What Is a Settlement Payment?

A settlement payment is the amount a defendant pays in the event a lawsuit is settled out of court. Reaching a settlement is an alternative to a trial, which adjusts or determines the claims of a dispute, according to The Free Dictionary's Legal Dictionary.

In a settlement, parties agree to a resolution without the cost, time and public scrutiny associated with a trial, states The Free Dictionary's Legal Dictionary. While it is common for defendants to agree to a settlement payment, they are able to avoid the high costs associated with many hours of attorneys' time. In cases with multiple plaintiffs such as a class action lawsuit, settlements are approved by the court to ensure all parties are in agreement.

A settlement can take place before or during a trial and even before a lawsuit is filed, explains The Free Dictionary's Legal Dictionary. Throughout litigation, lawyers evaluate the likelihood of the trial to be found in their favor. An attorney proposes a settlement if she believes the court isn't going to find in her client's favor. A settlement takes many communications between attorneys to decide on the exact terms. However, a common condition is for the plaintiff to agree not to pursue further litigation, and a defendant may be required to change behaviors or policies at the heart of a dispute, in addition to making a payment.