What You Actually Keep From a Colorado Settlement

A client hears the word settlement and pictures a check for that exact number — six figures, deposited, done. Then the disbursement statement lands, the check is smaller (sometimes a lot smaller), and the first honest question is always the same: where did the rest of it go?

Here’s the short version, and then we’ll do the long one with real Colorado numbers. A settlement isn’t one check to one person. Under Colorado law, a whole line of people have a legal right to be paid out of that recovery — the attorney, the case costs, health insurers with subrogation rights, medical lienholders. What you keep is what’s left after everyone with a legal claim to the money has been handled. Most guides stop at “lawyers take a third” and list the deductions like a grocery receipt. This one shows you the order they come out, the law that puts each party in line, and the single stage where the fight over your net is actually won or lost — the unglamorous, grinding part almost nobody writes about: the lien stack.

We’ll walk it through one representative Colorado case — a rear-end collision that became cervical spine surgery — with every figure rounded so nothing identifies anyone. This is how the math really works. It isn’t legal or tax advice, and every case is different, but the shape is the same one we see over and over.

Where your settlement money goes, in order

The reason a settlement shrinks isn’t mysterious, and it isn’t the firm being greedy. Colorado law treats a personal injury recovery as a single fund that several parties can reach — in a specific sequence. Get the sequence right and the net makes sense; get it wrong and it feels like a magic trick. Here is the running order on a typical case:

1. Attorney fee — comes off the top, calculated on the gross recovery.
2. Case costs — the out-of-pocket money the firm advanced to build the case, reimbursed after the fee.
3. Liens and subrogation — health insurers, Medicaid/Medicare, and medical providers with a legal right to be repaid from the recovery.
4. The client — what’s left, which is the number we spend the entire case trying to make as large as the law allows.

That last line is the point, and it’s worth saying plainly: Conduit’s best practice is to work the stack so the client’s slice ends up the largest one on the page. That’s the aim on every file — not a promise, because every case carries its own facts, but the target we build toward from the first phone call.

A real Colorado case, walked line by line

Picture a rear-end collision on a Denver-area highway — a commercial vehicle into the back of our client’s car. The injury looked like a stiff neck for about a week and turned into a herniated cervical disc that needed surgery. That is a serious case, and it settled for a combined $350,000: $250,000 from the at-fault commercial policy and another $100,000 from the client’s own underinsured-motorist (UIM) coverage stacked on top. (Yes — your own policy can pay for the other driver’s shortfall; that’s a whole topic our Denver car accident team covers separately.) Here is how $350,000 became a check the client could actually deposit:

Gross recovery ($250k policy + $100k UIM) $350,000

− Attorney fee (one-third, off the top) −$116,700

− Case costs (records, filing, experts) −$4,000

− Health plan #1 lien (ERISA — paid in full) −$30,000

− Health plan #2 lien (reduced from ~$45k) −$30,000

= To the client (plus $5,000 MedPay received earlier) ~$169,000

Figures rounded and representative, not an actual client statement or a prediction for any case.

The shape is honest even with the numbers rounded: a $350,000 headline became roughly $169,000 in the client’s hand — plus the $5,000 in MedPay they had already received during treatment to keep the bills from piling up. Now let’s take each layer apart, because each one has a rule behind it.

The attorney’s fee: one-third now, or forty percent later

Most Colorado personal injury firms, ours included, work on a contingency fee — no recovery, no fee. The number people know is one-third (33.3%), and on the case above that is about $116,700, taken off the gross before anything else.

What the format-guides skip is that the fee usually has two tiers: roughly one-third if the case resolves before a lawsuit is filed, stepping up to 40% once the case goes into litigation. That is not a penalty — filing suit means depositions, experts, motions, and often a trial, which is dramatically more work and risk. And here is the part that quietly protects clients: because about nine out of ten of our cases settle before suit, the lower tier is the one that actually applies most of the time. A firm with no incentive to sprint to the courthouse is a firm that files only when filing genuinely raises the value of the case.

One mechanical detail changes the math: the fee comes off the top, then costs come out. Firms that flip that order — costs first, then a fee on the smaller number — arrive at a different split. Ask which convention a firm uses. It is a fair question, and any straight-shooting lawyer will answer it without flinching.

Case costs: the few thousand dollars that build the file

“Costs” are the hard dollars the firm fronts to prove your case — medical records and imaging, the police report, filing fees, postage, sometimes an expert letter. On a case that settles before suit, that is usually somewhere in the $2,500 to $7,500 range. They are reimbursed to the firm after the fee, and they should appear on your disbursement statement itemized to the penny.

Unglamorous, but it matters: a client should never be handed a mystery number. If a cost line is not clear, ask for the backup. Ours are logged as we go, so the answer is always in the file.

Subrogation: the health insurer’s claim on your recovery

Here is the stage nobody writes about, and it is where your net is really won or lost. If your health insurance paid for accident-related treatment, it usually has a subrogation right — a legal claim to be repaid out of your settlement. Left unmanaged, that claim can quietly swallow a large slice of your check.

Colorado hands injured people a powerful tool here. Under C.R.S. § 10-1-135 — the state’s “made-whole” statute, on the books since 2010 — a health plan generally cannot be reimbursed until the injured person has first been fully compensated for all of their damages. The statute builds in a presumption that matters enormously: if you recovered only the available policy limits, you are presumed not to have been made whole — because you took the ceiling, which by definition means the claim was worth more than the insurance available to pay it. A plan that wants to dispute that has a 60-day window; after that, the fight goes to arbitration, and a plan that sleeps on the deadline can forfeit its claim.

