The divorce process involves many aspects of the relationship from an emotional and financial standpoint. The most contentious issues often center on the parties’ finances. Because addressing cash flow and the distribution of assets can create added stress during the divorce process, mediation is often considered as the best alternative to going to court. In this process, both parties have an opportunity to obtain complete information on the family’s financial situation and make informed decisions about how to move forward. This is especially important when there is an imbalance in the relationship caused by either a disparity in income or understanding about the finances. Regardless of the reason for the financial imbalance, mediation allows for both parties to have a fair process and equal opportunity for his/her questions and concerns to be heard and addressed while coming to an agreement.
Financial imbalance in the relationship can lend itself to the perception that one spouse has more “power” than the other in terms of controlling the money. In my experience, this is usually an uncomfortable situation for both parties. The spouse with less knowledge may feel that he/she is at a disadvantage. The spouse with more knowledge can become frustrated with the gap in knowledge. In mediation, one of the mediator’s tasks is to ensure that both parties understand the finances and understand each other’s priorities and concerns before making the important decisions that must be made. The mediator is a neutral third party whose role is to help the parties gather relevant information and guide the discussions so that a fair and reasonable resolution can be reached. The mediator does not advocate for either party and instead works to ensure that the discussions are productive. Rather than being pitted against each other in front of the judge, the mediator facilitates comprehensive discussions of the issues in order to hopefully obtain a mutually beneficial agreement.
In addition to the mediator, a financial professional, such as a certified public accountant, can be utilized in the mediation process. The financial professional is also a neutral party and can help the less informed spouse to gain a better understanding of the financial situation. There are two aspects of the financial information that the mediator and financial professional will ultimately review with the parties:
- Cash Flow: The monthly income and expenses of the family. Children’s expenses (if applicable) will usually be reviewed separately to facilitate an understanding of the children’s needs and to assist the parents in prioritizing decisions..
- Assets & Debt: All assets of the marriage, including but not limited to: the marital residence, retirement and non-retirement assets, interests in a business or practice, trusts and vehicles as well as debts of the marriage including but not limited to; mortgage(s), home equity lines of credit, student loans, personal loans, credit card debt, etc. There is also a review as to separate property (property acquired prior to marriage or by inheritance or gift).
The mediator and/or the financial professional will gather the information needed in order to provide comprehensive information to the parties, namely a detailed account of the parties’ finances. Once the information is gathered, the parties will meet to discuss the financial picture. This step is very important because no negotiations should take place until all of the information is gathered and reviewed. Without such an understanding, negotiations can be affected by fear and anger rather than understanding. From an emotional standpoint, most people prefer the mediation setting to a traditional courtroom atmosphere, which can intensify the stress and cause a further disconnect in the communication between the parties. Taking part in the information gathering and decision-making usually helps both parties to feel empowered in the decision-making process and leads to resolutions that better suit the unique needs of the family. When both parties have a thorough understand of the household finances, assets and debt, it is usually a relief to be able to engage in a meaningful conversation about a practical way that the family can meet its needs.