You’ve Decided to Mediate Your Divorce. Should You Bring a Lawyer?

Deborah ReiserDeborah Reiser

You’ve decided to mediate your divorce case. You wisely decided to avoid the expense, acrimony, and uncertainty of a contested court proceeding in favor of a negotiated resolution with the assistance of a neutral third party. You’ve selected a mediator, and now are faced with the choice of whether you should go to mediation with or without your lawyer.

There are pros and cons to both approaches, and the decision deserves thoughtful consideration.

When You May Not Want an Attorney

Obviously, mediating without two additional lawyers present is, at first, less expensive. The math is easy — you are paying two fewer professionals for the real time of mediation. If you and your spouse are able to communicate civilly, if the issues are not mired in complexity, if positions are not hardened in concrete, and if both sides recognize the wisdom of compromise — then, by all means, consider meeting with the mediator alone.

When You Should Consider Bringing an Attorney

On the other hand, what if one spouse holds all the advantages, financially and otherwise?

  • What if one spouse is unable to appreciate the value of achieving a resolution even if imperfect?
  • What if the complexities of resolution are outside your comfort zone?
  • What if there are issues which require specific expertise, such as identifying and valuing business interests? Or dividing retirements and pensions?

Having your lawyer present in real time can make the difference between success and disaster.

Remember: The mediator is a neutral. S/he cannot offer legal advice to either party; rather, the mediator’s job is to get the parties to agreement. There may well be issues where you need actual advice about the wisdom of your position, about the risks and exposure you face with different choices, or about whether your negotiating strategy is even prudent or smart.

As a neutral, a mediator should not say to you “You would be unwise to do this, this is a mistake for you.” If your lawyer is present, you can address strengths and advantages, pitfalls and risks in real time. Otherwise, stopping the mediation to consult with your lawyer and then re-grouping not only slows progress; actually, the fits and starts can easily cost more money over the long run.

Similarly, suppose you reach a tentative agreement in mediation. The mediator should advise you to consult with your own attorney before signing what will be a binding contract. Suppose further that on consultation with your lawyer you become aware of a major issue you failed to address, or worse, resolved in a manner that can actually cause you harm. Then you have to return to the negotiating table. You’ve lost time, money and quite possibly have created a more intransigent bargaining position on the other side.

At the very least, you should consult with your own lawyer In advance of mediation in order to become educated as to your rights and obligations under the divorce law, to think through your goals and areas of potential compromise, and to “game-plan” your negotiating strategy. Discuss with your lawyer whether to have him/her accompany you to the actual mediation. Then, and only then, decide what course is best for you.

Not All Dollars Are Equal: Which Assets Are Most Valuable in Divorce?

AvatarErik Arena, Principal

One thing is usually certain in the aftermath of a divorce: You’ll experience a reduction in net worth and in standard of living. This is unavoidable as one household becomes two.

But just because it will happen doesn’t mean you can’t take steps to lessen the blow. By choosing wisely and unemotionally when dividing the marital assets with your spouse, you can minimize the reduction in your net worth post-divorce.

Not all Dollars Should be Valued Equally in Divorce

Although all asset transfers between spouses (incident to divorce) are tax-free events, some of those assets may later be subject to sizeable income and/or capital gains taxes that must be paid entirely by the receiving spouse, significantly diminishing their net value. It is imperative that these consequences be known and understood by you and your attorney so that you don’t end up with less than your fair share of the net assets.

Which Assets and/or Dollars are Most Valuable?

Value means many different things to many different people. When dividing assets between spouses, it is important to keep in mind the classes of assets identified below, which vary in net present value. If you and your spouse are trading assets from different classes, adjustments may need to be made to ensure you are not losing fair value.

  1. Cash is king! It is both liquid and not subject to any further taxes. It doesn’t get any better than that!
  • Cash, funds in checking and savings accounts, and the money market portion of any investment accounts.
  • Home sale proceeds. If the family home is sold as part of the divorce, those proceeds are also liquid and not subject to further tax (as any capital gains due will be paid at the time of sale, after application of your combined spousal $500,000 capital gains exclusion).

2. Other assets not subject to any further tax. Generally speaking, the replacement cost for these items exceed their private re-sale value. Retaining those items as part of your divorce will mean less dollars spent by you post-divorce to get yourself situated.

  • Furniture and home furnishings.
  • Automobiles.

