Can Welfare Take My Settlement Money? What You Need to Know

After months of medical bills, missed work, and dealing with insurance adjusters, there’s a settlement check with your name on it. But now you’re worried. Will the government take that money? Will you lose the benefits that are keeping your family afloat?

This fear is real and incredibly common. But here’s what most people don’t realize: there’s a big difference between the government actually taking your settlement and your benefits ending because you now have money in the bank.

Let’s break down what really happens and what you can do about it.

Key Takeaways

• Welfare programs rarely “take” your settlement directly. The bigger risk is losing eligibility because your assets now exceed program limits. These are two very different problems requiring different solutions.
• Medi-Cal can recover money for medical care they already paid for through a lien on your settlement. California caps this recovery at 50% of your net settlement and requires automatic reductions for attorney fees.
• SSI has a strict $2,000 asset limit that hasn’t changed since 1989. A settlement of any significant size will suspend your benefits unless you use protection strategies like Special Needs Trusts or approved spend-downs.
• CalFresh (food stamps) treats settlements as resources rather than income. Most California households have no resource limit for CalFresh due to categorical eligibility, but exceptions exist.
• California eliminated Medi-Cal asset limits through 2025, giving settlement recipients a window to plan before the $130,000 limit returns in 2026.

When Can the Government Actually Take Your Settlement?

Let’s address the specific fear first. There are situations where government agencies have a legal right to money from your settlement. This isn’t common, but it happens.

Medi-Cal Liens for Medical Expenses

If Medi-Cal paid for your accident-related medical care, they have a right to be repaid from your settlement. This is called a lien. The logic is simple: you’re getting money for medical damages, and Medi-Cal already covered those bills. They want their portion back.

California protects you here. The state cannot take more than 50% of your net settlement after attorney fees and costs. They also must reduce their lien by 25% to account for the attorney’s work in recovering the money. So if Medi-Cal paid $20,000 for your care and your net settlement is $30,000, they’re capped at $15,000 maximum, reduced further by the 25% rule.

Benefit Overpayment Recovery

If you received benefits you weren’t entitled to, the state can recover that debt from your settlement. The settlement isn’t being “taken.” You already owed the money.

How Does a Settlement Affect My Benefits Without Being “Taken”?

This is where most people get confused. Your settlement isn’t seized; you may simply no longer qualify for benefits.

SSI and the $2,000 Problem

Supplemental Security Income (SSI) has strict asset limits. Individuals are limited to $2,000, and couples are limited to $3,000. These thresholds were set in 1989 and have not been adjusted for inflation. Because of this, even a relatively modest settlement, such as $10,000, can put someone over the limit as soon as the funds are received.

Timing also matters. The Social Security Administration reviews resources on the first day of each month. If a settlement is deposited on March 15, it generally does not affect March benefits. However, if the funds are still in the account on April 1, SSI benefits may be suspended.

It is also important to distinguish between SSI and SSDI, or Social Security Disability Insurance. SSDI does not have an asset limit and is based on work history rather than financial need. Many people receive both benefits, which means the $2,000 limit still applies to the SSI portion.

CalFresh Treats Settlements Differently

Good news here. CalFresh considers settlement money a “nonrecurring lump sum,” which means it’s treated as a resource, not income. And most California households have no resource limit for CalFresh because of something called categorical eligibility.

The exception: if someone in your household was disqualified for a program violation, resource limits apply.

CalWORKs Cash Aid

CalWORKs has stricter property limits. For families without an elderly or disabled member, the limit is $12,137. With an elderly or disabled member, it’s $18,206. A settlement above these amounts ends your cash aid eligibility.

Medi-Cal’s Changing Rules

This is where California differs from most states. Through December 2025, Medi-Cal has no asset test for most programs. You could receive a $100,000 settlement and keep your health coverage.

But January 2026 changes things. The asset limit returns at $130,000 for individuals. Still far better than the old $2,000 rule, but large settlements could become a problem again.

What Are My Options for Protecting Both?

You don’t have to choose between your settlement and your benefits. Legal tools exist specifically for this situation.

Special Needs Trusts

A Special Needs Trust holds your settlement money separately from your personal assets. Done correctly, SSA and Medi-Cal don’t count it against you. You can still benefit from the funds for supplemental needs.

The trade-off: when you pass away, remaining trust funds repay the state for benefits you received. And you need to be under 65 to establish a first-party Special Needs Trust.

For smaller settlements, pooled trusts managed by nonprofits offer a lower-cost alternative.

Strategic Spend-Down

For modest settlements where trust costs don’t make sense, spending the money on approved items can work. The key is converting countable assets into exempt resources before the first of the month.

Approved spend-down options include paying off debt, buying a reliable vehicle (one car is exempt regardless of value), making home repairs, purchasing household items, and prepaying funeral arrangements.

What you cannot do: give the money away to family members. That’s considered an improper transfer and triggers its own penalties.

ABLE Accounts

If your disability began before age 26 (expanding to 46 in 2026), CalABLE accounts let you save up to $100,000 without affecting SSI.

What Should You Do Right Now?

If you’re expecting or have received a settlement while on benefits, timing matters enormously.

Report promptly. CalWORKs and CalFresh require reporting within 10 days. Medi-Cal requires notification to DHCS within 30 days of filing any claim. Missing these deadlines creates bigger problems than the settlement itself.

Plan before you settle. The best protection strategies happen before money changes hands. Talk to your personal injury attorney about structuring the settlement to minimize benefit impact.

Don’t assume the worst. Yes, benefits may be affected. But with proper planning, you can often preserve both your settlement and your coverage. The government taking your money directly is rare. Losing eligibility because you didn’t plan is common but preventable.

If you’re facing a settlement while on government benefits, get legal guidance before that check arrives. The difference between keeping everything and losing your safety net often comes down to timing and structure. Contact DK Law for a free consultation.