Reconcilable differences
The ins and outs of collaborative divorce

Traditional divorce proceedings pit husband against wife. But when each spouse plays to win, both sides lose emotionally and financially. Collaborative arrangements seek win-win solutions that minimize expert witness fees and allow creative, customized asset splits.

What is collaborative divorce?

Collaborative law offers divorcing spouses a novel alternative to formal litigation and mediation. Although the fine details vary from one jurisdiction to another, here is a rundown of the basics: 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.

How can a financial expert help?

Another common participant in collaborative divorce conferences is an impartial shared financial expert who helps keep the parties focused on financial — rather than emotional — issues. Typically financial experts are schooled in accounting, tax and/or business valuation.

Possible financial issues that necessitate the use of a financial expert during a collaborative divorce include:

• Alimony and child support payment options,
• Property values, including private business interests,
• Equitable asset and debt allocations,
• Tax issues associated with marital distributions and support payment options, and
• Post divorce budgets and tax preparation.

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.

Collaborating spouses rarely expect financial experts to serve as “hired guns.” Instead, financial professionals facilitate settlement with creative financial solutions to complex personal and financial issues that incorporate both parties’ needs and priorities.

For instance, many monied and non-monied spouses are emotionally tied to their businesses and homes, respectively. In formal litigation, the parties run the risk of court-mandated liquidation of these prized assets. But the collaborative process allows experts to craft creative solutions that meet both sides’ needs.

What are the benefits?

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 community funds.

Collaborating spouses also save costs by sharing one neutral financial advisor or valuator, rather than hiring separate experts to battle on the stand. Private business owners prefer to use neutral valuators, 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 to being more cost efficient, collaborative divorce is often more effective. 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 and/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.

What are the downsides?

Despite its numerous benefits, collaborative divorce isn’t perfect. Most notably, 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 only court appearance occurs when the parties present their final settlement agreement to the judge. While often a blessing, the lack of court involvement can also be a curse. It usually precludes formal discovery of financial information, which can lead to incomplete or inaccurate disclosure.

Unless the parties contractually agree to freeze marital assets, collaborating spouses also have no formal means to restrain spending, incremental indebtedness or indiscriminate asset liquidation.

Finally, court dates establish a timetable for traditional divorce proceedings. In collaborative proceedings — without formal deadlines — one party can drag its feet to punish the other emotionally or financially.

What factors affect the collaborative process?

Since its inception in Minnesota in the early 1990s, collaborative divorce has spread nationwide — from Florida to California, Texas to Wisconsin. Even if collaborative law is not officially recognized in your jurisdiction, many of its provisions can still apply if the parties agree.

Despite its growing popularity, collaborative divorce isn’t a realistic option for everyone. For example, unequal bargaining power, narcissistic personalities, fraud suspicions and dishonest participants can hinder the collaborative process. Conversely, collaborative divorce is most effective when the participants are open, honest, committed to settlement and willing to compromise.

When entering into a collaborative arrangement, the parties must assemble a multidisciplinary team of experts. Collaborative divorce represents a radical departure from traditional divorce proceedings, so it’s imperative to select legal and financial advisors that are trained and experienced in the collaborative process.