What Comes After a Settlement Agreement? Essential Next Steps

Settlement Agreement Results Explained

It is important that you understand what is contained in a typical settlement agreement, what happens after it is signed, and your obligations under the agreement. Generally, a settlement agreement is legally binding and covers confidentiality of the matter, confidentiality of terms, mutual release of all claims, what may be discussed in a subsequent unemployment hearing if applicable, to whom payment will be made (a third party administrator and/or yourself), the timing of the payment, acceleration of payment if there is a breach of the terms, and whether the payment will be made in one lump sum or scheduled over time . While a settlement agreement may appear to have a great number of unimportant details, such details are critical and may affect all aspects of the ensuing employment relationship. Once the parties have reached this stage, some employers/corporations feel it is critical that they protect themselves (for example, by including an acceleration clause or ensuring that the settlement payment is made to a third party administrator so that the payment is not captured as current taxable income.
It is up to the parties to contractually agree on the terms of the settlement agreement. It can often be a lengthy process to get to the point of entering into a settlement agreement but the end is usually worth it.

Completing and Signing a Settlement Agreement

Once the commissioner approves the settlement agreement, the attorneys or their staffs typically draft the necessary paperwork, including any releases and stipulations of judgment. The client must review all documents and sign documents including a Stipulation for Entry of Judgment and Satisfaction of Judgment. It is important that the client understands these documents and is comfortable in signing them. Once these documents are signed, the attorney then presents these to the mediator and the commissioner to finalize the settlement.
The commissioner simply accepts the stipulation of judgment and enters it as an order of the court. The filing of the stipulation of judgment with the court clerk completes the process of "finalizing" the settlement. Once the court receives the stipulation of judgment, the closure of the case begins. From this point on, the administrative department of the clerk’s office, which is also called the Recording section (052), essentially handles the rest of the closeout of the case. The stipulation of judgment is considered the order of the court. The next step will be emailing the assigned clerk in 052 asking for the case to be closed. The recommended time frame for sending this email is 30 days after you have the signed copy of the stipulation. Sending the email before then could lead to having to wait for another ruling from the commissioner regarding the entry of judgment.
There are a few odd exceptions to this general approach. One exception is when an account has had multiple audits and the parties choose to settle the case without going nearly through the entire audit and notice process again. In these cases, a Stipulation Regarding Audits and Notice by the Assigned Commissioner in Accordance with Modified Oder is often the best way to handle the case. The Department of Human Services often refers to this as a Heller Stipulation, after a recent HR case that created much uproar. It identifies the issues that are relevant to the final attempted closeout in detail. Often, if the negotiations are not complete, then you can ask to have up to 90 days more to get the negotiations finalized with an order titled Order Setting Hearing.
If all parties agree to the stipulation, the closure of the case should be prompt. Even county accounts will close fairly promptly. The entire process for closing a case can take 45 to 90 days at times, and some cases sit longer than others under the jurisdiction of Family Court Services (FCS) and others are assigned to family court commissioner hearing officers (FCHOs).

Collecting on a Settlement Agreement

Receiving your settlement payment is typically a straightforward process, but there are a few crucial steps to keep in mind. Once you have signed the agreement, the insurance company is obligated to send you a settlement check or a similar form of payment within a reasonable period of time. Typically, the payment will be sent out shortly after you and the insurance company have executed the formal settlement agreement. However, if you have any remaining pending medical bills or liens to settle and finalize, the approximate timing could change somewhat, depending on how quickly the final remaining tasks are completed. In many instances, you will receive a settlement check within approximately 90 days of signing the agreement. This can be a little different, depending on the terms of the agreement and individual circumstances. In some cases (such as for medical malpractice and/or certain workers’ compensation cases), the rules regarding the disbursement of settlement checks may differ somewhat. You should receive your settlement payment in the form of a check written out to you. However, your lawyer may receive a portion of the settlement payment as well to aid in covering the legal fees. If so, the check may be written out to both of you. The timing of the receipt of the settlement payment is often affected by whether your settlement check is in the form of a direct deposit to your bank account. Unless this option is specifically available in your case, your lawyer would provide you with a check or send the payment to your bank via a wire transfer.

