When what you don't know CAN hurt you when mediating the financial aspects of your divorce

When what you don't know CAN hurt you when mediating the financial aspects of your divorce

If keeping your divorce costs down is a priority and you can sit in the same room with your spouse and can communicate with them (albeit with some help), then mediation might be a great option for you.

Mediation is a fast-growing alternative to disputing your divorce in front of a judge and comes with huge benefits.  For starters and maybe the most influential, you control your own destiny.  In court, even in community property states, there’s no telling how a judge will choose to divide your assets and while guidelines exist, judges have loads of freedom with regard to how they apply the law.  Another huge factor is cost.  Mediating couples are more likely to keep their money in their own pockets, versus handing it over to their divorce attorneys.  As soon as the words “I’ll see you in court” are exchanged, both parties require their own independent representation which can cost each party thousands.  To cap off some of the largest benefits, mediation can also lead to a faster, lower-stress outcome for both parties because it is a form of direct negotiation. 


Although there’s a laundry list of reasons why mediation is a great option, it isn’t for everyone and some solid preparation is required if you want a satisfactory outcome.  As a Certified Divorce Financial Analyst and CPA, in my opinion one of the pitfalls is the lack of preparedness many couples have when mediating financial issues and decisions.  While the goal of mediation is to establish an agreement both parties feel is fair and equitable, when it comes to reaching an agreement on financial matters I find that there are often inherent barriers that exist to doing so.  One common example is an imbalance of financial knowledge or power that exists between two spouses and another may be that an inaccurate understanding of what is actually on the table for negotiation exists by one or both parties.  While it is true that with most types of mediation the goal isn’t to “play judge” or to impart legal advice, there is a fundamental importance to starting with the right basket of property when beginning the process.

My most value-added cases have involved working with couples who chose a mediation approach.  I have worked with amicably-divorcing couples to mediate the financial aspects of their divorce and I have also worked with individuals to inform them, educate them and coach them through the financial aspects of mediation including their property division and income considerations including spousal and child support.  Through this direct experience, I have identified a list of four questions that I feel, as a financial expert, anyone mediating the financial aspects of their divorce should be able to answer before reaching a final agreement with their spouse.

1.       Do you have full knowledge of all assets, debts and income streams that may exist that could be considered marital property?

In my financial opinion, if both parties do not have a fully-informed inventory of property and income streams that exist relative to the marriage it is very difficult to begin a realistically “fair” negotiation.  While in most states, financial disclosures supplied to the courts will include a request for this inventory, it isn’t always readily available.  Part of the expectation of mediation is that all parties are honest and are full-disclosure, however this is not necessarily enforced as it would be through discovery if the case were litigated—which is just one tradeoff of the benefits of mediation.  However, it should be noted that any agreement reached in mediation is enforceable by the courts. 

This perspective isn’t intended to deter anyone from the option of mediation, but moreso to educate any parties intending to use a divorce mediator to ensure the process is started with a solid foundation of information.  If this information doesn’t exist, you have every right to start the conversation and process at this stage and can also bring in resources you might need to do so while keeping the case out of court. 

2.       Do you have a clear understanding of the rationale for why assets are being classified as marital or separate property?

Assuming you can get comfortable with the first question, to start the process of dividing it in a way you and your spouse feel is fair means you should also have a clear understanding of the rationale you and/or your spouse are using to determine how it is classified.  When mediating the financial aspects of your divorce settlement, the reality is you do not have to follow the law.  You and your spouse can elect to characterize any of your property in any way you both find mutually agreeable which is why more facilitative or transformative mediators might argue the law doesn’t matter, which is a fair statement in the context of divorce.  However, I have found that many of my clients (especially in a community property state like California) wish to understand how courts look at characterization of property as a point of reference.

3.       Are you comfortable with and feel support is adequate for any rationale used related to value assets or debts, especially if significant to the settlement?

When it comes to big-hitting assets like the family home or retirement accounts and complex assets like business ownership, valuing them fairly is extremely important since they could have such a big impact on the size of the property basket.  Again, fair is in the eyes of the beholder in mediation but doing some diligence to ensure assets are valued properly before division could mean in some cases a difference of thousands of dollars.  A common example would be how you and your spouse arrive on a fair market value for your home.  Are you just using a widely-known website estimate from Zillow or Redfin?  Are you using a third-party appraiser?  Online real estate site estimates vary widely from day to day and have differing methodologies and an appraisal will cost you both extra cash so each option has its pros and cons.  Another good example is a pension.  So often people will just read a statement at face value assuming it is reflective of a pensions true value.  In many cases, the statement is only part of the story and you may be leaving thousands of dollars on the table.  Therefore, while you have the flexibility in a mediation setting to agree on any valuation method mutually agreeable to you and your spouse, doing your homework could have significant financial impact.

4.       Do you fully understand the short and long-term financial impact of the decisions you are making?

Financial decisions in divorce are complex and interdependent.  There are a ton of moving parts and considerations that let’s be honest, if you aren’t reasonably proficient with numbers and math can be extremely overwhelming.  Time and time again I’ve had clients profess to me how surprised they are about how much math and finance is involved in the divorce process and frankly, sometimes it can make you feel like you just want to throw in the towel, often at the sacrifice of things you originally wanted before being completely wrung out. 

Another consideration is the role emotions play into decisions made in the process.  This brings rise to the last question to ask yourself which is whether you really, and I mean really understand what the decisions you are making mean for you today, tomorrow and 20 to 30 years from now?  Are you so set on keeping the family home that you have neglected to understand that it might mean your lifestyle changes significantly after divorce?  Are you looking at your ability to continue to save for your own retirement and regain momentum after potentially having to share or split the critical mass you and your spouse may have developed over time to date?  These questions will of course be highly specific to your individual case, but aren’t often explored and given attention within a mediation setting. 

I encourage anyone approaching their divorce through mediation to consider these questions, how well you understand them and if you can answer them on your own.  While mediation can be a powerful tool that I wholeheartedly believe in, the process is most valuable when all parties can come to the table informed and on a level playing field.  When these questions cannot be answered by one or both spouses, it is important to understand that you are in control of the mediation process and at any time can enlist or introduce other divorce professionals to inform your decision-making process or to fill gaps you may have that prevent you from making an educated decision.  As a Certified Divorce Financial Analyst and CPA, I sometimes work with individual clients to support them through the financial aspects of the mediation process.  I also work with both spouses to mediate the financial portions of divorce including property division and income considerations including child and spousal support while they work with other mediators on parenting plans and custodial topics.  This is the beauty of mediation because you remain in full control of choosing the resources you use for particular parts of the process and also have the ability to obtain support and education you may require to reach your own idea of fair and equitable.