Navigating Divorce Mediation – How to Manage the Process for Clients

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Clarity about process in Divorce Mediation is absolutely mandatory for success.

The concept of Divorce Mediation has proliferated in America in the last thirty years as divorcing parties have realized that divorce court should be an option of last resort. Divorce Mediation supports the decision making of the people whose lives are actually affected by the decisions and allows divorcing individuals a sense of control of the outcome IF it is done right.

Divorce Mediation is a delicate process. Here are some things to keep in mind when considering Divorce Mediation.

Balance of Power:

Too much power on one side of the table creates an unsafe environment. The power could be due to the marital dynamic, control of financial resources of access to information. A skilled Divorce Mediator will recognize the power imbalance together with the dynamic creating it and set out to level the playing field.

Safe Container:

Lack of a safe container leaves couples feeling lost in the ambiguity of a complicated decision making process set a midst a legal dispute. A skilled Divorce Mediator will insure the couple is constantly apprised of where they are in the process, next steps in the process, homework assignments to be completed and time-lines for their completion and maintain an awareness for the parties of the legal process they are engaging in.

The Mediator:

“Mediators” are unregulated. There is no credential that guarantees a Divorce Mediator has the requisite knowledge and experience to assist a couple in navigating the largest financial transaction of their lives. Together with the proliferation of the Divorce Mediation process has come the proliferation of Divorce Mediators. Individuals with backgrounds varying from business owners to lawyers to accountants and financial advisors to Marriage and Family Therapists and Psychologists to law school graduates who never passed the bar exam and para-legals have hung up shingles as Divorce Mediators. Divorce Mediation is a process that can be taught. What can not be taught is the human dynamic that occurs during the process. For this reason it is important to engage a Divorce Mediator with experience and training specific to Divorce. This probably means a Lawyer and/or Certified Divorce Financial Analyst.

Costs:

Beware the flat fee Divorce Mediation. I have never seen a couple successfully navigate and complete a divorce for a flat fee. It is an unfair expectation to set a client up for. Often the professional will reach the extent of the time they have allocated for the flat fee and ask for more money or begin to dis-engage and abandon the parties before the Divorce Mediation process has been completed. Divorce mediation is not always cheap. Failed mediation proceedings may be a complete waste of money and time. I see Divorce Mediation proceedings fail all of the time.

Divorce Mediation Defined:

Just because you resolve your differences outside of court does not mean you are engaging in Divorce Mediation. Mediation is a process where a Neutral facilitator guides a couple through decision making around legal, emotional and financial issues that must be resolved in a divorce. Most Divorce cases resolve outside of a court room in settlement conferences, Collaborative Divorce of formal settlement proposals via letters between legal counsel. Couples need to understand that Divorce Mediation is not the only way to resolve their differences outside of court. Many will be better served by a process where they have legal counsel actively engaged which usually does not occur in Mediation.

 

 

 

wellspring divorce advisors

Wellspring Divorce Advisors helps individuals and couples address the financial aspects of divorce in a civilized, equitable, and efficient manner by providing expert divorce financial planning and advice.

Contact us to find out how we can help you through this process.

 

Negotiating Against Yourself in Divorce

We are starting to notice a few Divorce Financial Planning trends in 2013 and will write about a couple over the next few weeks.

The first trend is what we call Negotiating Against Yourself. Negotiating Against Yourself in a divorce financial settlement happens when one party makes all the offers for settlement.

Assume a Husband makes an offer for a financial settlement in a divorce. Wife has four options. 1) Respond yes and accept the offer 2) Respond no and decline the offer 3) Respond with a counter offer 4) Don’t respond at all.

Each of the options can be a negotiation tactic. Negotiating Against Yourself is a common result and often the desired result for the negotiator who chooses option 4. The recipient of a settlement offer, the Wife in this case, may choose not to respond hoping the other party will grow tired of waiting and make another offer.

Most people in the Husband’s shoes in this example will grow restless, assume their original offer was simply not good enough and make another.

Making two offers before the opposing party in your negotiation makes their first is Negotiating Against Yourself. The Husband in this case must make progressively better offers in order to garner his wife’s response. As offers get better for her they get worse for him.

Divorce Financial Planning: Concentrated Stock Holdings During Divorce

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Your Investments

We have many clients with significant wealth tied up in the stock of their employers. During Divorce Financial Planning it may become necessary to create liquidity to pay fees, facilitate an equalization payment or create diversification where there previously was none.

These stock holdings are through vehicles such as Employee Stock Purchase Plans, Stock Options and Restricted Stock. They may be vested, unvested or co-mingled, meaning they have different liquidity constraints. Each vehicle also has a different tax consequence at sale. Here is a quick review of some Divorce Financial Planning considerations to consider when seeking liquidity and diversification during during divorce proceedings.

Stock Holdings

For stock held outright we look at tax basis for guidance in our divorce financial planning. Shares with a low tax basis can be sold today to lock in tax rates and later repurchased if the client wishes to continue to hold the stock.

Restricted Stock

Restricted stock generally releases or distributes into a common brokerage account at vesting so it would be treated as normal stock holdings with divorce financial planning decisions based upon review of tax basis. The tax basis is based upon the stock price on the day of vesting and distribution.

Employee Stock Purchase Plans

Stock held in an Employee Stock Purchase plan has a complicated tax picture. The discount, typically 15%, given to the employee on the initial purchase price is taxed at ordinary income tax rates. The difference between the fair market value at purchase and the fair market value at sale is taxable at capital gains rates. ESPP assets often have low tax basis because employees buy and hold the stock  so this may be the first place to look for harvesting gains and resetting basis during your divorce financial planning.

Stock Options

Non-Qualified stock options carry a more complicated set of tax implications and divorce financial planning considerations. Options are taxed as ordinary income for the difference between the strike price and the price at exercise. Options can be exercised today in a same day exercise and sale transaction to lock in tax rates. If you wished to hold the stock you could still exercise the options and lock in the ordinary income tax rates for 2012 but you would have to come up with cash from another source to fund the option exercise. Stock options also become a complicated logistics issue post divorce as the non-employee spouse may not be able to hold the options. For this reason alone it is worth considering liquidation during your divorce financial planning.

Wellspring Divorce Advisors builds long term distribution schedules and detailed analysis of current versus future values including opportunity cost and present value of money to help clients decide how to manage concentrated stock positions during and immediately after divorce proceedings.

 

wellspring divorce advisors

Wellspring Divorce Advisors helps individuals and couples address the financial aspects of divorce in a civilized, equitable, and efficient manner by providing expert divorce financial planning and advice.

Contact us to find out how we can help you through this process.