Wrongful Death Settlements: How the Money Is Divided, and Whether It Is Taxed

If someone you love died because of another person’s carelessness and a settlement is on the table, you probably want to know three things: who gets the money, how it’s paid and whether it’s taxed. It’s normal to feel uneasy thinking about money while you’re grieving.

Here’s the short answer. Your state’s wrongful death law decides who shares in the money and how it’s split. In some states a judge divides it according to each person’s losses, in some a jury can, and others use a fixed formula. The lawyer’s fee and case costs, and often certain medical and funeral bills and repayment claims, come out first. Under federal law, money for the family’s losses generally isn’t taxable income, but interest and most punitive damages are.

Michigan’s rules are in the boxes marked “In Michigan.”

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How much is a wrongful death lawsuit worth?

There’s no reliable average, so be wary of any figure that doesn’t name its data source and year.

Why isn’t there a reliable average?

• Settlement amounts usually aren’t public. Settlement terms typically aren’t made part of the public record, the U.S. Bureau of Justice Statistics notes. Its survey of 2005 state-court trials also counts deaths inside case types, such as car accidents, rather than as a category of their own.
• States allow different damages. In Alabama, “the only damages a plaintiff is allowed to recover in an action for wrongful death are punitive damages,” which are meant to punish (Alabama Supreme Court, quoted in Benavides v. United States, 2007; Cornell LII). Virginia allows damages for sorrow and mental anguish (Va. Code § 8.01-52), and Michigan for the family’s lost financial support and the person’s society and companionship (MCL 600.2922(6)). An average across states mixes very different rules.

What drives the value?

• The person and the family. Juries weigh factors such as the person’s income before death, expected future income and how much the family depended on them (Cornell LII).
• Pain before death, which some states, such as Michigan and North Carolina, include in the wrongful death claim (MCL 600.2922(6); N.C. Gen. Stat. § 28A-18-2(b)).
• Shared fault and damage caps, where the state’s law has them.
• The insurance available. A claim is usually worth only what can be collected, which for most claims means the at-fault party’s liability insurance, up to its limits.

See how pain and suffering is valued, and for everything a death claim can pay for, our complete wrongful death guide.

Who gets the money from a wrongful death settlement?

The people your state’s wrongful death law names. For example:

• Pennsylvania: only the spouse, children or parents (42 Pa.C.S. § 8301(b)).
• Virginia: first the spouse, children and children of a deceased child, with parents in some situations. If none of them survived, parents and brothers and sisters. Relatives who were primarily dependent on the person for support or services and lived in the same household can share in either case (Va. Code § 8.01-53).
• Ohio: the spouse, children and parents are presumed to have been harmed, and other next of kin can share if they prove their damages (Ohio Rev. Code 2125.02(A), (B)(4)).

How is a wrongful death settlement divided?

States take different approaches. Three examples:

North Carolina also uses its rules for inheritance without a will (N.C. Gen. Stat. § 28A-18-2(a)). Some states, such as Ohio and Virginia, also require a judge to approve the settlement itself (Ohio Rev. Code 2125.02(E); Va. Code § 8.01-55).

How is a wrongful death claim different from a survival claim?

A wrongful death claim is for the family’s own losses. A survival claim lets the estate recover what the person lost before dying, such as medical bills, lost wages and, in some states, pain and suffering (Cornell LII). Pennsylvania, for example, has both (42 Pa.C.S. §§ 8301, 8302). The difference matters in two ways:

• Who gets the money. Survival money belongs to the estate, like the rest of what the person left. Wrongful death money goes to the family members the law names.
• Whether creditors can reach it. Probate, the court-supervised handling of an estate, includes paying its debts and taxes and distributing what’s left to heirs or beneficiaries (Cornell LII). Several states keep wrongful death money away from the person’s creditors. Pennsylvania distributes it “without liability to creditors of the deceased person” (42 Pa.C.S. § 8301(b)), Virginia pays it “free from all debts and liabilities of the decedent” (Va. Code § 8.01-54(C)), and in Alabama the damages “are not subject to the payment of the debts or liabilities” of the person (Ala. Code § 6-5-410(c)).

What comes out of a wrongful death settlement before the family is paid?

Depending on the state, three kinds of payments can come first:

1. The lawyer’s fee and case costs. Under a contingency fee, the lawyer is paid a percentage of the recovery, and case costs the lawyer advanced are repaid. In Virginia, these are paid first (Va. Code § 8.01-54(C)). See how injury lawyers’ fees and case costs work.
2. Certain bills of the person who died, where the law says so. Michigan pays the reasonable medical, hospital, funeral and burial bills the estate owes (MCL 600.2922(6)(d)). Virginia pays the amounts set aside for hospital, medical and funeral bills, after costs and fees (Va. Code § 8.01-54(C)). North Carolina allows only burial expenses and up to $4,500 of hospital and medical bills, and those medical bills can’t take more than half of the recovery after attorney’s fees (N.C. Gen. Stat. § 28A-18-2(a)).
3. Liens and repayment claims. A payer that covered the person’s care, such as Medicare, Medicaid or a health plan, may have a right to be repaid. Medicare can seek repayment if the state’s wrongful death law allows recovery of the person’s medical expenses, even if the claim didn’t ask for them. If the law doesn’t, Medicare has no claim against money recovered only under it. A state limit on what creditors can take from the recovery doesn’t cap Medicare’s claim, but a limit on the medical expenses that can be recovered from the at-fault party does (CMS, Medicare Secondary Payer Manual, ch. 7, § 10.8). See who gets repaid from a settlement, and how liens can be reduced.