There is a second Colorado protection folded into the same statute, the common-fund doctrine: when a plan does get reimbursed, it has to share proportionally in the attorney fees and costs that produced the recovery. It cannot ride your effort for free.

But — and this is the catch that blindsides people — not every health plan plays by Colorado’s rules. Which rulebook applies depends entirely on what kind of coverage you have:

Type of health coverage	What law controls it	Colorado made-whole protection?	Likely result on a policy-limits case
Fully-insured Colorado plan	C.R.S. § 10-1-135	Yes	Strong argument the lien is sharply reduced or eliminated
Self-funded ERISA plan	Federal ERISA — plan terms control (McCutchen)	No (state law preempted)	May insist on full reimbursement
Medicaid / Medicare	Federal law (Ahlborn, Wos, Gallardo)	Special federal limits	Recovery capped at the medical-expense share

The distinctions in that table are the whole ballgame, so let’s take the most painful one head-on.

Same case, two health plans, two completely different answers

On that surgery case, two different health plans had paid for care, and both came looking for repayment. Watching them behave in opposite ways — on the exact same settlement — is the clearest lesson in this entire piece.

The catch is a federal law called ERISA. When an employer “self-funds” its health plan, ERISA generally preempts Colorado’s made-whole statute, and the U.S. Supreme Court in US Airways v. McCutchen, 569 U.S. 88 (2013), held that a self-funded plan’s written terms control — the made-whole and common-fund protections you would get under state law do not override clear plan language. In plain English: a self-funded ERISA plan can be entitled to full reimbursement even when the client was nowhere near made whole, and there may be no legal lever to force a reduction.

On our case, one of the two plans was exactly that. We asked for the customary reduction; the plan was within its rights to say no, and it did. We paid it in full — because the law was on its side, and part of doing this job honestly is knowing when a fight is not winnable and not billing a client for tilting at it.

The other plan was the quiet win. It had no legal obligation to reduce a dime either. It reduced anyway — meaningfully — and the reason it did is the actual craft of this work: we gave the plan clean, complete documentation, communicated with the analyst like a colleague rather than an adversary, and guaranteed the check would go out the very next day if they took the reduction. Prompt, hassle-free payment in exchange for a haircut. That reduction dropped straight into the client’s pocket, and no statute required it — it was earned, not ordered.

That is the contrarian truth the format-guides miss: on a lot of files, the size of your net turns less on a statute and more on whether your firm speaks subrogation — knows which liens must be paid, which can be persuaded, and exactly how to talk to each one. Our paralegals spend more hours on the lien stack than on almost anything else in a case, and that grind is where checks quietly get bigger. Credit for a reduction like that belongs to the team doing the unglamorous work — not to any clever argument.

Medicaid and Medicare play by different rules

Government coverage is its own animal, and here the rules cut in the injured person’s favor. A Medicaid lien is limited by federal law — under Arkansas Dept. of Health & Human Servs. v. Ahlborn, 547 U.S. 268 (2006), and Wos v. E.M.A., 568 U.S. 627 (2013) — to the portion of a settlement attributable to medical expenses, not your whole recovery. (A later decision, Gallardo v. Marstiller (2022), extended that reach to future medical expenses too, so the current line is: the medical-expense share, past and future — but still not your pain-and-suffering or lost wages.) Medicare runs its own conditional-payment recovery process, with its own reduction paths. The upshot is counterintuitive: a big government lien is often the most reducible one on the file.

And here is the flip side of the whole story — the part that turns a lien from villain into tool. On another Colorado case, the client could not afford care up front, so treatment ran through a large government-coverage ledger: providers delivered the care and looked to the eventual settlement for payment. The client paid nothing out of pocket for treatment or records, got the care that documented the injury, and that documentation is what drove an early resolution. The same instrument that shrinks the back-end check is the one that made the recovery possible in the first place. A lien is not just a subtraction — sometimes it is the reason there is anything to subtract from.

What you keep — and what the IRS does (and doesn’t) touch

Back to our surgery case: a $350,000 headline, roughly $169,000 in the client’s hand after fee, costs, and two health-plan liens — one paid in full because the law required it, one reduced because we made saying “yes” easy. If you are bracing for a tax bill on a check like that, here is the good news.

Under IRC § 104(a)(2), money received for a physical injury or physical sickness is generally excluded from federal gross income — including the portion for lost wages that flow from the injury — and Colorado follows the federal treatment. In the everyday sense, most personal injury settlements are a tax-free check. The usual exceptions: punitive damages and interest are taxable, and if you previously deducted medical expenses that later got reimbursed, that piece can be taxable too. This is not tax advice — allocations matter and a CPA should bless anything unusual — but for a straightforward injury case, the number on the disbursement statement is generally the number you keep.

So circle back to the question at the top — where did the rest of it go? — with a better frame than the receipt version. It did not vanish, and you were not shortchanged. It went to the people Colorado law says have a right to be paid from a single recovery, in order. The job of a good firm is to shrink every line above “client” that the law allows to be shrunk — so the largest number on the page is yours, and you walk away with your legal obligations satisfied and a check in hand. That is the aim on every case. It is not a guarantee, because nothing in litigation is. It is the target we build toward from the first phone call.

If you have settled a case and cannot make sense of your disbursement statement — or you are staring at a lien that feels wrong — talk to us. And if you were a witness to a crash and someone has asked you to write something down, our companion piece on how to write a witness statement is worth five minutes first.

Elliot Singer, Esq.
Personal Injury Attorney, Conduit Law
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This article is general information about Colorado law, not legal or tax advice, and does not create an attorney-client relationship. Statutes and case law change, and every outcome depends on the specific facts of the case. For advice about your situation, consult a licensed Colorado attorney, and for tax questions, a qualified tax professional.