A $975 million dollar payout – it’s safe to say most of us have heard of the Hamm divorce settlement from early January 2015. From divorce court to employment disputes to breach of contract, settlement agreements are used in a wide variety of circumstances. As a general matter, settlement agreements are used to finalize a dispute after both parties agree that they want to resolve the issue without going to court. A good settlement agreement will save you both time and dollars, so here are some things to keep in mind.
- Consider the bargaining power
This will change with each dispute, but it’s an important thing to identify from the beginning. If you are the party who is suing and the opposing party has agreed to settle, chances are you’ll be receiving a settlement fund. If the opposing party is trying to avoid litigation, you (and your attorney) can use that to your advantage to obtain favorable terms, within reason.
However, in some cases, it might be more difficult to identify the “wrongful” party. In that instance, there may be more negotiation involved, and the settlement agreement will most likely be less one sided. It’s important to determine what kind of leverage both parties hold before beginning the settlement process. You certainly don’t want to settle for less (or end up throwing the entire negotiation by pushing for unreasonable demands).
- Releasing Claims
One of the big motives for entering into a settlement agreement is to release claims. No matter what the dispute concerns, an effective agreement will release both parties from bringing any further complaints relating to the event that spurred the conflict. This means that a party cannot come back later and try to reopen the case – once the papers are signed, that’s it. However, this doesn’t mean that the parties are indemnified from any future, unrelated claims.
- No Admission of Liability
Signing something that would effectively admit you were in the wrong probably doesn’t sound like an attractive option. Fortunately, an effective settlement agreement will include a “No Admission of Liability” provision. By including this provision, the signing parties aren’t admitting to any wrongdoing by settling –both parties want the dispute to end and agree upon terms without litigation.
- Non-Disparagement
Protecting yourself with a non-disparagement clause is a good idea in the midst of any dispute, since the parties may generally have negative feelings towards each other. A non-disparagement clause prevents the opposing party from taking harmful action against you (or your reputation). A well-drafted non-disparagement clause will explicitly define what it means to “disparage” a party and emphasize that this is a material term of the settlement agreement.
- Confidentiality
Similarly, you wouldn’t want anyone hearing by word of mouth how much you agreed to settle for, especially if you’re the one paying. Spreading around the dollar amount could have some significant consequences, so most settlement agreements will have protections in place to prevent this. One such protection is usually a return of the settlement funds. This is a very effective incentive, because the receiving party would not want to lose a huge payout just for the sake of gloating. If you are the payee, make sure to adhere to this provision! Remember that a settlement agreement is a contract and you don’t want to be in breach, especially if there is a lot of money on the line.
Settlement agreements can change drastically depending on their purpose, so these are just some general guidelines. It’s important to have an attorney help identify your specific needs so that you can settle your dispute, and that you make sure to adhere to the terms of the agreement. Otherwise, you could end up like this.
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