You are asking about constructive receipt and a disputed liability:

"Treasury Regulation Section 1.451-2 states the "constructively received" issue thusly:
(a) General Rule. Income, although not actually reduced to a taxpayer's possession is constructively received by him in the taxable year during which it is credited to his account, set apart for him, or otherwise made available so that he may draw upon it at any time, or so that he could have drawn upon it during the taxable year if notice of intention to withdraw had been given. However, income is not constructively received if the taxpayer's control of its receipt is subject to substantial limitations or restrictions."

I'm not sure a lien (personal liability) bypasses this, because it was available to lien in the first place. It is considered for the benefit of that taxpayer and not sheltered. Usually, you put money in escrow to shelter it, and that didn't happen here. What they should have done is make an escrow account for this second lawsuit, and the first settlement would go directly into the new escrow account that is between your taxpayer and the second lawyer. That way, it isn't considered his until this second lawsuit settles. That's what happens with insurance settlements. If you make the escrow now for the second lawsuit, the taxpayer would be able to contribute the money into it, but that proves it should be considered gross taxable income. Perhaps that second lawyer will let him hold back some of it for paying the taxes owed.

You might want to bring in a tax lawyer on this one.