Settlement Agreement: How They Work, Key Terms
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What is a Settlement Agreement?
A settlement agreement is a legally binding contract that outlines the resolution to a dispute. After negotiations but prior to a final judgement, parties can come to a mutual agreement to an outcome for the case and enter a legally binding settlement agreement.
Settlement agreements are common in divorce and marital disputes, property disputes, personal injury cases, and employment disputes. These agreements not only keep disputes out of court, but they also save parties from having to pay expensive legal fees for continued litigation and trial.
There are certain legal requirements to which a settlement agreement must adhere to be valid and legally binding. Once a settlement agreement is complete, it must be presented to and approved by a judge.
How Do Settlement Agreements Work?
When two parties decide that they would like to pursue a settlement agreement rather than proceed to trial, negotiations will begin. It is common to use a non-biased mediator to assist the parties in coming to mutually agreeable terms.
During negotiations, the parties will lay out their terms and goals for the agreement and go back and forth until every issue in the case is settled. After the parties have agreed on all terms and it is ensured that all legal requirements of the settlement agreement are fulfilled, a judge must approve and sign off on the agreement.
If you want to be sure you’re prepared for a successful settlement agreement, read this article.
Marital Settlement Agreements
A marital settlement agreement (MSA) or divorce settlement agreement is a very common type of agreement. A couple going through a divorce may find a settlement agreement beneficial to save money on legal fees and to keep their dispute as civil as possible.
Depending on which state you reside in, marital settlement agreements are referred to by many different names. Examples of some other names for marital settlement agreements include:
- Separation Agreement
- Separation and Property Settlement Agreement
- Custody, Support, and Property Agreement
- Mediated Separation Agreement
- Collaborative Settlement Agreement
- Property Settlement Agreement (PSA)
Some issues that may be covered in a marital settlement agreement include:
- Property division
- Child custody
- Child support
- Alimony
- Health insurance for either party or the child
- Retirement benefits
- Life insurance policies
If two divorcing parties can agree to the terms of their divorce, an attorney or mediator can draft the marital settlement agreement. In some states, a judge will review the terms to make sure they are fair. This agreement will then be incorporated into the final divorce decree. This makes the agreement a binding court order and if either party violates it, they can be held in contempt of court.
Often in a divorce case, one party will draft a settlement agreement to propose to the other party. It is important to remember that it is just a proposal, and you are not obligated to agree to all the terms and sign it. This is just the beginning of negotiations. You should consider consulting a family law lawyer to look over the proposed terms to ensure you are protected.
Even if you agree to all the proposed terms, it is still imperative that you have your own lawyer review the proposal. You want to make sure that someone who is representing your best interests has gone over the agreement. This is the only way to protect your interests and rights.
Although once signed a divorce settlement agreement becomes legally binding, that does not mean that it cannot be modified or revised. If the revision involves a financial matter, generally both parties will have to agree to the revision.
However, if there is a significant change in circumstances, child support, custody, or visitation, can be modified by a judge to protect the best interests of the child.
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Property Settlement Agreements
When an unmarried couple separates, they are not governed by the same laws and regulations as a married couple going through a divorce. If there no children involved, the biggest issue in a break-up is the division of property. This is where a property settlement agreement can be useful.
Most states follow similar guidelines for property laws of unmarried couples. Each person is presumed to have their own property and their own debts unless they have combined their property (like a joint bank account or both names on the deed to a house). If there are joint assets, each person is entitled to a 50% share unless they can prove a larger contribution.
Unmarried couples will not receive any sort of alimony from each other and usually are not entitled to mediations like married couples are in divorce. Any property disputes would be handled by civil court proceedings.
It is recommended that if you plan on living with a partner without being married, you draft and sign a property agreement before a dispute or break-up occurs. Having a valid contract will avoid painful issues down the road should separation become imminent.
Click here to view an example of a property settlement agreement.
Business Settlement Agreements
Business disputes are very common can arise for a wide variety of business activities. Some common business lawsuits include:
- Breach of contract
- Intellectual property
- Mergers and acquisitions
- Unfair competition
- Securities and stocks
Rather than pay expensive legal fees to litigation lawyers to go to court, a business may decide that a business settlement agreement is the appropriate action for their dispute.
