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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.

Get Help with a Settlement Agreement

Do you have questions about a settlement agreement and want to speak to an expert? Post a project today on ContractsCounsel and receive bids from lawyers who specialize in settlement agreements.


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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Employment

Settlement Agreement

Illinois

Asked on Dec 17, 2023

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.

Answered Jan 30, 2024

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.

Read 1 attorney answer>

Contracts

Settlement Agreement

Connecticut

Asked on Dec 16, 2023

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.

Answered Jan 2, 2024

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

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Contracts

Settlement Agreement

California

Asked on Dec 17, 2023

Can we renegotiate a settlement agreement?

I recently entered into a settlement agreement with the other party in a dispute, but now I believe that the terms of the agreement are no longer fair and equitable. As such, I am looking to renegotiate the agreement. I have attempted to discuss this with the other party, but they have not been receptive to the idea. I am now seeking legal advice to determine if there is any way to renegotiate the agreement and what the best course of action would be.

Joseph M.

Answered Jan 26, 2024

If you enter into a binding contract you have to honour the terms unless there was fraud, mistake or misrepresentation as a basis to set aside or renegotiate.

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Partnership

Settlement Agreement

Texas

Asked on Dec 14, 2023

Can I revoke a settlement agreement?

I recently entered into a settlement agreement with a business partner to end a dispute. However, I have since discovered that they did not fully disclose the terms of the agreement and I believe I have been deceived. I am now unsure if I should revoke the settlement agreement and pursue other legal options. Can I revoke a settlement agreement?

Darryl S.

Answered Jan 23, 2024

This is a situation where fraud by the counterparty may possibly allow for revocation, but the agreement must be reviewed by legal counsel and the facts must establish a strong case.

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Employee Rights

Settlement Agreement

Washington

Asked on Dec 18, 2023

Are there caps on damages in settlement agreements?

I am a small business owner who is in the process of settling a dispute with a former employee. The employee is claiming a certain amount of damages, which I believe is excessive. I am interested in finding out if there are any caps on damages that can be included in a settlement agreement, as I would like to come to an agreement that is fair and reasonable for both parties.

Merry A.

Answered Dec 22, 2023

In Washington, there are no punitive damages. Employment resolutions are usually based on some percentage or multiple of a person's salary. It is your job to reach a settlement that is fair and reasonable for you, not for a litigant against you (that's their job, not yours). If you are having difficulty resolving this dispute, you may want to consider mediation. Before you pay the employee, be sure to have them sign a full and complete release of all current and future liability and claims against you individually, your business, your heirs; etc. Also, if you have business insurance, it's possible you are entitled to a free attorney to represent you in this dispute.

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