CAN MEDIATION AND COLLABORATIVE LAW WORK FOR HIGH-NET-WORTH DIVORCES?

The other week, I attended an interesting talk on financial considerations for high-net-worth women going through a divorce. The talk was hosted in Brooklyn Heights by a group calledUNtied and given by Forbes columnist Jeff Landers. One of the topics that came up during our discussion was what type of divorce process the women in the room had chosen (i.e., mediation vs. Collaborative Law vs. litigation) and, secondarily, whether mediation and Collaborative Law were as protective, financially-speaking, of high-net-worth women as litigation.

There are certainly financially-motivated reasons for choosing mediation or Collaborative Law over litigation. Some of the women in the audience had chosen mediation or Collaborative Law with the expectation that it would be a more efficient process than litigation and thus a better use of family resources. Others believed they could do (or had done) better in terms of a financial settlement in a less acrimonious and more flexible process, where the focus was not solely on what they were entitled to by law.

But are there financial risks to participating in a mediation or Collaborative Divorce? Drawing on his experience working with high-net-worth women in litigation, Mr. Landers questioned whether high-net-worth cases could be appropriately handled in mediation or Collaborative Law, in particular where there was a financial power imbalance between spouses, and/or where a spouse was engaging in deception around the finances. The crux of his concern was that outside a litigation process, the less financially savvy spouse would not be guaranteed full access to relevant financial information and thus would base settlement decisions on an incomplete picture of the family finances.

I completely share the sentiment that a divorcing couple should have access to the same [relevant] financial information in mediation or Collaborative Law as they would have in litigation. The question is more how to accomplish it. Drawing on my experience as a divorce litigator, and now as a mediator and Collaborative Lawyer, I share some thoughts below on how to bolster the financial integrity of a mediation or Collaborative Law process. I think the key is to adapt financial discovery tools from litigation and to engage appropriate financial professionals, as needed.

The litigation process begins with the voluntary exchange of a sworn Statement of Net Worth, which lists the spouses’ expenses, income, assets and liabilities. I encourage couples in mediation and Collaborative Law to make the same exchange at the outset of their case. Once Statements of Net Worth have been exchanged, we review the contents of together, identifying and agreeing to where more information and/or documentation is needed. This is an informative first step, and it provides protection and reassurance for each party to know that the other has sworn to their full disclosure of relevant financial information.

The other methods of financial “discovery” in litigation are, essentially: (i) asking questions and (ii) inspecting documents. You may have heard terms like Subpoena Duces Tecum, Notice for Discovery and Inspection, depositions and interrogatories, which are just formal names for mechanisms that allow attorneys or parties to ask relevant questions or inspect key documents. In mediation and Collaborative Law processes, you have the power to ask all the same questions and inspect all the same documents as you would in litigation. The difference is that instead of making a formal demand to do so (e.g., through a subpoena, interrogatories or otherwise), you must agree to do so with the other side. The Collaborative Law process is so focused on full financial disclosure that it obligates participants (in writing) to voluntarily share all relevant information, whether or not the other side knew to request it.

For mediation and Collaborative Law cases to work, both sides need to be willing to be upfront and fully disclosing, and to back up their assertions with whatever sworn statements or proof is needed. My experience has been that the vast majority of couples in mediation or Collaborative Law are committed to full financial disclosure and a fair settlement. Nonetheless, there are cases that involve deception, in which one or both spouses are determined to hide assets or misrepresent their income or spending.

Although cases where deception is present are a better fit for the litigation process, litigation is not a guaranteed cure-all for them. Where one spouse suspects that the other is hiding assets or inaccurately reporting income or expenses, the most useful tool is not litigation itself but engaging the appropriate financial professional to rigorously investigate and assess the finances of the case. That is an option that’s available in any process – mediation, Collaborative Law or litigation.

Even where deception is not suspected, there may still be a great imbalance between the spouses in terms of earning power or financial sophistication. Engaging a financial professional in those situations can go a long way to restoring balance between the spouses and empowering the “less savvy” spouse to understand all the issues and make decisions for their financial future.

While ensuring meaningful financial disclosure can be a challenge in mediation and Collaborative Law, it can equally be a challenge in litigation. By adapting and agreeing to financial discovery methods from litigation, and/or enagaging a financial professional, as need, high-net-worth families can construct a hybrid, “best of all worlds” process suited to their individual needs.

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