Parties involved in a business dispute can choose to participate in informal negotiations or they can use alternative dispute resolution methods like arbitration, mediation, and facilitation.
Because a lawsuit can negatively impact a business in many ways, it is always recommended that a business attempt to settle a dispute outside of court. This protects a business from possible bankruptcy, scandal, and exposing trade secrets.
Is a Settlement Agreement Final Judgment?
If a settlement agreement has been signed by both parties and approved by a judge, then it is legally binding and enforceable. However, after a case has been dismissed, the court no longer has the power to enforce a settlement agreement. Therefore, it is important to have the agreement incorporated into a final judgment or decree.
If either party refuses to adhere to the contract, a breach in settlement occurs. Every state has different procedures for handling a breach of agreement but generally a new lawsuit will need to be filed.
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Can I Write My Own Settlement Agreement?
Parties can draft their own settlement agreement; however, it is not recommended. It is always best to have a dispute lawyer assist in the settlement agreement process to ensure the document is both fair and legal.
Settlement agreements must adhere to certain legal requirements to be legally enforceable. In addition to the agreement being in writing, it must also include:
- An offer by one party
- Acceptance by the other party
- Proof of valid consideration from both parties free of coercion, duress, or threat
- Mutual agreement to all the terms
- Legal purpose
It is very common when drafting your own agreement to make mistakes or leave out information. Even if you think your settlement agreement is straightforward, any little error can have a great impact on your rights. Common legal drafting mistakes when creating your own settlement agreement include:
- Failing to address all terms which can include all property, debts, etc.
- Including terms that don’t follow the laws in your state
- Failing to properly express your agreement in writing
It is important to remember that different states and jurisdictions may have different requirements for settlement agreements. A family lawyer or litigation lawyer could help walk you through the process.
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ContractsCounsel is not a law firm, and this post should not be considered and does not contain legal advice. To ensure the information and advice in this post are correct, sufficient, and appropriate for your situation, please consult a licensed attorney. Also, using or accessing ContractsCounsel's site does not create an attorney-client relationship between you and ContractsCounsel.
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Edward B.
When the pressure mounts and the outcome matters most, Edward L. Blair IV doesn’t just step up—he dominates. As a formidable Florida-based attorney, Mr. Blair commands every case with the unshakable focus of a warrior and the calculated precision of a master strategist. His expertise in drafting pleadings, motions, and contracts transforms legal writing into a sharp-edged instrument—an arsenal of language wielded with power and purpose. Edward L. Blair IV is not just an attorney—he’s a lionhearted force of advocacy. Every case is a mission, and every client is a cause worth fighting for. His strategic legal insight doesn’t just navigate complexity—it crushes confusion, eliminates doubt, and clears the path to victory. Respected by clients and relentless in pursuit of justice, he approaches each legal battle as a personal crusade. When you choose Blair Legal Solutions LLC, you gain more than representation—you gain a relentless ally. Your battle becomes his, and he won’t rest until the job is done.
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Alton H.
I am a U.S.-licensed attorney with more than a decade of experience in complex litigation and intellectual property matters. I have practiced at leading Am Law firms including Pillsbury Winthrop Shaw Pittman, Arent Fox, and Sughrue Mion, and I currently operate my own law practice. I have extensive experience handling high-stakes patent litigation, drafting pleadings and briefs, managing large-scale discovery, preparing and defending depositions, and appearing before federal courts and administrative bodies such as the PTAB and ITC. I hold a J.D., cum laude, from The George Washington University Law School and advanced technical degrees in chemistry and chemical engineering, which allow me to efficiently handle technically complex matters. I am admitted in multiple jurisdictions, including New York, Virginia, New Jersey, and the District of Columbia, and I regularly provide high-quality remote legal support to clients nationwide.
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Benjamin W.
I am a California-barred attorney specializing in business contracting needs. My areas of expertise include contract law, corporate formation, employment law, including independent contractor compliance, regulatory compliance and licensing, and general corporate law. I truly enjoy getting to know my clients, whether they are big businesses, small start-ups looking to launch, or individuals needing legal guidance. Some of my recent projects include: -drafting business purchase and sale agreements -drafting independent contractor agreements -creating influencer agreements -creating compliance policies and procedures for businesses in highly regulated industries -drafting service contracts -advising on CA legality of hiring gig workers including effects of Prop 22 and AB5 -forming LLCs -drafting terms of service and privacy policies -reviewing employment contracts I received my JD from UCLA School of Law and have been practicing for over five years in this area. I’m an avid reader and writer and believe those skills have served me well in my practice. I also complete continuing education courses regularly to ensure I am up-to-date on best practices for my clients. I pride myself on providing useful and accurate legal advice without complex and confusing jargon. I look forward to learning about your specific needs and helping you to accomplish your goals. Please reach out to learn more about my process and see if we are a good fit!
