the lawyer must promptly notify them and promptly deliver what they are entitled to. On request, the lawyer must promptly give a full accounting.

The ABA text does not put a day count on "promptly." Some states do.

California is an example. Absent good cause, the firm must notify the client or other person within 14 days of receiving funds they have an interest in. If undisputed funds are not distributed within 45 days of the funds becoming undisputed, there is a rebuttable presumption of a violation, absent good cause or a written agreement to keep holding them.

Check your state bar for your number.

How to disburse a settlement from trust

Steps 1, 6, and 9 are general steps for any firm. The rest are my own practice.

1. Deposit and confirm the funds cleared. The settlement goes into the trust account. Under the ABA records rules, receipts are deposited intact, with enough detail to identify each item. Confirm the deposit has cleared before any payment is prepared, and post it to the client's ledger.
2. Read each reduction or payoff letter. Every provider or lienholder payment comes from its own letter. I read the letter for 4 things: who to pay, where to mail it, the approved amount, and the letter's reference or account number.
3. Render the page as an image before calling any field blank. Some PDF letters have details typed on top of the page as a text box, and text extraction misses them. If a field looks empty, I look at the page as an image first.
4. Use the stamped payee block when the typed line is blank. If the typed "pay to" line is empty but the letter carries a stamped payee block, the stamp is the source. The stamped name and address must match the vendor already on file. If they do not match, the payment stops for review.
5. Write the check memo from the letter. The format is [Client] - Medical - Reference No: [number], using the reference number from the provider's letter. If the letter has no reference number, I leave that part off. I do not guess a number.
6. Prepare the statement. The statement shows the outcome, the amount remitted to the client, and how that amount was determined: gross settlement, fee per the agreement, case costs, and each provider payment. The lawyer gives it to the client under Rule 1.5(c).
7. Get human sign off before any check goes out. Nothing goes out until a human reviews it and I sign off. Rule 2 of the ABA trust records rules also says withdrawals go by check to a named payee, never to cash, or by authorized electronic transfer, and only a lawyer admitted in the jurisdiction, or someone under that lawyer's direct supervision, may authorize transfers.
8. Record each payment against the client's ledger and confirm it ends at zero. After the last payment, the balance should be 0.00, never below. The exception is a disputed amount held in trust, which stays separate under Rule 1.15(e). A negative ledger means 1 client's money covered another client's cost, and I explain and fix it in the same month.
9. Keep the statement with the file. Keep the statement, the letters, and the check records together. The ABA model says to keep trust records for a number of years after the representation ends, and each state fills in its own number. Check yours.

For how the ledger ties to the bank each month, see 3 way reconciliation. If your books are in QuickBooks Online, QuickBooks Online for law firms covers how Intuit describes recording these payments.

In short: the letters decide who gets paid, the statement shows the math, and the ledger proves nothing is left over.

What are the most common settlement disbursement mistakes?

• Paying from the wrong source. The payee, address, and amount come from that provider's current letter. Not from an old payment, a vendor list, or a guess.
• Guessing a blank field. A blank on a PDF is not always blank. Render the page as an image, then decide.
• A memo with no reference. When the letter has a reference number, it belongs in the memo. When it has none, the memo leaves it off.
• A stamped payee that does not match the vendor on file. Do not send it. Stop and review it.
• Leaving the client ledger negative. Bank and books can agree while 1 client's ledger is below zero. That is the 3 way check catching a problem.

FAQ

What is a settlement disbursement sheet?

It is another name for the settlement disbursement statement. It is the written account of how a settlement was paid out: the gross amount, the fee, the costs, each provider or lienholder payment, and what the client receives. The ABA rule calls it a written statement of the outcome and the amount remitted to the client.

What must a contingent fee closing statement show?

Under ABA Model Rule 1.5(c), the lawyer gives the client a written statement at the end of the matter. It shows the outcome and, if there was a recovery, the amount remitted to the client and how that amount was determined. The fee agreement behind it must be in writing, signed by the client, and state how the fee is figured and whether expenses come out before or after the fee is calculated.

What if a lienholder disputes the amount?

The disputed money stays in trust until the dispute is resolved. Under ABA Rule 1.15(e), the undisputed portion must be distributed promptly. Under Comment [4], if a third party's claim is not frivolous, the lawyer must refuse to hand the money to the client until it is resolved, and may ask a court to decide when the grounds are substantial.

How long does the law firm hold the settlement money?

The ABA rule says to deliver what people are entitled to promptly, and to hold disputed funds until the dispute is resolved. It sets no day count. California adds numbers: notice within 14 days of receipt, and a rebuttable presumption of a violation if undisputed funds are not distributed within 45 days of the funds becoming undisputed.

Does the settlement statement have to be kept?

Yes, as a record. The ABA records comment lists settlement statements issued to the client as records to keep. The retention period is a number each state fills in, so check your state bar.