When people think about the divorce process, they often imagine combative couples and attorneys at each other’s throats. They picture a process completely void of trust among the parties, along with a cut-throat effort to “win” at any cost.
Times have changed. These days, a growing number of divorcing couples are choosing alternatives that involve cooperation and good faith. One of those alternatives is known as a collaborative divorce.
A collaborative divorce is a form of alternate dispute resolution in which the parties settle disputes without resorting to litigation. Each party is represented by an attorney who has been trained in the collaborative process. The parties readily agree to disclose all information and to use good faith efforts in their negotiations to reach a mutually acceptable settlement. In addition to the couple and their respective attorneys, the collaborative team often includes mental health professionals as well as a financial neutral.
A financial neutral is a financial expert who has significant experience dealing with the financial and tax implications of decisions made during a divorce.
Qualified financial neutrals have significant training in the collaborative process and hold various professional designations. They may be Certified Public Accountants (CPAs), Certified Fraud Examiners (CFEs), valuation analysts (CVAs or ABVs), Certified Divorce Financial Analysts (CDFAs) or Certified Financial Planners (CFPs). Each accreditation offers a distinct skill set that should be matched to the complexities of the marital estate at hand.
A financial neutral is impartial and isn’t an advocate for either party in a divorce. In addition, they may not be engaged by either party in any subsequent litigation and they agree not to work for either party in the future. These restrictions promote independence and the free flow of information among all parties.
The primary role of the financial neutral is to educate all participants, including the couple, their attorneys and mental health professionals, as to the financial implications of the divorce.
The financial neutral provides advice, understanding and clarity that enables the couple to make informed decisions about their assets and their cash flow. His or her ultimate goal is to help the couple achieve a mutually agreeable settlement that works for both of them.
In addition, the financial neutral can help a couple communicate both their individual and shared financial interests. Shared financial interests that continue after divorce might include saving for their children’s college education. Individual interests might be the purchase of a new home for the spouse moving out of the marital home or simply having sufficient cash flow to meet future expenses. It is important for the financial neutral to understand each person’s goals as they form the foundation of many of the financial discussions in the collaborative process.
The financial neutral typically meets with both the husband and the wife separately to create individual budgets and cash flow analysis. They also will prepare a balance sheet, showing the assets and liabilities of the couple, which is used when discussing the division of property. The financial neutral also assigns “homework” to each party in order to ensure that all necessary information is provided to the entire team.
There are some significant benefits to using a financial neutral as part of the collaborative process.
Typically the financial neutral helps the parties collect all the relevant financial data and supporting documentation. Having one professional gather and organize this information avoids duplication of efforts and ensures that both parties receive all documents during the collaborative process. In addition, the financial neutral is trained in identifying and examining financial documents and can help identify missing documents and potentially overlooked assets and liabilities.
Since only one financial neutral is hired in the collaborative process, the costs tend to be less than those if each party had hired separate financial experts.
In most households, one spouse typically handles all of the family’s finances. As a result, the other spouse may not have a lot of experience dealing with financial issues and may feel overwhelmed during the process. The financial neutral can provide guidance, education and support in these areas.
The financial neutral can consider not only the short-term implications of the divorce, but the long-term implications of the financial decisions that are being made. Through financial modeling and analysis, each party can see various long-term financial projections so they are making informed decisions during the collaborative process.
A financial neutral can help the parties work together to reach a mutually beneficial financial settlement. Since the financial neutral is working for both parties, the financial neutral’s focus can be on identifying opportunities for compromise in order to reach a settlement.
It is important to remember that the financial neutral does not make the ultimate decision as to the various financial alternatives presented during the collaborative process; that is still left up to the couple.
Many couples (and attorneys) are realizing the benefits of hiring a financial neutral, even in cases that are not part of the collaborative process. More and more frequently, for example, we are asked to provide an independent business valuation of a couple’s ownership interest in a privately-held business. The use of a neutral valuation analyst hopefully allows each party to trust the concluded value and eliminates the need for each party to separately hire a valuation analyst.
Our Forensics & Litigation Support Group can help. Richard Wolf, CPA/ABV, CGMA, CFE, CVA, is trained as a financial neutral in the collaborative process. He specializes in providing business valuation, forensic accounting and litigation support for family law attorneys and divorcing couples. Contact him online or call 800.899.4623.