Tax Consequences of a Settlement Agreement

Receiving a settlement could result in tax consequences, but the amount of tax owed would depend on what is received.
For example, if you receive a settlement on an employment law case in which you are receiving wages owed by your employer, this would be taxed at ordinary income rates and any and all "fringes" i.e. attorney fees, etc., would be taxed at your ordinary income tax rates. Generally, this kind of settlement is a wage or fringe payment and would therefore be taxed as income.
If, however, you are receiving a payment resulting from a discrimination case and the payment is for emotional distress, this would also go to ordinary income rates but you could exclude the attorneys fees from that commonly and thus your attorney would have to issue a 1099 on the entire amount you receive and you would report it as income but deduct the attorneys fees. In this scenario, you would have a capital gain which may be taxed at 15% or 20%.
If you receive a payment from an injury case, this too would involve the taxation of the attorney fees but there maybe no taxation of the underlying injury. In many cases, you will have no taxation on the amount, less the attorneys fees, of the amount awarded to you.
However, it is important to note, to the Internal Revenue Service simply complying with its findings does not mean that you are agreeing with its findings and thus you are preserving your right to protest the findings.

Ensuring Compliance with a Settlement Agreement

The very essence of a settlement agreement is to set the dispute between the parties to rest. In order to do this, the terms of a settlement agreement must be strictly adhered to by both parties. If a party does not comply with the terms of the settlement agreement, then essentially the parties are back at square one and the relief sought is ordered to be performed. The non-performing party may wish to rely on the defence of non-compliance by the other party, so the offending party cannot be heard to object to this procedural impediment . Therefore, it is in the best interests of both parties that strict compliance with the settlement agreement is adhered to.
In instances where a party to a settlement agreement declines to meet the terms of the agreement and a dispute over the agreement ensues, an application to Court can be brought for an Order enforcing the terms and/or ordering specific performance of the offending agreement.
Specific performance will be granted where it is in the interests of justice, the market value of the subject matter of the settlement agreement will not be appreciably diminished by the delay in its enforcement, and damages will not afford adequate relief.

Managing the Financial and Emotional Fallout

Amid helping your client with a settlement agreement, also be attuned to addressing the financial and emotional fallout that may occur after a settlement. You may need to advise them on how they can best protect their future. The financial implications of a settlement include: TIP: It helps to have a written plan in place that acknowledges considerations for mitigating the financial impact of a settlement. In addition to feeling a sense of loss or grief at the end of a lawsuit, your client may feel anxiety or fear about what the future may hold. The following coping strategies may help your client put their feelings into perspective: Studies have shown that the majority of people cope quite well with losses. Although many individuals go through an intense grieving period, most are able to move on after some time passes. TIP: Typically, after reviewing your options with an attorney and agreeing to terms, parties feel a sense of relief rather than stress. At some point, they are able to see that their settlement agreement has been a great blessing.

Legal Action for Non-Compliance

If a party does not comply with the official terms of the settlement agreement, there are various options for recourse. One of the most common ways to proceed would be to file a motion in the original divorce action asking the court to enforce the terms of the agreement. This is typically a complicated process, as it requires an in-depth review of the agreement to determine how the court could compel compliance.
It is also possible to reopen a case after a settlement agreement has been put on file, but only under specific circumstances . After a divorce settlement has been finalized, the case cannot be taken off the docket unless either party proves to the court that a change of circumstances warrants modification of the terms of the agreement, or both parties file a joint motion to amend or alter a previous order to include the terms of the agreement.
In some cases, arbitration, mediation or another method of alternative dispute resolution could be the right choice. Here, neutral third parties help the other spouse and the person in violation of the agreement reach a new resolution.