Handling Settlement Agreements With Long Payment Periods

In a best-case scenario, a lawsuit or some other kind of legal matter settles with everyone signing a settlement agreement and one party paying the other a lump sum for a release of claims. However, sometimes parties do not have enough money to make payments under a settlement agreement all at once and a longer payment period is needed. In my practice, I have seen payment periods of a few months to a few years. The longest payment period I have ever seen was 10 years! Although it might seem easy to simply agree to a long payment plan, lawyers need to evaluate certain considerations.

Continued Involvement

Lawyers might think that once a settlement agreement is signed, their involvement in a case ends. This is not always the case. For instance, a lawyer can be ethically connected to a lawsuit after a settlement agreement is signed if the lawsuit is not discontinued until after the last settlement payment is made. This can be difficult for lawyers. Sometimes attorneys are relieved at being done with cases for a variety of reasons, usually because clients are difficult to handle or the subject matter of the case is troubling. However, if a settlement agreement comes with a long payment period, there can be months, if not years, of additional work that a lawyer needs to perform on a file. As the case may not end when the ink dries, lawyers need to have their eyes wide open when they are involved in a settlement agreement with a longer payment period.

Keep Paperwork

After a matter settles, it can be easy to close a file on a case and forget about information related to a matter. However, if settlement payments are interrupted, or after all of the settlement payments are made, the lawyer might need to get involved in the case once again either to file a motion related to the settlement or to take the proper steps to discontinue a lawsuit.

Over the course of my career, I was involved in multiple settlement agreements that called for two-year payment periods. In each of these instances, I was informed by the client that all of the settlement payments had been made and that the cases needed to be discontinued. In each instance, I needed to refresh my recollection about the files and review all of the documents I had for the matters to see what needed to be done to finally put the matters to rest. In each instance, when I reached out to other stakeholders to the settlement, they were usually just as surprised as I was that the settlement payment term had expired and that they needed to take steps to close a file. Lawyers can prepare for this eventuality by drafting a summary of the case and next steps for themselves in the future so it is easier to recall important facts about the case at the critical time.

Don’t Burn Bridges

Lawyers often do not end cases on the best terms with stakeholders to a legal dispute. Clients might think that their counsel did a poor job on a matter resulting in a less-than-optimal resolution, and this can strain the attorney-client relationship. Moreover, the act of negotiating a settlement agreement can be heated and can disrupt relationships that lawyers have with their adversaries. However, it is important for attorneys to maintain their connections with stakeholders to a deal when a settlement agreement that has a long payment term. Chances are that counsel will need to engage with stakeholders to a deal throughout a payment period and this is easier if everyone gets along.

In any event, I am not opposed to longer payment terms under the right circumstances, since this empowers parties to settle cases when they do not have cash available to make a settlement payment immediately. However, lawyers should take steps to prepare themselves for settlement agreements with long payment terms.

Jordan Rothman is a partner of The Rothman Law Firm, a full-service New York and New Jersey law firm. He is also the founder of Student Debt Diaries, a website discussing how he paid off his student loans. You can reach Jordan through email at jordan@rothman.law.

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