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Show me the Money! Using a Financial Neutral in Mediation II

by | Mar 21, 2023 | Divorce, Mediation

by Karen J. Levitt and Susan Miller

Part II of III – by Susan Miller

The Role of the Financial Neutral in Divorce Mediation

What does a financial neutral do?

A divorce financial neutral starts by carefully listening to both clients’ goals and priorities in order to help the parties come to a settlement that meets as many of their goals as possible. A divorce financial neutral typically performs such functions as collecting and organizing financial information, generating options regarding decisions such as how to divide the assets, structure support and share child-related expenses. A financial neutral may also need to address less straightforward issues such as how to deal with unvested stock equity or illiquid assets, such as closely held businesses and private equity holdings. In many instances the divorce financial neutral may prepare projections, illustrating how both parties will fare over the long term, using software that is uniquely created for divorcing couples, to determine whether a specific settlement option is equitable to both parties. Finally, the recent Cavanagh case may necessitate a tax analysis of child support and alimony to determine a structure of support that is in the best interests of the family.

The Role of the Financial Neutral in Divorce Mediation

How is a divorce financial neutral different from a ‘regular’ financial advisor?

A divorce financial neutral differs from a ‘regular’ financial advisor in that the entire focus of the financial neutral is to help the clients achieve a financial settlement that is as equitable to both parties as possible (remember: equitable does not necessarily mean equal). Whereas a financial advisor will typically advise one party regarding the best outcomes for him/her, the financial neutral needs to take into account both parties’ needs and circumstances. While a regular financial advisor helps the clients to prepare for long-term goals such as retirement or a child’s education, the divorce financial neutral needs to address those goals for both parties within the context of a divorce. For example, a couple’s retirement strategy or plan for paying for a child’s college education may need to change drastically in the face of their divorce and they may look to the divorce financial neutral to help them plan for that.

A primary role for the divorce financial neutral in mediation is to assist the couple in working toward an equitable financial settlement by generating options for the parties to consider – the ultimate decisions are made by the parties themselves.

When do you need a financial neutral in mediation?

There are a number of circumstances in the mediation process when a couple needs the services of a financial neutral. One of the most common circumstances is when one spouse has much more knowledge about the family finances than the other spouse, creating an imbalance of financial knowledge and therefore an imbalance in the ability to negotiate financial issues within the divorce process. The role of the financial neutral in that case is to help the less knowledgeable spouse understand various financial aspects of the family such as the amount and types of assets owned, the types of income that the family earns, as well as the family expense structure. Another common circumstance in which a financial neutral can be very helpful is when one or both parties’ compensation structure is complicated. Many high-tech and other firms have developed such sophisticated and complex compensation structures that some employees themselves do not understand how they are compensated. Also, the increasing investment in private equity and other hard-to-value assets may necessitate the development of some creative options by the financial neutral for dividing or holding these assets.

Does everyone in mediation need a financial neutral?

Not every divorce requires the assistance of a financial neutral, especially in cases where both spouses understand the assets and family income structure and can come to a resolution about how to divide them. One goal of the financial neutral is to help the clients maximize the retention of their financial resources and if the couple does not need the services of the financial neutral, it makes no sense to engage one during the mediation process.

What are the key attributes of a good financial neutral?

Working as a financial neutral can be difficult work and is clearly not suited for everyone. Some of the attributes to look for in a financial neutral include:

  • Exceptional listening skills and the ability to create options to address the clients’ frequently disparate goals and priorities
  • Professional training in working with divorcing couples such as mediation training or training in dealing with high-conflict couples, as well as training specifically designed for financial neutrals
  • A thorough knowledge of federal and state income tax laws in order to help couples understand the after-tax implications of various asset and income division scenarios. As stated earlier, this has become especially important in the wake of the Cavanagh case.

Finally, a financial neutral needs to be prepared to deal with strong emotions from the divorcing couple. The divorce process is frequently very painful for one or both parties and emotions can run high during interactions with each other, as well as with advisors. The key thing to remember is, “Don’t take it personally; it’s not about you.”

Susan Miller, CPA, CFP, CDFA is The Managing Director of Dispute Resolution and Senior Wealth Advisor with The Colony Group, Wellesley, MA, and is a well-respected financial neutral in mediation, Collaborative Law and litigation.