Pitfalls for Financial Neutrals in Collaborative Divorces
September 29, 2015
This post is the second of three posts that consider the ways in which each of the three types of professionals involved in collaborative divorces – attorneys, financial neutrals, and mental health coaches – miss the mark in performing their professional role on the team. This post will specifically look at the role of the Financial Neutral.
Like Coaches, Financial Neutrals are at risk of doing too much (over-functioning) or not doing enough in cases (under-functioning), both of which can be problematic for collaborative divorce clients. I will discuss this dynamic below in a somewhat exaggerated way in order to illustrate the point.
Under-functioning Financial Neutrals see themselves as extensions of the other professionals, especially the attorneys, and do not live fully into their own unique professional role on the team. They only gather financial information if the lawyers specifically ask them to do so. If they see “holes” in what they are receiving from the clients they do not necessarily alert the team unless asked, assuming that the lawyers knew what they wanted and are receiving what they were expecting. Similarly, when working with clients on post-divorce budgets, under-functioning Financial Neutrals work basically as scribes for the clients writing down what the clients say they think they will be spending even if the clients have unrealistic expectations about one or more of the items on their post-divorce budgets. For example, a client may use a number for housing that is only a “surface level” number (e.g. mortgage payment) and the Financial Neutral fails to remind them of hidden or irregular costs associated with home ownership such as roof and HVAC maintenance, or property taxes. In that scenario, the client may decide he or she wants the house in the divorce without realizing that he or she will ultimately not be able to afford it.
In team meetings, under-functioning Financial Neutrals fail to speak up with specific financial advice or commentary that may be relevant to the financial settlement options being discussed. For example, the parties (and lawyers) may be discussing a scenario that on its face appears to accomplish an equal property division. But the Financial Neutral knows the proposal will not result in a true equal division once the team takes into account various factors such as taxation, investment value, opportunity cost, and issues of appreciation/ depreciation. It is clearly the clients who lose when the financial professional does not see and/or speak up about these sorts of issues, because lawyers are typically not trained to be tracking those sorts of financial nuances.
I indicated in my last post that when Coaches do not function optimally in collaborative divorces, it typically looks like under-functioning. When Financial Neutrals miss the mark it is more often over-funtioning that is to blame.
Over-functioning Financial Neutrals tend to try and manage all of the financial settlement issues on their own with the parties. They frequently meet privately with the parties, including to craft financial settlement ideas offline rather than working through the “option generation” component of the collaborative divorce process. In the most egregious examples, over-functioning Financial Neutrals actually pass settlement ideas back and forth between the parties, all behind the collective back of the rest of the team. This pitfall can amount to the Financial Neutrals practicing law without a license as they can end up advising the parties what settlement terms should be in a pending lawsuit where the parties are represented by counsel.
A different way in which Financial Neutrals can over-function is around wanting the parties to engage in a lot more financial analysis and planning than the parties care to do in the divorce process. For example, the parties and team may be clear that spousal support is not on the table in the case. But the Financial Neutral nonetheless pressures the parties into doing elaborate post-divorce budgets for their own edification even when the parties are saying they are not interested. Or the Financial Neutral may want the parties to constantly provide updated statements for all of the various accounts (like bank accounts whose balances vary daily) so that the clients are perpetually spending their time and energy on document production and then paying the Financial Neutral to assimilate the fresh-for-the-moment information into the financial reports.
A side effect of this latter example of over-functioning is that it frequently generates anxiety and frustration for the clients. Given that the divorce process is always stressful, effective collaborative divorce professionals should be looking for ways in which they can minimize or avoid anxiety rather than generate it needlessly.
Like so much else about the collaborative divorce process, the role of the Financial Neutral is a balance between actively engaging in the case in a thoughtful way while also keeping oneself in check by not doing more than the case calls for and/or by acting outside the scope of the team process as a “lone wolf.”
Clients (and attorneys) generally love the role the Financial Neutral provides in collaborative divorces. Good financial professionals bring a great deal of value added to the divorce process so long as they work to hit that “sweet spot” between doing too much and too little in the case.