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How are wrongful death settlements paid out?

Usually in this order: where the state requires it, a judge approves the settlement; the fee, costs, bills and liens are paid; the shares are set by a court order, a jury’s verdict, a family agreement the law allows or a formula; and each person is paid, at once or over time.

Lump sum or structured payments?

Payments spread over time are often called a structured settlement, and they can be funded with an annuity, a contract bought to make them.

• The payments themselves are tax-free either way when they’re damages covered by the federal exclusion, which applies “whether as lump sums or as periodic payments” (26 U.S.C. 104(a)(2)). Interest you earn by investing a lump sum yourself is taxable (26 U.S.C. 61(a)).
• Cashing out early costs money. Getting cash early usually means selling future payments for less than their total, and the buyer owes a federal tax of 40% of that discount unless a court approved the sale in advance as being in your best interest (26 U.S.C. 5891).

What happens to a child’s share?

States add protections. In Ohio, for example, the court can have the share of a beneficiary under 25 held in trust until that age (Ohio Rev. Code 2125.03(A)(2)).

How long does it take to get paid?

There’s no standard timeline. After the agreement, the pace is set by court approval and, in states such as Michigan, a hearing to divide the money (MCL 600.2922(5), (6)); protections for any child who shares (MCR 2.420); and paying each lien. Medicare must be repaid within 60 days after the money is received (42 CFR 411.24(h)). For the stages before a settlement, see how long an injury case takes.

Do you pay taxes on a wrongful death settlement?

Usually not on the money for the family’s losses, under federal law. Damages, other than punitive damages, received “on account of personal physical injuries or physical sickness” aren’t income (26 U.S.C. 104(a)(2)). When Congress wrote that rule in 1996, its conference report said damages “(other than punitive damages) received on account of a claim of wrongful death continue to be excludable from taxable income” (H.R. Conf. Rep. No. 104-737).

The IRS adds (Publication 4345):

• Interest on any settlement is generally taxable.
• Punitive damages are taxable, even in a settlement for physical injuries.
• Earlier deductions. Money for medical expenses deducted in an earlier year is taxable, to the extent the deduction gave a tax benefit.
• The split matters. The IRS generally won’t disturb how a settlement divides the damages if the division matches the substance of the claims.

Is there an exception for punitive damages?

Yes, a narrow one. In a wrongful death case, punitive damages can be excluded like other damages if the state’s law, as it stood on September 13, 1995, allowed only punitive damages in those cases. The exception ends for lawsuits filed once the state’s law no longer allows only punitive damages (26 U.S.C. 104(c)).

The law doesn’t name a state. The IRS’s guidance on it cites a 1986 decision about Alabama’s wrongful death law, Burford v. United States, and a federal appeals court has named Alabama as the notable example. That court held that the exception doesn’t cover a state such as Texas, whose wrongful death law also allows compensatory damages, even when another state law, such as workers’ compensation, limits a family to punitive damages (Benavides v. United States, 5th Cir. 2007).

State tax rules can differ, so ask a tax professional before you sign.

What to do next

The paperwork after a settlement is built for people who handle claims every day, not for a family that’s grieving. These steps help:

1. Open the estate early if your state requires a personal representative to bring the claim.
2. Find out which state’s law applies and who can share, and answer any notice you receive.
3. Before anyone signs, ask for a written estimate of each person’s share, listing the fee, costs, bills, liens and whether the money comes at once or over time.
4. Ask how the settlement splits the damages, such as punitive damages and interest, and talk to a tax professional.
5. Get a free case review. Get a free case review, or compare Michigan injury lawyers. Get any fee agreement in writing.

What waiting can cost

• A family member’s share. In Michigan, anyone who doesn’t present a claim by the date of the hearing on dividing the money is barred from it (MCL 600.2922(7)).
• The right to sue. Deadlines differ by state: two years after the death in Ohio and Alabama, for example (Ohio Rev. Code 2125.02(F)(1); Ala. Code § 6-5-410(d)). See every Michigan injury deadline in one place.
• A say in the tax split. How the damages are divided can be set in the agreement you sign, so raise it before signing (IRS Publication 4345).

What a good outcome looks like

The settlement is approved, everyone entitled to share gets notice, and each share matches that person’s losses or the state’s formula. The fee, costs, bills and liens are listed in writing before anyone signs. A child’s share is protected until adulthood, and you know what, if anything, is taxable. From wondering who gets what and what the IRS will take to knowing how your family’s settlement will be divided, paid and taxed.

Updated September 25, 2026

This guide is general information, not legal advice, and laws change. For advice about your situation, talk to a lawyer licensed in your state. Reading this page or contacting us does not create an attorney-client relationship.