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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Tanasia T.
Tanasia is a licensed, Florida barred, attorney with diverse professional experience in the fields of family law, dependency, business formation, and debtor/creditor rights. After finding that many legal issues don't exist in isolation, Tanasia founded Trotter Law in 2025 to bridge her experience and provide a holistic approach to her client's unique needs. Tanasia is committed to providing solution-focused legal counsel with compassion. She is a partner and teammate while working with individuals, families, and businesses to achieve their goals. Whether embarking on new ventures or facing legal challenges, she is committed to guiding her clients with the support, knowledge, and direction needed to make informed decisions and ensure the most successful outcome.
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I focus my practice on startups and small to mid-size businesses, because they have unique needs that mid-size and large law firms aren't well-equipped to service. In addition to practicing law, I have started and run other businesses, and have an MBA in marketing from Indiana University. I combine my business experience with my legal expertise, to provide practical advice to my clients. I am licensed in Ohio and California, and I leverage the latest in technology to provide top quality legal services to a nationwide client-base. This enables me to serve my clients in a cost-effective manner that doesn't skimp on personal service.
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Rhea de Aenlle is a business-savvy attorney with extensive experience in Privacy & Data Security (CIPP/US, CIPP/E), GDPR, CCPA, HIPAA, FERPA, Intellectual Property, and Commercial Contracts. She has over 25 years of legal experience as an in-house counsel, AM Law 100 firm associate, and a solo practice attorney. Rhea works with start-up and midsize technology companies.
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Daehoon P.
Corporate, M&A & Securities Lawyer | Managing Attorney, DP Counsel PLLC Practice Areas: Business Formation | Commercial Contracts | Contract Drafting & Review | Mergers & Acquisitions | Venture Capital | Securities Offerings | Franchise Law | Employment & Equity Compensation | Intellectual Property | Cross-Border Transactions About/Bio: I represent companies, investors, and fund sponsors in corporate transactions, commercial contracting, and private securities matters, from entity formation and early-stage financings to acquisitions, exits, and ongoing strategic counsel. As Managing Attorney of DP Counsel PLLC, I help clients structure transactions clearly, allocate risk thoughtfully, and move deals forward with documentation that is practical, enforceable, and aligned with business objectives. My practice includes both day-to-day commercial matters and more complex transactional work, including venture financings, private offerings, M&A deals, fund-related documents, and cross-border structuring. What I Do: Corporate & Commercial • Entity formation and structuring for corporations, LLCs, and limited partnerships • Operating agreements, shareholder agreements, and governance documents • Commercial contract drafting, review, and negotiation • Vendor, distribution, manufacturing, SaaS, and licensing agreements • Employment, consulting, confidentiality, and equity compensation agreements • Outside general counsel support for growing companies Securities & Private Capital • Private offerings under Regulation D and Regulation S • Private placement memoranda, subscription agreements, and investor documents • SAFE, convertible note, and priced equity financings • Venture capital and private fund formation matters • Fund governing documents and offering document packages • Securities law analysis for private capital raising transactions Mergers & Acquisitions • Letters of intent and term sheets • Stock purchase, asset purchase, and merger agreements • Due diligence coordination and transaction support • Disclosure schedules, closing documents, and post-closing matters • Earnouts, rollover equity, indemnity structures, and related deal terms • HSR, CFIUS, and related regulatory issue spotting for qualifying transactions Digital Assets & Emerging Technologies • Federal-law digital asset and token securities analysis • Entity structuring for blockchain and Web3 ventures • Digital asset fund and operating structures • AML/KYC documentation support and regulatory issue spotting Franchising • Franchise Disclosure Documents (FDDs) • Franchise agreements • Master franchise and area development agreements • Franchise structuring and registration coordination Real Estate Transactions • Commercial real estate acquisitions and dispositions • Real estate joint ventures and syndications • Commercial lease drafting and negotiation • Real estate investment structures and related offering documents Cross-Border & International • U.S. market entry and entity structuring for international clients • Delaware and multi-entity holding structures • Cross-border transaction planning and documentation • Coordination with foreign counsel and tax advisors on cross-border matters Why Clients Hire Me: • Big-law-level drafting with boutique responsiveness • Practical, business-focused advice grounded in execution reality • Clear scoping and transparent fee arrangements • Experience across financings, acquisitions, fund formations, and cross-border transactions Typical Projects: • Contract drafting and negotiation • Entity formation and governance packages • Private offering document suites • Venture financing documentation • M&A transactions from LOI through closing • Fractional or outside general counsel support Industries Technology | SaaS | FinTech | Digital Assets | E-commerce | Healthcare | Real Estate | Food & Beverage | Professional Services
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Litigation
Settlement Agreement
Texas
Can settlement agreement details be public?
I recently entered into a settlement agreement with another party and am concerned about the details of the agreement being made public. I am worried that the agreement may contain sensitive information that could be detrimental to my reputation or interests if it were to be shared publicly. I am looking for guidance on the legal implications of the settlement agreement being made public and what, if anything, I can do to protect myself in this situation.
J.R. S.
Yes, details of a settlement agreement can be made public, especially when a governmental body is involved due to the Public Information or Open Records Act. This act states that the public has a right to access information on government affairs and official acts of public officials and employees unless expressly excepted. However, there are exceptions to this general rule. For instance, disclosure of personnel information that would "constitute a clearly unwarranted invasion of personal privacy" is excepted. This is not to say that all settlement agreements are public. In some cases, parties to a settlement agreement may choose to include confidentiality clauses, which prevent the details of the settlement from being disclosed to the public or any third party. The legal rule for agreements between attorneys or parties touching any suit pending is that they will not be enforced unless they are in writing, signed and filed with the papers as part of the record, or unless they are made in open court and entered of record.
Contracts
Settlement Agreement
Connecticut
How are disputes resolved in settlement agreements?
I recently reached a settlement agreement with another party in a dispute, and I am concerned about how disputes would be handled if they arise in the future. I understand that settlement agreements are legally binding contracts, but I am unsure of what the process is for resolving potential disputes that may arise. I would like to know what my rights are and how disputes are typically handled in settlement agreements.
Donya G.
Typically in a settlement agreement there are terms that identify what the parties can do if there is a dispute. If the settlement agreement does not have dispute resolution language, then the parties genrally refer to the contract the parties engaged in, if there was one, and look to the dispute resolution in that document. As a CT licensed contract attorney and arbitrator, I can assist you with dispute resolution. Please contact me if you need further assistance. Donya Gordon
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.
Litigation
Settlement Agreement
Kansas
How does a settlement agreement affect future claims?
I recently entered into a settlement agreement with my former employer. The agreement requires me to release any and all claims I may have against them. I am concerned about how this agreement might affect my right to pursue any future claims I might have against them. I am seeking advice to understand how this agreement impacts my ability to pursue future claims.
Alan B.
Your settlement could be limited to claims in the past. It’s effect on future claims will depend on: 1) the limiting language in the settlement agreement, and 2) the nature of the future claim (i.e., whether any part of the claim covered by settlement agreement language).
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.
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