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Draft Settlement Agreement

Updated: March 28, 2023
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What Does It Mean to Draft a Settlement Agreement?

A settlement agreement is a binding contract between two or more parties after negotiations but before final judgment in resolving a dispute.

The agreement expresses mutual agreement for an outcome to be approved by a judge. Before signatures, however, you must first draft a settlement agreement to review with the associated parties.

Drafting a settlement agreement requires writing an offer to resolve conflict or dispute, including terms and conditions both parties must agree to follow. Each state has its laws regarding settlements, so it is important to have a professional attorney review yours before submitting it to the court.

The attorney you choose should be licensed to practice law in your state and have comprehensive knowledge of the settlement agreement process.

Here is an article with more information about settlement agreements, how they work, and why they’re beneficial.

How Do You Draft a Settlement Agreement?

The best way to draft a settlement agreement is to work with an attorney who can provide a well-written legal document. You can, however, also look for settlement agreement templates online and modify one to suit your situation.

Remember that there are often legal requirements for settlement agreements, which will differ by situation and state. For example, the settlement agreement for parents in a custody dispute over their children will have different requirements than an agreement between two businesses.

It’s important to understand the agreement's requirements and logistics before signing. If the terms are unclear, it’s best to enlist the help of an experienced attorney who can answer any questions you may have.

Before drafting a settlement agreement, you may consider meeting with the other parties and a mediator. A mediated settlement agreement can help avoid further disputes and reach mutually agreed-upon terms more quickly.

Mediators can also help both parties agree upon facts and avoid emotional biases or unnecessary judgments. In cases where only one party is to blame, the mediator may be able to help them settle by taking accountability and making amends in exchange for the other party not pursuing further legal action. Mediators are often utilized in divorce cases when neither party can come to an amicable agreement.

The most important part of drafting a settlement agreement is mutual agreement on past events and present circumstances. It can be helpful to start negotiations by acknowledging that both parties want to reach a peaceful resolution, and settlement is the ideal way to do so.

Here is an article with a detailed sample settlement agreement that explains different elements.

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What Should Be Included in a Settlement Agreement?

Every settlement agreement will differ by circumstances, but each one should contain the following details:

  • Identifying information for all involved parties.
  • A description of the issue you’re seeking to settle.
  • An offer of resolutions that both parties agree to.
  • Proof of valid consideration from both parties without coercion or duress
  • Legal purpose

In law, a legal purpose means that a document fully complies with the law in its governing state. Suppose an agreement resolves through any illegal means. In that case, it is not legally binding, even if all parties agree to the terms.

Here is an article with more information on what makes a contract legal.

What is the Purpose of a Settlement Agreement?

A settlement agreement helps people resolve conflict without going to court. For example, it can be used in divorce, dissolution of business partnerships, property damage disputes, employment disputes, and medical malpractice situations.

Although it may not go to trial, a negotiated settlement agreement goes to court for a judge’s approval. Only once a judge has approved and signed off on the agreement does it legally go into effect.

Legal battles are expensive, lengthy, and often complicated. They can create immense financial and psychological stress, and many people wish to avoid them in favor of the personal resolution. Settlement agreements help enforce legal resolution without the need for a lengthy trial.

How Does a Settlement Agreement Work?

Settlement agreements work after a period of negotiation between two or more parties. They often meet with an experienced mediator to discuss the circumstances of their dispute and potential resolutions.

During this time, they will often sign a settlement and mutual release agreement, which relinquishes each party of future liability after the agreement is finalized.

A confidential settlement agreement is another provision often included when drafting a settlement. It prevents either party and their representing attorneys from revealing how the resolution was reached and details about the conflict.

Confidential settlement agreements maintain parties’ discretion and ensure that their private matters stay between them and their legal teams. Once signed, neither party may disclose personal information to others without breaching the agreement.

Here is an article with more details on confidential settlement agreements and how they work to protect people in a settlement.

What Makes a Settlement Agreement Void?

Settlement agreements can be void if they are not negotiated, either party signs under coercion or duress, or obligations are not clearly outlined in the agreement. If there is no provision stating what happens if either party fails to uphold their obligations, the settlement agreement will not be approved by a judge.

Settlement agreements must outline what will happen to resolve the conflict and what penalties parties might face if they do not fulfill their agreed responsibilities.

The contract must also include the dismissal of pending court cases (if applicable) and details regarding any financial payments being given as restitution for damages.

Lastly, both parties must sign settlement agreements in mutual understanding and good faith. There must be a fair and accurate representation of all relevant circumstances and a clear outline of each party’s rights to avoid someone entering an agreement without fully understanding what it requires.

Review ContractsCounsel’s nine things to include in a settlement agreement to ensure yours is legally compliant.

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