How to disburse a personal injury settlement without touching the wrong account
The settlement check arrives and eight things have to happen in order. Get the order wrong and you have spent client money, which is a bar complaint rather than a bookkeeping error.
A settlement check is the only moment in a personal injury case when you hold a large amount of somebody else's money. Everything before it is work. The disbursement is custody, and the rules governing it are stricter than the rules governing anything else you do.
Most disbursement problems are not theft. They are sequence errors: paying somebody in the right amount at the wrong time, out of an account that had not yet received cleared funds. The order below is the order that keeps you out of trouble.
Eight steps, in this order.
Deposit into trust
The settlement check goes into your IOLTA or client trust account. Not operating, not a personal account, and not "temporarily" into operating so you can split it later. Depositing client funds into an operating account is commingling on the day it happens, whatever you do next.
Wait for the funds to clear
A deposit is not a clearance. If you disburse against a settlement check that has not cleared, the money leaving your trust account belongs to your other clients, which is a shortfall even if it corrects itself a week later. Get confirmation from the bank rather than from your online balance.
Identify every claim on the money
Health insurer subrogation, Medicare conditional payments, Medicaid, ERISA plan reimbursement, med-pay carriers, provider liens, letters of protection, child support arrears in some states, and any referral fee you agreed to. Anything you miss now, you pay for later out of your own pocket.
Get reductions in writing
Negotiate the balances down, then get the final number confirmed in writing before it goes on the statement. A verbal reduction that a provider later disputes leaves you holding the difference in front of your client.
Prepare the settlement statement
Gross recovery at the top, then your fee, then itemized costs, then every lien at its final figure, then the net to your client. The arithmetic has to come from the ledger rather than from somebody retyping numbers into a template.
Have the client review and sign
Your client signs the accounting before any money moves. This is where you explain why the net is smaller than the number they have been quoting to their family for two years, and having it on paper protects both of you.
Disburse from trust to each payee
Write separate checks against the trust account, one per payee. Your fee moves from trust to operating as its own transaction with its own record. Do not pay firm expenses directly out of trust.
Zero the matter and reconcile
After the last check clears, the client's balance on the matter should be exactly zero. If a residue sits there, find out what it is now, while you still remember the case.
Client trust ledger
ReconciledOne ledger per client, closing at zero.
A trust account audit does not start with your bank statement. It starts with whether you can produce a ledger for each client showing every dollar that came in and where it went. A settled matter that closes at zero, with a signed statement matching the disbursements, answers the question before it gets asked.
- Per-client balances, not one pooled number. The account total tells you nothing about whether one client's funds paid another's disbursement.
- Three-way reconciliation. Bank statement, trust ledger, and the sum of client balances have to agree, monthly in most jurisdictions.
- The statement and the checks match. If the signed accounting says $90,550 and check 007 was written for $90,505, you will find it at audit rather than now.
The mistakes that draw complaints.
Disbursing against uncleared funds
You deposit the settlement Monday and cut the client's check Tuesday because they have waited long enough. Until that deposit clears, the money funding your check belongs to other clients. Bar counsel treats a shortfall as a shortfall whether or not it lasted.
Paying yourself before the liens
Taking your fee first and sorting out a Medicare conditional payment afterwards can leave you personally liable for the reimbursement. Federal law lets Medicare recover from the attorney, not only the client. Resolve the claims, then take the fee.
Netting the fee on the way in
Depositing the settlement into operating, keeping the fee, and paying the client from there feels like fewer steps. It is commingling, it destroys the trust ledger you would need to defend yourself, and it is the pattern that turns a fee dispute into a disciplinary matter.
Common questions about disbursement.
How long do I have to hold settlement funds before disbursing?
Can I take my fee out of the trust account directly to pay a firm expense?
What if a lien is still unresolved when everything else is ready?
Does the client have to sign the settlement statement?
What happens to a small residual balance on the matter?
The software that does this for you.
CaseFuze handles the ledger, the statement, and the checks. $49 per user per month.