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Karen S.
I'm an attorney available to help individuals and small businesses in Georgia with initial business set-up, required filings, tax strategies, etc. I'm also available to draft, review, and negotiate contracts of many types, both personal and professional. I can draft and file real estate quit claims as well. My legal and business experience and expertise includes small business startups, information technology, technology innovation, real estate transactions, taxes, intellectual property, electrical engineering, the business of video game development, business requirements definition, technology consulting, technology companies, liability waivers and reduction strategies, and the electric utility industry. I work part-time for a local law firm and part-time in my solo practice. I'm also an adjunct professor teaching business law. In addition, I'm part owner, legal counsel to, and a board member of a virtual reality video game development company. I am a member of the Georgia Bar Association. Please reach out if you need attorney, documentation or consulting help in any of those areas!
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Faryal A.
Ms. Ayub is an attorney licensed to practice in Texas. Before moving to the US, she has a number of years of experience in contract review, analysis and drafting. Ms. Ayub is available to help you with your legal problems, as well as filling LLC and other business entity formation documents. To know more about her practice, please visit https://ayublawfirmpllc.com/.
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I am a Connecticut-licensed attorney and transaction advisor with extensive experience in middle-market mergers and acquisitions, corporate finance, and complex deal structuring. As the principal of Amirext LLC, I serve as lead counsel and strategic advisor to founders, boards, and investors, often working at the intersection of legal, financial, and operational decision-making.
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Experienced business advisor and in-house counsel with extensive litigation experience, representing parties in a variety of complex commercial disputes, including securities, financial fraud, contract, and antitrust litigation.
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"I’m incredibly grateful to William for his support in drafting a settlement agreement related to a long and frustrating dispute with the homebuilder and prior seller over improperly installed flooring. From the start, William was exceptionally attentive—he took the time to truly understand my concerns, asked thoughtful questions, and made sure every detail reflected my needs. What stood out most was his thoroughness and availability. He answered every question with clarity and patience, never making me feel rushed or dismissed. He walked me through the process step by step, ensuring I felt informed and empowered throughout. His professionalism, clear communication, and legal insight made a complex process feel manageable—and genuinely supported."
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Negotiation Assistance for Auto Accident Settlement with USAA in California
"I hired Adam to assist with a property damage claim arising from a multi-car accident after months of delays, inspections, repair estimates, and back-and-forth communications with the insurance company had failed to produce any meaningful progress. Adam quickly got up to speed on a fairly complicated situation involving multiple claimants, potential policy-limit concerns, conflicting positions from adjusters, and repair estimates from Tesla-affiliated repair facilities. He drafted an exceptionally strong demand letter that clearly laid out the facts, documented the damages, and forced the insurance company to seriously evaluate the claim. What impressed me most was that Adam didn't simply send a demand letter and move on. He remained actively engaged throughout the process—reviewing responses, discussing strategy, speaking directly with the adjusters, and continually pushing the matter forward when it appeared the claim had stalled. He knew when to apply pressure, when to be patient, and how to keep negotiations productive. In the end, he achieved a result that exceeded my expectations. Given where the claim stood before his involvement, I am confident the outcome would have been significantly worse without his assistance. Adam is thoughtful, responsive, strategic, and an excellent communicator. If you need an attorney who can effectively negotiate with insurance companies, cut through delays, and advocate for a fair resolution, I would not hesitate to recommend him. Thank you, Adam."
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Thank you! I'm really glad I could be of assistance - and help bring this to a successful resolution for you!
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ContractsCounsel User
Employment
Settlement Agreement
Illinois
Can settlement agreements include non-monetary terms?
I recently entered into a settlement agreement with another party, and I am trying to determine whether non-monetary terms can be included in the agreement. I am concerned about potential liabilities and obligations that may arise from the agreement if non-monetary terms are included. I would like to know what legal considerations I should take into account when crafting the agreement.
