When Does A Settlement Agreement Become Binding?

When does a settlement agreement become binding? A settlement agreement

As legal disputes can often be time-consuming and expensive, several parties may reach a settlement agreement to resolve their dispute without going to court. 

A settlement agreement is often seen as an agreement that is more lenient than a court case. The parties involved in the settlement agreement are usually more willing to negotiate and compromise on certain issues than rely on a litigation process- given the possibility that the winner takes all. A settlement agreement can be used to resolve different disputes, including civil disputes, employment disputes, and family/divorce disputes. 

Binding and Non-Binding settlement agreements

Settlements can be binding or non-binding, depending on how much control each party has over the final resolution.

Binding settlement agreements require both parties to comply with all the terms in the agreement. These settlement agreements are legally binding due to their approval by the court and can be enforceable by either of the parties. When a binding settlement agreement is agreed upon, it allows for faster resolution and eliminates the chance of future disputes.

A non-binding settlement agreement allows each party to continue with its own plan without agreeing to the terms of the settlement completely. This type of settlement agreement is not legally enforceable and may only be relied upon by the parties involved. 

When Does a Settlement Agreement Become Binding?

Whether or not a settlement agreement is binding may depend on the jurisdiction/state the agreement was made. In certain states, settlement agreements must be written and signed by a judge before they can be considered binding. In other states, a binding agreement may be implied based on the terms of the agreement.

As a general rule, a settlement agreement would become binding once both parties sign the document. From the signee’s perspective, this binding settlement agreement clarifies the rights and obligations under the agreement and ensures that the settlement terms are followed. A breach of this agreement is seen as a breach of contract, and the defaulting party would be held liable.

Note: A binding settlement agreement is not always necessary; in some cases, an agreement may be implied based on the terms of the settlement. 

What Are Some Requirements for a Binding Settlement Agreement?

A binding settlement agreement is an enforceable contract between two or more parties that resolves a dispute. For it to become binding on each party, the agreement must meet certain requirements;

  • The agreement must be in writing;
  • Each party must sign off on the agreement;
  • Parties must intend to be bound by the agreement;
  • The contents of the agreement must be legal;
  • The agreement must be specific enough to address the dispute;
  • It should provide conditions under which the settlement terms are deemed completed; and
  • The Court approves the agreement. (i.e. divorce settlement agreement)

Note: It is not compulsory that a party signs the settlement proposal before them. However, the proposing party is also within their right to refuse to perform an action or settle a claim until the document is signed.

What are the consequences of not following a settlement agreement? 

When two or more parties enter into a settlement agreement, it is generally in their best interest to follow through on the terms of that agreement. Failing to do so comes with some consequences. A party may be held in contempt of court for violating a settlement agreement, resulting in fines or other penalties. In addition, a party that fails to abide by a settlement agreement may be sued for damages by the other party. These damages may include litigation costs and any losses suffered due to the breach. 

It is important for parties to carefully consider the consequences of not following a settlement agreement before agreeing to its terms.


In summary, a settlement agreement as a formal agreement is binding on any party signatory to it.  In the case of a breach, the other parties may have options available to them, including filing suit or negotiating a new settlement. It’s always good to have an attorney review any settlement proposal before signing to ensure all parties understand the implications of the signed and the ramifications of not complying with it.







Table of Contents