3. Assets subject to capital gain but not income taxes. These assets will fluctuate in value and will be subject to capital gain taxes if you need to sell them to generate cash. The order of priority in each case will vary depending upon the tax basis of each asset or holding:

  • Stock and/or mutual fund holdings in investment accounts. These may also throw off interest and/or dividends, which, in some cases, is taxable income to you.
  • The family home. Depending upon the home’s tax basis, you may face a hefty capital gains bill if you assume ownership and then sell it later. Further, at the time of that sale, you’ll only be able to use your own $250,000 capital gains exclusion, as opposed to the combined $500,000 exclusion for spouses.
  • Other real property not used as primary residence. Any capital gains problem is compounded with these properties because there is no applicable capital gains exclusion.
  • Stock options
  • Vested restricted stock
  • Some artwork

4. Assets subject to income tax at the time of exercise or withdrawal. These assets will also fluctuate in value. However, when it comes time to withdraw from them, you’ll be taxed on those withdrawals and/or distributions at your ordinary income tax rate in the year in which you take the distributions. Accordingly, the present value of retirement assets, when compared to cash assets, must be adjusted for both present value (as cash is available to you now, whereas retirement, if drawn early, is subject to an additional 10% penalty tax) and after-tax value.

  • Most employer sponsored retirement plans (note: IMF and World Bank pensions are not taxable)
  • IRAs
  • Certain pension plans
  • Retirement annuities

Each divorce is different and there can be legitimate reasons why assets are divided a certain way. The information above is intended to inform and educate you, so you can use that knowledge to move forward in a strategic fashion.

Litigation vs. Negotiation – Which Path Is the Right One for You?

Chris RobertsChris Roberts, Principal

Most of us have seen one of those dramatic courtroom movies that glamourize the court process – perhaps Tom Cruise’s fiery cross-examination of Jack Nicholson in A Few Good Men, or Gregory Peck’s moving closing argument in To Kill a Mockingbird

But litigation, the contested court process by which parties resolve their differences, is nothing like the process we see in our favorite legal thrillers. It is a long, slow, and expensive process. Many people consider it the most painful, difficult process of their lives.

What does the process entail?

Unless the parties can resolve the disputed issues in advance of trial, litigation usually culminates in a bench trial, where a single judge considers the evidence and arguments presented, and issues a ruling. 

The process typically begins with a scheduling hearing, where the case is scheduled in calendar-like fashion, including deadlines for the completion of the discovery process, perhaps a date by which the parties must participate in mediation or another alternative dispute resolution process, and a trial date.

Depending on the jurisdiction, the process can take a year or longer. And it is invasive. Discovery alone can include dozens of document requests, written questions that must be answered under oath, and potentially depositions of the parties, which in Maryland can last as long as seven hours straight.

At trial, each party presents his or her evidence, including witness testimony and the introduction of documents. At the conclusion of the trial, the judge renders a ruling and, ultimately, a divorce decree.

So why would anyone subject themselves to this?

You might be thinking, “This process sounds terrible, why would anyone subject themselves to this?”

For one, it guarantees an end to the process. If your spouse or co-parent is unwilling to engage in an alternative process to resolve your issues, litigation might be your only option. The court process may be slow, but it moves predictably and inexorably to a final result, after which you can go on with your life.

In some cases, there are issues on which the parties truly cannot reach agreement. In the child custody realm, this could include child support, a parent’s relocation, mental health or substance abuse issues, or physical or psychological abuse of a child. In a financial context, there may be a dispute about alimony, a party’s actual income, the value of a party’s business, or whether a party’s trust interest or inheritance should be considered in the resolution of financial issues.

What are the alternatives?

Parties are always free to resolve their issues without resorting to a contested court process.

There are a number of alternative dispute resolution tools. Some of the more common approaches include:

  • A traditional negotiation involving attorneys, where parties develop settlement offers with the assistance of their counsel, who then negotiate on behalf of their clients to resolve the issues
  • Mediation, a voluntary process where the parties meet with each other and a neutral, third-party mediator, often with counsel present or advising them
  • Arbitration, in which a third-party decision-maker considers a presentation of evidence and argument from each party and renders a binding decision

All of these approaches are generally less expensive and quicker than the litigation process. And this is not an exhaustive list of the out-of-court approaches available to people to resolve their divorce or child custody issues.

Which process is right for me?

In almost all divorces, parties are well served in the early stages to consider an out-of-court process.

Which process will work best for you depends on a multitude of factors, including the dynamic between you and your spouse or co-parent, the substantive issues in the case, the financial issues and wherewithal of one or both parties, any external time pressures that might be involved, and the professionals assisting the parties.

Do I have to pick just one process?

No. Typically, it makes sense to stick to one out-of-court process at a time, and hopefully your first attempt at alternative dispute resolution does the trick. But if not, you can always move to another process, including litigation.

It is important to understand that you can continue in a non-litigation process at the same time a litigation is pending. In fact, courts encourage these continued efforts to resolve the issues out-of-court, even as the court process unfolds. Think of negotiation and litigation as running on parallel tracks. They are separate and distinct processes, but they are connected, and one process often can impact another, ideally in a way that benefits your position and hastens resolution.