When a claim settles, the money is paid to the law firm and held in its trust account. Before anything is released, the client gets a settlement statement: one page showing the total, the legal fee, the tax on that fee, every disbursement itemised, every repayment that has to come out, and the balance payable to the client. Nothing leaves trust until the client has read that page and signed it.
The statement is the document to read slowly. It is where every question about the money is answered.
The Money Goes Into a Trust Account First, and It Is the Client’s
Settlement funds do not go into the firm’s own account. They go into a trust account regulated by the law society in each Atlantic province, with mandatory records and annual reporting, and the firm may take money out only for amounts the client has approved.
That structure exists so a client’s money cannot be mixed with the firm’s. The mechanics are the same as those described in the note on what a legal retainer is.
The First Line Is the Gross Settlement
The top of the statement is the whole amount the defendant or its insurer has agreed to pay, before any deduction. It is the figure in the settlement documents, and it should match the release you signed.
If the settlement was reached at mediation, the number will be the one recorded in the memorandum signed that day. Where the file went to judgment instead, the top line is the judgment plus any interest and costs awarded.
The Legal Fee and the Tax on It
On a contingency file the fee is the rate in the signed agreement applied to the settlement, and the statement shows both the rate and the resulting amount. HST is charged on legal fees, and it appears as its own line rather than being folded into the fee.
If the file was billed by the hour, the fee line is the total of the accounts rendered, and any money left in trust from an advance is credited back. The contingency arrangement itself is set out in the note on how a contingency fee works.
Disbursements Are Itemised, Not Summarised
Every out-of-pocket cost the firm advanced appears as its own line: medical records from each provider, each expert report, filing fees, the court reporter, the mediator. Each should correspond to money someone was actually paid, and a client is entitled to ask for the backing invoices.
On a file that needed several expert opinions this is the largest block after the fee. Who carries these while the claim is running is the subject of the note on who pays disbursements.
Repayments Out of the Settlement Come Next
Money already paid to you or on your behalf sometimes has to be accounted for out of the recovery. Which amounts, and whether they are deducted from the claim or repaid from the proceeds, depends on the province and on the benefit.
The usual candidates are accident benefits paid by your own auto insurer, short term or long term disability benefits paid by a group insurer, employer sick pay, workers compensation where it was paid for the same injury, and in some provinces the cost of insured health services. Each has its own rule. At the statement stage, these amounts need to be identified and dealt with before the balance is released, because a repayment discovered afterwards is a problem.
The interaction between accident benefits and a tort claim is set out in the Section B benefits guide.
The Balance Is the Client’s, and It Is Usually Not Taxable
Damages for personal injury are generally not treated as income in Canada, so the balance on the statement is normally received without tax. Interest awarded on a judgment can be treated differently, and disability benefits paid under a policy whose premiums an employer paid are taxable in a way that damages are not.
Ask the question before you plan around the money. Where the amount is large, an accountant’s review answers it, and the general rules are published by the Canada Revenue Agency.
Timing: Why the Money Is Not There the Next Day
Three things have to happen. The release and any settlement documents are signed and delivered. The insurer issues the cheque or transfer, which takes a period set by the settlement terms. The funds clear the trust account before they can be paid out.
Where a claim involves a minor or a person under disability, a court has to approve the settlement first, and the money is normally held in trust for the child until the age of majority. That step adds weeks and it cannot be skipped.
A Structured Settlement Pays Over Time Instead of at Once
On larger claims, part of the settlement can be used to buy an annuity that pays a monthly amount for a fixed term or for life. The payments are ordinarily received free of tax, and the arrangement is irreversible once made.
It suits a client whose injury will limit their earning capacity for decades, and it suits nobody who needs the capital now. The choice belongs to the client and it should be made with advice, not at the mediation table at seven in the evening.
Read the Settlement Statement Before You Sign It
A settlement statement should be legible to the person whose money it is. If a line is unclear, ask. If a disbursement looks wrong, ask for the invoice. If a repayment is listed that you did not know about, ask what rule requires it.
The firm releases nothing until you sign, so ask questions before that. The claim’s original value is a separate question, answered by the medical evidence and the awards courts in the province have made; the guide to general damages covers that in detail.
Where to Ask
Clients of the firm get the statement explained line by line before signing. Anyone who has a statement from elsewhere and does not understand it can bring it in. The Moncton office takes those calls, and what we can do for you sets out the work behind the numbers.