Pre-settlement funding does not reduce your attorney's fee, but it changes how and when you pay it

Pre-settlement funding is a cash advance against your expected settlement or judgment. Your attorney's fee comes out of that settlement or judgment separately. The funding company takes its cut first, then your attorney takes their percentage, then you get what remains. If you do not win or settle, you owe the funding company nothing — but you still owe your attorney under whatever fee agreement you signed.

The real effect on attorney fees is timing and cash flow, not the amount itself. Without funding, you might settle early because you need money now, which could mean accepting less and paying your attorney a smaller percentage of a smaller sum. With funding, you can afford to wait for a better settlement, which may mean paying your attorney more in absolute dollars even though the percentage stays the same.

Key Takeaways

  • Pre-settlement funding and attorney fees are separate debts paid from the same settlement check, with the funding company taking their portion first.
  • Your attorney's percentage fee does not change because you took funding, but the total amount they receive may increase if funding lets you hold out for a larger settlement.
  • If your case loses, you owe the funding company nothing, but you still owe your attorney under your original fee agreement unless they worked on contingency.
  • Some attorneys will not allow clients to take pre-settlement funding because it complicates the settlement process or conflicts with their own fee structure.
  • You must disclose the funding to your attorney before taking it, because they need to know about all debts that will be paid from the settlement.

How the money flows when you settle

When your case settles, the settlement check goes to your attorney's trust account. Your attorney then pays out in this order: first, any liens or medical bills that must be paid by law; second, the pre-settlement funding company's principal plus their fee; third, your attorney's contingency fee (usually 25 to 40 percent of what remains); fourth, any court costs or informed witness fees; and finally, the balance to you.

The funding company's fee is separate from your attorney's fee. If you borrowed $5,000 at a cost of $1,500, the funding company gets $6,500 from the settlement. Your attorney then takes their percentage of what is left. This stacking of fees is why pre-settlement funding is expensive — you are paying interest on borrowed money while also paying your attorney a percentage of the settlement.

Your attorney must know about the funding before settlement negotiations begin. They need to account for it in the settlement math and make sure the settlement is large enough to cover both debts and still leave you with something. If you hide the funding from your attorney, the settlement check may not be enough to pay everyone, and your attorney may refuse to release the funds until the dispute is resolved.

What happens if you lose the case

If your case is dismissed or you lose at trial, you owe the pre-settlement funding company nothing. That is the whole point of pre-settlement funding — it is a non-recourse loan, meaning the lender takes the risk. You return no money to them.

Your attorney fees, however, depend on your fee agreement. If you signed a contingency fee agreement, your attorney gets paid only if you win or settle, so you owe them nothing if you lose. If you signed an hourly fee agreement, you owe your attorney for the hours worked, win or lose. Some attorneys will write off the fee if the case loses, but that is their choice, not a legal requirement.

Before you take pre-settlement funding, confirm with your attorney in writing what happens to their fee if the case does not succeed. This prevents a surprise bill after a loss.

Why some attorneys restrict or refuse pre-settlement funding

Many attorneys discourage or prohibit clients from taking pre-settlement funding. Their reasons vary. Some worry that a client who has cash in hand will pressure the attorney to settle quickly for less money, which reduces the attorney's fee and harms the client's recovery. Others find that funding companies complicate settlement negotiations by inserting themselves into the process and demanding approval of any deal.

Some attorneys have their own financial arrangements with funding companies and do not want clients going to competitors. Others straightforward believe that pre-settlement funding is too expensive and advise clients to find other ways to cover living expenses during the lawsuit.

If your attorney says no to pre-settlement funding, ask them why. If their reason is that they have a financial interest in steering you away from it, that is a red flag. If their reason is that they think it will harm your case or cost you more in the long run, that is worth taking seriously. You have the right to take funding against your attorney's information, but doing so may damage your working relationship.

The math: how funding affects what you actually receive

Pre-settlement funding can help you hold out for a larger settlement, which may mean you end up with more money even after paying the funding fee and attorney fee. It can also trap you in a situation where you owe so much to the funding company and your attorney that a modest settlement leaves you with almost nothing.

Example: You are offered $50,000 to settle. You owe a funding company $6,500 (principal plus fee) and your attorney takes 33 percent of the remainder. You receive $50,000 − $6,500 − $14,490 = $29,010. If you had not taken funding, you would have received $50,000 − $16,500 = $33,500. The funding cost you $4,490 in this scenario.

But if the funding allowed you to turn down that $50,000 offer and instead settle for $100,000, the math changes: $100,000 − $6,500 − $30,870 = $62,630. Now the funding helped you, even after paying the fee. The question is whether your attorney believes the case is actually worth waiting for a larger settlement, or whether you are just delaying the inevitable.

Disclosing funding to your attorney and the other side

You must tell your attorney about pre-settlement funding before you take it. Your attorney needs to know so they can account for it in settlement negotiations and make sure the settlement covers all debts.

You do not have to disclose the funding to the other side's attorney or to the court, unless your state has a specific rule requiring it or unless the funding company requires it as a condition of the loan. Some funding companies insert a clause in their contract requiring disclosure, so check your contract before you sign.

If you do not disclose the funding to your attorney and they later discover it, they may withdraw from your case or refuse to settle until the funding is accounted for. This can delay your case and cost you money in additional attorney fees.

Questions to ask your attorney before taking pre-settlement funding

Before you borrow against your settlement, have a written conversation with your attorney about how it affects your case and your fees. Ask: Do you allow clients to take pre-settlement funding? If not, why? If yes, do you have any restrictions or preferences about which funding companies I use? How will the funding affect your fee calculation? Will you help negotiate with the funding company if we reach a settlement? What happens to your fee if the case loses?

Get the answers in writing, either in an email or in an amendment to your fee agreement. This protects both you and your attorney by making clear what everyone expects.

Frequently Asked Questions

Does taking pre-settlement funding mean my attorney will work less hard on my case?

Not because of any rule, but because of incentives. If you have cash from funding, you may be willing to settle for less, which reduces your attorney's fee. A good attorney will push back against pressure to settle too early. If your attorney seems eager to close the case once you have funding, that is a sign to ask questions about whether the settlement is truly fair.

Can the funding company take money directly from my settlement check?

No. The settlement check goes to your attorney's trust account, and your attorney pays the funding company from there. This is why you must disclose the funding to your attorney — they have to know to pay it before they pay themselves or you.

What if I take funding and then fire my attorney?

You still owe the funding company. If you hire a new attorney, the new attorney will need to account for the funding in any settlement. The funding company's lien on your settlement does not disappear because you changed lawyers.

Is pre-settlement funding the same as a lawsuit loan?

Yes. Pre-settlement funding, lawsuit loans, and legal funding all refer to the same product — a non-recourse advance against your expected settlement. The terms are used interchangeably.

Can I take pre-settlement funding if I am on a payment plan with my attorney?

That depends on your attorney and the terms of your payment plan. Some attorneys will allow it; others will not. You must ask before you borrow. If your attorney is already financing your case through a payment plan, adding pre-settlement funding on top may create conflicts about how the settlement is divided.