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When a settlement is awarded to a plaintiff do the funds gain interest? I sued a city in New Jersey. We settled in September 2015, the funds were held then transferred from the city's private attorney's trust fund to me on Feb 15 2016. Is it standard practice to hold funds in an interest bearing account? There was no post settlement litigation or appeal, settled out of court. Who gets the interest?

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If this is a judgement of the court then you get interest from the date the debt was due to the date of the judgement at the pre-judgement rate and from the date of the judgement until it is paid at the post-judgement rate, which happen to be the same 0.25% + 2% per annum simple interest.

If this is a private agreement (i.e. not a judgement debt) then you get whatever you agreed about interest.

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When a settlement is awarded to a plaintiff do the funds gain interest?

I sued a city in New Jersey. We settled in September 2015, the funds were held then transferred from the city's private attorney's trust fund to me on Feb 15 2016.

First of all, settlements are not awarded.

Judgments are awarded by a court and bear post-judgment interest by law.

Settlements are mutually agreed contracts to end lawsuits and are governed by the agreement of the parties, usually with no interest due at all up to an agreed date of payment, and then with the default statutory rate of interest due if the person making the payment breaches the contract by missing the deadline, just like any other breach of contract.

Is it standard practice to hold funds in an interest bearing account?

The settlement agreement will often not specify how funds are handled once they go from the opposing party to your lawyer.

Your lawyer would almost never participate in receiving any interest on client funds held by the lawyer (for reasons associated with a lawyer's fiduciary duties to a client).

The default practice is for an attorney to hold settlement funds in an attorney trust account sponsored by a state program that pays all interest to a non-profit specified by law. This is done when client funds are small in amount, or are held only for a short period of time.

If the amount of interest that would be earned over the anticipated time that the funds would be held by a lawyer are significant due to the duration that the funds will be held combined with the amount of funds that will be held, then the better practice, is to hold the funds in a separate interest bearing account for the benefit of the client until they are dispersed.

If the amount of funds is very large (e.g. several million dollars), even a couple of months could justify setting up a special interest bearing account for these funds. If the amount of funds is modest (e.g. a few hundred thousand dollars), a special interest bearing account would be justified if the funds were being held for a longtime (many months or years), but not if the funds were only held briefly. The higher interest rates are, the more likely it is that an interest bearing account should be set up to hold the funds. In contrast, when interest rates are low (for FDIC insured demand deposits which would be the default standard), interest bearing accounts are less often established for moderate amounts of client funds held for middling periods of time.

The analysis is basically a matter of comparing the interest that the lawyer anticipates would be earned over the time that the funds would be held with the cost (including attorney and paralegal time, as well as banking charges) involved in setting up the special account.

There isn't any hard and fast cutoff. If tens of thousands of dollars of interest would be earned for the time the funds were held, most people would agree that a special interest bearing account should be set up. If a few hundred dollars of interest or less would be earned for the time the funds were held, usually an attorney wouldn't set up a special interest bearing account. But there is a lot of gray area in between where different lawyers could reasonably do different things, and even those estimates aren't bright line rules.

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