Much is said about punitive damages and how they are used to punish wrongdoers. Plaintiffs dream of large punitive damage awards. Plaintiffs’ lawyers who obtain large punitive damage awards use them to brag about their ability as tort lawyers and as a bludgeon on other defendants to convince them to settle for more than they owe. What the litigants and litigators seldom consider are the tax consequences of a large punitive damage award. Failure to properly advise a plaintiff seeking punitive damages about the tax consequences of success can result in claims of legal malpractice.

What is the purpose of punitive damages?

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