What is a Legal Settlement?

There are a few ways the term legal settlement can be defined. It sometimes refers to a payment given at the end of a court case from one party to another. People might think of any paid outcome of a case in civil court as “settlement money” or just call their payment a settlement. In truth, the term more accurately refers to the agreement to settle a case prior to a judge ruling on it. This may occur before a trial, or during one.

Basically, this second type of legal settlement typically means that both parties to a case have agreed upon a defined course of action, usually in civil court proceedings. When parties agree to settle a case, they determine exactly what each party will accept and, as such, form a contract. The judge presiding over the case usually approves this contract, or if the case has not yet come to court, the settlement needs to be reviewed by a judge. The terms of the legal settlement, provided they conform to the law, become the basis of a court order with which all parties in the case must comply. Failing to honor the terms of a legal settlement violates the contract.

It is possible for a legal settlement of this type to place obligations on all parties. Sometimes in civil trials, a person or group suing an entity must agree to be silent about the suit in exchange for a sum of money. Other times, particularly in divorce proceedings, agreements about money paid, child support and visitation rights can impact both parties. As such, both must comply with whatever terms were agreed upon in settling the case.

There is often pressure for legal settlement because court cases are expensive and time-consuming. Civil cases involving the alleged wrongdoing of well-known companies can also damage the reputation of a company and potentially affect their business in the future. Whether the plaintiff or complainant has truly been wronged may not matter if a court case stretches out over a long period of time and attracts media attention. Coming to a legal settlement with the plaintiff is often in the interest of a company to avoid time, expense, and a damaged reputation.

Understanding the other way legal settlement is used (as money paid to one party), may be useful. Sometimes settlements are paid over a period of time, and there are companies that will give cash in exchange for future payments from a suit. Usually this means the person gets less money than they would if they were able to accept their structured payment plan, but people in great need of financial relief might find this an attractive option.