What is a settlement agreement?

A settlement agreement is a legally binding contract that resolves disputes between parties without the necessity of going to trial. It typically outlines the terms and conditions agreed upon by the parties to avoid further litigation, which can be time-consuming and costly. By creating a settlement agreement, both parties can come to a mutually acceptable resolution, often leading to a win-win scenario where they can maintain some level of control over the outcome rather than leaving it up to a judge or jury.

In contrast, other choices do not accurately define a settlement agreement. A verbal agreement made in front of witnesses lacks the formal structure and specificity typical of settlement agreements. An informal understanding between two parties may not involve the legal enforceability needed for a settlement agreement. A court order demanding compliance refers to a directive from a judge that requires one party to adhere to certain actions, which is much different from a negotiated agreement between parties to resolve their disputes.