Should You Sign A Confidentiality Agreement When You Settle Your Personal Injury Case?

Are you close to the end of negotiations in your personal injury case? Are you hoping to settle without the additional expense, stress, and time of a trial? Good for you! However, be careful about the terms that you agree to in order to just get this claim settled, especially if the defendant suddenly wants you to sign a confidentiality agreement. There are two good reasons that you may want to think twice about a confidentiality clause.

1.) A confidentiality clause can be breached too easily.

A confidentiality clause requires you to keep certain terms of your settlement private. In some cases, the defendant may just want you to keep the amount of the settlement private. In other cases, you may be required to even keep the fact that you've actually settled the case under wraps - essentially behaving as if the case just went away. Sometimes you'll be asked to keep certain facts of the case (if they aren't already publicly known) private as well.

A confidentiality clause is designed to protect the interests of the defense - for whatever reason, they may feel that if word about your case got out it could damage their reputation or maybe even encourage other potential claimants to step forward and file a case.

If you agree to a confidentiality clause and you violate the agreement - even years later - you can be required to pay back the full amount of the settlement, including any part that was already paid to your attorneys. In 2014, a plaintiff told his college-aged daughter about his successful $80,000 settlement. The daughter made one triumphant post about it to the 1,200 online friends on her social media account. The judge found that the plaintiff had violated the confidentiality clause by telling his own daughter about the settlement and the $80,000 case was thrown out.

Consider carefully before you sign anything whether you want to live under the same restrictions and risk an inadvertent (and to your mind, probably harmless) violation of the agreement.

2.) A confidentiality clause can make your entire settlement taxable. 

A confidentiality clause is a serious limitation on your right to free speech. That means that it is something that has value - and you can bargain for additional payment in order to give up that free speech. 

The majority of proceeds from personal injury cases are not taxable. (Though there are exceptions to that rule that you should always discuss with an accountant or tax attorney.) However, any part of the settlement that is deemed to be payment for your confidentiality is taxable. 

If the agreement doesn't spell out the exact amount that's being paid for confidentiality, the IRS can attribute any "just or fair amount" out of the settlement to the confidentiality clause and tax it. It did just that in a case involving NBA player Dennis Rodman and an injured cameraman.

It's even possible that the IRS will determine that the entire settlement is in exchange for your silence - rather than for any actual injury. At that point, the entire award would be taxable income. 

Every lawsuit is different, and your attorney may advise you to accept a confidentiality agreement in order to settle a case for a higher amount or to avoid the risks of a trial. However, make sure that you think your options through carefully and that you fully understand the potential problems you could face because of such an agreement. For more information, contact a firm such as Stapleton Law Offices.