No Interest In Annuity, So Nothing To Assign

No Interest In Annuity, So Nothing To Assign

Under structured settlement protection acts, a transfer of an individual payee’s right to receive structured settlement payments becomes legally effective only when and if a court approves the transfer.

Those forty-eight states with structured settlement protection acts recognize, in those statutes, that the property being transferred by such court approval is the right to receive payments under the structured settlement agreement – and not under the annuity that is the asset that typically funds the payments.

That recognition items from the terms of structured settlement arrangements, which are established, in the normal course of business, in order for the parties to the settlement to take advantage of favorable federal tax treatment – treatment that is dependent upon the payee having no ownership interest in the annuity.

Sometimes, the issue – of ownership in the annuity versus ownership of the right to receive structured settlement payments – arises in litigation.  A recent judicial opinion in a bankruptcy matter is one of the latest instances where a court has addressed the issue.

In re Everett, Case No. 11-51175 Chapter 7 Adversary No. 11-5207, 2014 Bankr. LEXIS 910 (Bankr. W.D. La. Mar. 10, 2014), involved claims by a factoring company – a company that purchases structured settlement payment rights – in a bankruptcy proceeding involving a payee who had filed for bankruptcy.  

In Everett, the United States Bankruptcy Court for the Western District of Louisiana determined that the payee, Everett, “had no legal interest in the Annuity Contract that could be assigned” and that the annuity owner has “the exclusive right to direct annuity payments” – and therefore a “purported assignment [to the factoring company] of Everett’s rights under the Annuity Contract is invalid”.

The Everett opinion does not mention the structured settlement protection acts (SSPAs) of Louisiana or Texas, but grounds its rulings on the contractual language at issue.  Had the court considered the SSPAs, it might have reached a different decision concerning the factoring company’s ability to recover a $1,000.00 “loan” from the factoring company to the payee.  That would be the case if the SSPAs applied, given that any such “loan” would be invalid without court approval – and, indeed, any payments made by a factoring company prior to court approval, or in the absence of any such approval, must be treated by law as a gift.

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