Collaborative divorce and mediation provide couples the opportunity to customize the terms of their divorce to meet the current and immediate future needs of their family. Retaining a neutral financial expert and working with him/her offers an even better opportunity for couples to tailor an agreement that meets those needs.
What exactly is a neutral financial expert? It’s a finance professional, often a CPA or a financial planner, who has also undergone training on issues particular to divorce and dispute resolution. So while couples may work with a financial professional to prepare their taxes or help them make investment decisions, it’s not the same as the neutral financial professional in divorce negotiations.
In most litigation cases, the financial details usually follow a formula. For the division of assets, everything is added up and then divided in two at the time of the divorce, child support follows the child support guidelines and alimony follows the alimony reform act. Sometimes, however, these formulas do not meet the needs of the family. Working with a neutral financial expert as part a collaborative divorce process or mediation offers flexibility that is usually not be available in litigation.
An example of this occurred during one of my recent collaborative divorces. Both spouses wanted to preserve the marital home for a period of time for the children. The spouse who was to remain in the home could not afford to pay the bills on her own, even with the child support. The other spouse had a living arrangement for the next few years with very low costs.
Working with the financial expert, the couple came up with an innovative solution that achieved their objective. The sale of the house was delayed for a period of two years. Instead of the noncustodial spouse paying child support or alimony, the parties divided up their financial responsibilities for their respective housing expenses, household expense, children’s expenses and marital debt so that at the end of every month each of them had the same amount of disposable income. The agreement factored in the taxes that each spouse would pay and the deductions that each would be entitled to claim. It also included language with regard to unexpected expenses (those would be split between them) and the earlier sale of the property if unexpected contingencies arose, such as the noncustodial spouse losing the low-cost housing.
As you can probably gather, this type of arrangement would have been very difficult for the couple to come up with on their own. It involves complex budgets, expense analysis and tax projections, as well as exploring/creating a number of financial solutions for the couple to consider. This kind of negotiation required a specialist who not only possessed the expertise, but was working for both parties. I feel very confident in saying an agreement like this would be extremely unlikely to occur as part of litigation.
What makes use of a neutral financial expert even more desirable lies in the effect it has on the entire negotiation. The financial expert is part of the problem-solving team and he or she strives to generate options for the couple. This engages spouses to be an active part of this solution. What this really does is lay the foundation of their future relationship. By actively problem-solving together, they are learning to communicate in a collaborative and constructive fashion. Each now has a conscious and subconscious example of how to effectively communicate with each other. That can only benefit the relationship with each other and, if applicable, their children. Besides being a more pleasant situation, it has the power to eliminate future trips to court as they have learned how to communicate with each other.
In our next blog, we will explore additional scenarios where a neutral financial expert made all the difference in the world.