Michael B. Lehner, CPA/ABV, CFE, ASA
732-412-3825
MLehner@zbtcpa.com
zbtcpa
business valuation Achieving a fair settlement in divorce
Achieving a fair settlement in divorce
January 13, 2021
hidden assets income divorce cases Methods of detection
Uncovering hidden assets and income in divorce cases
February 6, 2021

Is collaborative divorce right for your client?

collaborative divorce financial experts

Download Printable PDF

Since the concept of “collaborative divorce” was introduced in the 1990s, it’s been gaining momentum as a creative, cost-effective alternative to the traditionally adversarial divorce process. Here’s an overview of how it works — and for whom.

The basics

In general, collaborating spouses sign a contract agreeing to amicably settle their divorce out of court. They promise to openly and honestly exchange all relevant financial information and to negotiate in good faith. In lieu of traditional litigation, the parties conduct a series of “four-way conferences” between husband, wife and their respective attorneys. Between conferences, the parties gather information, calm emotions and evaluate settlement proposals.

Although both sides retain separate attorneys, neither party may seek (or threaten) court action. If they do, the collaborative process stops.

Role of financial experts

Financial experts often participate in the collaborative process to help keep the parties focused on financial — rather than emotional — issues. For example, they can help evaluate alimony and child support options, discuss marital asset allocations and value private business interests.

Instead of advocating one-sided victories, financial experts in collaborative divorce encourage value-based discussions and settlements that “expand the pie” before divvying it up. They also facilitate settlement with creative financial solutions to complex personal and financial issues that incorporate both parties’ needs and priorities.

Several advantages

Compared to traditional divorce proceedings, collaborative divorces generally settle faster and at a fraction of the cost. In collaborative divorce all legal fees and financial expert expenses are paid from the couple’s community property.

Collaborating spouses also save costs by sharing one neutral financial advisor or valuation professional, rather than hiring separate experts to battle on the stand. The use of a joint expert is desirable when the marital estate includes a private business interest, because it minimizes the time spent educating experts about business operations and prevents adversarial experts from asking employees inappropriate questions that may precipitate unwanted rumors.

In addition, four-way negotiations promote ongoing communication after the divorce. Such rapport is especially important when the parties co-parent or retain a financial connection related to support payments, college tuition or asset distributions paid on an installment basis.

Furthermore, collaborative divorce minimizes many risks inherent in traditional litigation and mediation. For instance, courts and mediators sometimes mandate one-sided settlements, whereas collaborating spouses mutually decide their final outcomes. In turn, the parties are more likely to comply with self-imposed settlement agreements.

Potential pitfalls

Collaborative divorce isn’t perfect, however. If a stalemate occurs or either party seeks legal injunction, the process starts over and both attorneys are disqualified from the case. Not only must the spouses find, educate and pay for new counsel, but also they must hire additional financial experts and fund court costs separately.

If the parties end up in court, information shared during collaborative negotiations can come back to haunt them. Typically, collaborating spouses stipulate that all financial documents, correspondence, draft settlement proposals and expert witness reports generated during four-way conferences are inadmissible in future litigation. However, courts have been known to overrule collaborative divorce agreements.

Moreover, the court is peripheral in collaborative divorce. The lack of court involvement may preclude formal discovery of financial information, which can lead to incomplete or inaccurate disclosure. It also allows the parties to negotiate without formal court-imposed deadlines, which can sometimes prolong the settlement process.

To collaborate or not to collaborate?

Though collaborative divorce offers numerous benefits, it isn’t a realistic option for everyone. It works best when the participants are open, honest, committed to settlement and willing to compromise. Before selecting this alternative path, consult an impartial financial expert who’s experienced in collaborative divorce proceedings. He or she can identify potential roadblocks to the collaborative process.

 

Michael Lehner


This publication is distributed with the understanding that the author, publisher and distributor are not rendering legal, accounting or other professional advice or opinions on specific facts or matters, and, accordingly, assume no liability whatsoever in connection with its use. In addition, any discounts are used for illustrative purposes and do not purport to be specific recommendations.