When you marry, you agree to abide by the laws in your state with respect to divorce. In divorce, many spouses finally take the time to learn about those rules. But it’s often too late. For example, Sally didn’t know the rules of separate property so she didn’t know that much of Bill’s wealth was tied up in trusts he set up before marriage. Meanwhile Bill, who knew the rules, fights to keep what he inherited before marriage. Neither ever talked about their financial life or expectations during the marriage. They never created a financial plan that addressed the risk of divorce. Now they are locked into a costly battle, instead of negotiating a solution.
Sally is beating herself up for not knowing about her husband’s financial strategy while Bill is agonizing over whether he ‘tripped up’ by paying separate property expenses from the couple’s joint account. Everyone scrambles – hiding information, changing attorneys and delaying the process. Document discovery, legal and other professional costs added up to over $100,000 and they haven’t even gone to court yet.
Mediation can help couples negotiate a division of an estate (as well as other issues) by focusing on the couple’s “interests” and not on the law. Laws are put in place so society can exist peacefully and protect those who can’t protect themselves, like children. Family laws regarding money can break the ties when couples can’t agree. Seen through this lens, the laws are the minimum standard e.g. the last resort needed to make decision. Mediation is the space where the best decision for your unique situation can take place without resorting to that minimum standard.
Mediation offers other benefits. Unlike most court proceedings, the process in private. The parties can not disclose anything discussed or that occurred in mediation, even when mediation fails and the parties decide to go to court. Mediation also offers economic and emotional benefits compared to a longer process that includes court time and additional fees. Last, a mediated agreement escapes the unpredictability of a judge’s call.
The Thoughtful and Purposeful Money Mediation
The key ingredient to a thoughtful and purposeful mediation with respect to money is to enter the process with accurate and comprehensive information about your family’s financial resources. Gathering documents and creating a money list (a list of all accounts, property, debts and income) will go a long way. Also, you should go into mediation knowing what you need to cover reasonable future expected expenses, whether you keep or leave the home, plan to care for children full time, are employed or are planning to go back to work. A Certified Divorce Financial Analyst (CDFA™) can help define these goals.
The Mediator’s Role
A quality mediator is one who does more than shuttle offers back and forth. The mediators should, early on, remind couples that they are in control of the outcome of mediation – not the law or the attorneys.
Ideally, the mediator will try understand each client’s interests. Divorcing couples can help keep the process productive by keeping criticism and blame to a minimum and being clear about what they want and need going forward. Recreating the past is not useful because the mediator is not there to judge behavior. The mediator’s role is to help couples understand each other’s interests and make decisions together that can help meet those interests.
In cases where attorneys are present, the mediator is in a tricky spot ethically when it comes to dealing with each spouse’s attorney. The mediator is often someone both attorneys and/or their clients agreed to hire. The mediator may feel bound by their own ethics to avoid coming between attorneys and clients even if the mediator believes that, absent the attorneys, the couple may be able to negotiate a workable solution.
Quality mediators remind all parties that the couple has agreed to a mediation process and that the process includes a commitment to negotiating in good faith. In cases where the mediation is court ordered, mediators will educate the parties about the benefits of a mediated decision compared to the cost and unpredictability of a judge’s decision later. Last, a mediator may need to remind the attorneys that they are there to help their client understand his or her rights and achieve a workable solution that both spouses can agree to without a costly trip to court.
Further, an attorney could be using the mediation process to improve his or her understanding of the opposing council’s case. For example, Bill’s attorney tells Bill say nothing and refuse all offers because he can get Bill “more” in court. Sally’s attorney believes that Bill is there to find middle ground. She tells the mediator what Sally is willing to consider. Bill begins to see the benefit of Sally’s offer. Bill needs to have the confidence to weigh his attorney’s advice against the benefits of a solution in mediation.
Mediation: Where the Law and Money Collide
Mediation, like collaborative divorce, is a way to make what’s called an “interests based” plan that fits your unique situation without strict adherence to the law. When done with integrity, mediation is the alternative that gives spouses a chance to listen and balance each of their own “rights” with their “needs” in order to negotiate a final agreement. Instead, when the law is on their “side”, the parties may dig their heels in deep.
For example, Mike is a successful technology executive with a bright career ahead while Lynn gave up a banking career to stay home with their young children. Ten years later they decide to divorce. During the marriage, Lynn used money from an inheritance to update the kitchen. She wants Mike to reimburse her, with growth. Specifically she wants $60,000 more from the sale of the home. In mediation Mike’s attorney tells him that, under the law, the money would be seen as a gift to the marital estate because Lynn put the money in their joint account first. Thus under the law, the house would be divided equally. Should Mike fight for his rights or should try to see things from Lynn’s perspective? After all, Lynn may want a financial cushion as she attempts to return to the workforce as a single parent.
Mike’s attorney is there to protect Mike’s interests so his goal is to use the laws to favor Mike. Lynn needs to explain, through the mediator, why she believes she will need the additional funds to get back on her feet. Mike needs to weigh his attorney’s advice against Lynn’s needs and even his own needs. Mike might respond by telling Lynn that he’s concerned that he may be laid off. He can decide to agree to ‘give’ her the $60,000, to use the law to take his half of the $60,000, something in-between or even something completely different that meets both their needs.
When each spouse attempts to fully assert his or her rights under the law, a workable solution is about as likely as a flying unicorn. In mediation, each attorney has the responsibility to provide accurate information about the law and defend his or her client’s rights. Spouses, meanwhile, have the responsibility to balance legal advice against the economic and emotional benefits of avoiding the courtroom by negotiating a final agreement in mediation.
Asset protection plans should be developed and implemented well before problems arise. Due to the fraudulent transfer laws, asset transfers that occur close in proximity to the filing of a lawsuit or bankruptcy can be interpreted by the court as a fraudulent transfer. Proper structuring of these assets is imperative please seek proper legal and tax advice prior to engaging in re-titling/structuring of any assets. Please note that laws are subject to change and can have an impact on your asset protection strategy.
Investment advisory services offered through Robertson Stephens Wealth Management, LLC (“Robertson Stephens”), an SEC-registered investment advisor. This material is for general informational purposes only and is not tailored to the needs of any specific individual. Any discussion of U.S. tax matters should not be construed as tax-related advice. Please consult your personal tax advisor for more information. © 2020 Robertson Stephens Wealth Management, LLC. All rights reserved. Robertson Stephens is a registered trademark of Robertson Stephens Wealth Management, LLC in the United States and elsewhere.