My wife was in an auto accident a couple of years ago while on the job. The fault was on the driver of the other vehicle. After the initial surgeries on her knees/legs and two years of physical therapy, she has not yet recovered and returned to work because her company refuses to acknowledge the injurries on her head and neck. She has headache/migraine regularly and also has periodic loss of vision on one eye. She has not re-gained the full range of motion on her knees and legs (she still suffers from knee and leg pains, swollen knees after walking for no more than 10 minutes). Now her company is pushing for a settlement (her W/C attorney recomends her to settle as well, probably because he wants to close the case). In addition, the insurance company of the other driver indicated they want to settle the case. Both the WC settlement and auto injury settlement may happen in 2008.
I know that her monthly workers comp income is not taxable. What about the lump sum workers comp settlement? Is it taxable? If it is taxable, should she ask her company to split the settlement between her and the W/C attorney that represents her, so she would only receive the net proceed from the settlement and pay only the taxes on the net amount that she would receive?
Also, is the lawsuit settlement taxable? She has a lawyer (different from the W/C lawyer) for the lawsuit. If it is taxable, should she also ask the insurance company to split the settlement between her and the attorney, so she would only receive the net proceed from the settlement and pay taxes only on the net amount that she would receive?
We also appreciate any other suggestions/input regarding the W/C case and the auto lawsuit case themselves. There may be some pitfalls relating to the procedures and/or timing that we don't know about.
Thank you for your help.