§ 141.005.Effects of Transfer of Structured Settlement Payment Rights

The consequences provision, and it allocates every risk to the buyer.

Subdivision (1): the obligor and annuity issuer are discharged and released from all liability for the transferred payments, as to all parties except the transferee.

That discharge is what makes the industry function. An annuity issuer redirecting payments to a stranger needs certainty it will not be asked to pay twice.

Subdivisions (2) and (3) put the transferee on the hook to both sides. To the obligor and issuer: for taxes incurred as a consequence of the transfer where it contravenes the settlement terms, and for other liabilities or costs, including reasonable costs and attorney’s fees, arising from compliance with the court order or from the transferee’s failure to comply with this chapter. To the payee: the same two heads.

The tax exposure is the serious one. Structured settlement payments for personal injury are received tax-free under federal law, and a transfer contravening the settlement terms can jeopardise that treatment — for the payee and for the parties funding it. The section places that cost on the transferee who structured the deal.

Subdivision (4) protects against fragmentation: neither the obligor nor the issuer may be required to divide any periodic payment between the payee and a transferee, or among several transferees.

So a payment is redirected whole or not at all, which prevents an annuity being split into administratively unmanageable fractions.

Subdivision (5): any further transfer may be made only after compliance with all the requirements of the chapter. Each sale requires its own disclosure, notice, hearing and approval — and repeat sales are common in this market.