Andre T.
Settlement agreements can contain any provisions that the parties are willing to agree to provided that those provisions are not illegal or against public policy. There are also safe guards that can be included in the language of the agreement so that legally enforceable terms are undisturbed even if part of the agreement may be found to be invalid.
Employee Rights
Settlement Agreement
Florida
How are damages outlined in a settlement agreement?
I recently reached a settlement agreement with a former employer in a dispute over unpaid wages. The settlement agreement outlines that I am to receive a certain amount of money as damages, however, I am unclear on how these damages were calculated and if there are any additional costs or fees associated with the settlement agreement. I am hoping to find out more information on how the damages were determined so that I can make sure I am receiving a fair settlement.
Linda W.
Your questions are certainly valid and you are entitled to answers. And you should receive the information before you sign a settlement agreement. Some of the terms of which should be included in the settlement agreement, such as if there are any other fees or costs associated with the settlement.
Partnership
Settlement Agreement
Massachusetts
How binding is a settlement agreement?
I recently entered into a settlement agreement with a former business partner. We both agreed to the terms of the settlement, however, I am now concerned that the other party may not follow through with their obligations. I want to know how binding the settlement agreement is and if there are any legal consequences if the other party does not fulfill their obligations.
Patrick N.
First of all, it matters who drafted the agreement, who are the parties to the agreement, and what precisely is being "settled"? Typically an "agreement for judgment" is the most binding settlement agreement, since the agreement becomes an order of the court once it is approved by the presiding judge. However, you have to already be in court (i.e., sue or be sued) to get the benefit of that. Was there a lawsuit filed or a lawsuit threatened?
Contracts
Settlement Agreement
Massachusetts
Can settlement agreement terms be ambiguous?
I recently entered into a settlement agreement with another party, and I am concerned that some of the language in the agreement may be ambiguous. I am worried that this ambiguity could lead to future misunderstandings or disputes, and I would like to know if there are any legal implications associated with ambiguous terms in a settlement agreement.
Brian W.
In any and all agreements, not just settlement, make sure all ambigious terms are defined. Do not sign something you truly do not understand. Please consult a lawyer to review the settlement agreement for further analysis and legal implications.
Business Contracts
Settlement Agreement
California
When does a non-disparagement clause end?
8.2 Continuing Obligations of Contractor. The provisions of Sections 1.3, 1.4, 2, 4, 5, 6, 7.2, and 8 shall survive expiration or termination of this Agreement for any reason. 9. Additional Provisions. 9.1 Non-Disparagement. Both Parties agree that they shall not, directly or indirectly, engage in any conduct or make any statement, whether in commercial or noncommercial speech, disparaging or criticizing in any way of the other Party, or any of its affiliates or clients or any of their respective owners, officers, employees or agents or services offered by any of them, nor shall either Party engage in any other conduct or make any other statement whether in writing, verbally or on-line, that could be reasonably expected to impair the goodwill or reputation of the other Party or any of its affiliates or clients. 9.2 Non-Solicitation. During the term of this Agreement, and for a period of twelve (12) months following termination of this Agreement, Contractor shall not, without the prior written consent of Company, directly or indirectly solicit for employment, employ or otherwise engage the services of employees or individual consultants of the Company. This subsection shall not apply to general solicitations, public job postings, or newspaper advertisements for employment opportunities.
JOSEPH L.
Since Section 9, Non-Disparagement, is not listed as one of the sections that "survives termination of this Agreement" it is arguable that once the Agreement terminates pursuant to the termination clause of the Agreement then the Non-Disparagement restriction will terminate as well. If no term is stated in a written agreement then presumably the restriction on disparaging that the parties agree to is not terminated, since the contract did not specify one, and therefore is a continuing obligation of both parties. Damages is another issue though. If the contract does not specify damages if one party breaches the agreement by disparaging the other, then what are the damages? Courts hate to guess at damages so the non-breaching party would have to prove "actual damages". If the non-breaching party cannot prove a loss of business or a lost contract with a client as a "direct result" of the disparaging comment, then the court will not guess at damages so the most the non-breaching party may hope to gain is an injunction against future disparaging comments and an order that such comments be removed from the internet, if that is where the comments appear.
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