Reviewing a settlement check from opposing counsel requires careful attention to both procedural and substantive details before depositing or endorsing it. The first step is to confirm that the check matches the terms outlined in the settlement agreement, including the amount, payee names, and any conditions tied to disbursement. A mismatch between the check and the agreement can signal an error or a potential attempt to alter the terms post-agreement, which is why attorneys often recommend holding the check until the full settlement terms are verified. It is also important to check whether the check is accompanied by a release or satisfaction document, as some jurisdictions require these to be signed and returned before the check becomes negotiable.
The next consideration involves understanding the source and validity of the funds. If the settlement involves a large corporation or insurer, the check should originate from a legitimate bank account tied to that entity. Verifying the routing and account numbers through independent channels, rather than relying solely on the check itself, can help protect against fraud. In high-profile cases such as mass tort settlements like those involving Roundup or Suboxone, checks may be issued by third-party administrators or trustees, and confirming their authority to distribute funds is essential.
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Timing plays a significant role in how to handle a settlement check. Some checks carry expiration dates, and failing to deposit them within the specified window can result in forfeiture of the funds. Courts have dismissed claims where plaintiffs delayed endorsement without justification, particularly when the delay prejudiced other parties. Additionally, if the settlement is part of a class action or involves multiple creditors, there may be liens or priority disputes that affect how and when the check can be cashed.
Another key factor is tax implications. Settlement proceeds are not always tax-free, and the characterization of the payment—whether for physical injury, defamation, lost wages, or punitive damages—affects how it is reported to the IRS. Consulting a tax professional before depositing the check ensures compliance with reporting requirements and avoids unexpected liabilities. For example, punitive damages are generally taxable, while compensation for personal physical injuries often is not.
It is also wise to examine whether the check includes language indicating it is being issued subject to court approval. In many jurisdictions, especially in complex litigation or class actions, the court must sign off on the final settlement before funds are distributed. Depositing a check prematurely, before judicial confirmation, could complicate the case or expose the recipient to legal challenges. This is particularly relevant in cases like the Capital One data breach settlement or the interchange fee antitrust litigation, where court oversight remains active even after initial agreements are reached.
Common mistakes when reviewing settlement checks include signing blank endorsements, failing to read accompanying correspondence, or assuming that the check reflects the final net amount owed. Some checks may reflect gross awards before attorney fees, court costs, or lien resolutions are deducted. Requesting a detailed breakdown of deductions helps ensure transparency and prevents surprises. Additionally, depositing a check into an account without sufficient funds coverage can lead to bounced checks and damaged credibility with the opposing side.
When uncertainty arises, especially regarding the legitimacy of the check or the enforceability of the underlying agreement, seeking legal counsel is advisable. Attorneys can verify the authenticity of the settlement documents, negotiate corrections if errors are found, and advise on strategic decisions such as whether to accept or reject the offer entirely. This is especially true in cases involving structured settlements, where payments are spread over time and governed by specific legal frameworks that limit the ability to sell future installments.
Finally, maintaining organized records of all communications related to the settlement check is critical. Keeping copies of the signed agreement, email exchanges, and bank deposit slips creates a clear paper trail that can be referenced if disputes arise later. Courts and regulatory bodies often scrutinize settlement distributions, and having documentation readily available streamlines any necessary audits or reviews.
In summary, how to review a settlement check from opposing counsel involves confirming alignment with the settlement agreement, validating the source of funds, understanding timing constraints, evaluating tax consequences, and ensuring proper court approval where required. Taking these steps methodically reduces risk and supports a smooth resolution of the matter.