Role of the Financial Neutral in Collaborative Divorce
April 17, 2015
Previous blog posts have discussed the fact that collaborative divorce is a team-based approach to divorce that allows parties to have the benefit of legal counsel, financial advice, and targeted emotional support both before and during the divorce negotiations. An important part of that mix in many cases is the financial neutral. There is only one financial professional per collaborative divorce team, as opposed to litigated cases where each party has his or her own separate financial professional, if a financial expert is involved at all.
Financial neutrals in collaborative divorce cases can hold a variety of financial credentials, but the most common in Middle Tennessee are Certified Financial Planners (CFP’s) and/or Certified Public Accountants (CPA’s). Regardless of their professional credential, all financial neutrals must also be trained in collaborative divorce.
Financial neutrals serve three basic functions in the collaborative divorce process. First, they work closely with the attorneys and the clients to gather all of the financial information necessary for the parties to be able to make good, well informed decisions during the subsequent negotiations. In fact, (as was discussed more in an earlier post regarding the “roadmap” of collaborative divorce cases in Middle Tennessee), no substantive settlement options are discussed by the team until the financial neutral (and attorneys) are comfortable that all relevant and/or helpful financial information has been obtained, analyzed, and summarized in a detailed written report.
Once the initial reports are prepared, the financial neutral presents them to the attorneys (and coach) who then review the report with the financial neutral, asking clarifying questions and sometimes asking the financial neutral to obtain additional information or to structure the report differently in order to best support the team in future settlement discussions.
The second major role of the financial neutral is around the settlement discussion (oftentimes called “option generation”) portion of the process. To prepare for those discussions, the financial neutrals often meet with each party and his or her attorney individually prior to the team meeting in order to help the client feel prepared to present settlement ideas at team meetings that comport with the clients’ goals. Then, in team meetings where the whole collaborative divorce team is discussing various settlement ideas, the financial neutrals frequently chime in with their advice or commentary about the settlement possibilities under discussion from a specifically financial perspective, perhaps offering information regarding how certain assets behave over time (appreciate or depreciate) or how taxes might affect the parties’ decision-making. As a result, the parties are able to merge their attorneys’ legal advice with the financial neutral’s advice, which often leads to much more sophisticated or nuanced settlement results than would be true if everyone is mechanically dividing assets and debts without the benefit of professional financial advice.
The third role of the financial neutral relates to interfacing with financial professionals who are not part of the collaborative divorce team. Sometimes, more than basic tax questions come up that require the team to consult with a tax professional before deciding on a particular settlement path, and the financial neutral can be the liaison to the CPA. Similarly, because financial neutrals are always precluded from serving as investment advisors to the parties with whom they work in collaborative divorce cases, they also serve as a bridge to the parties’ post-divorce investment advisors, helping the advisors understand what assets the parties will be receiving and then also going back to the collaborative divorce team to suggest ways to make the parties’ post-divorce financial transitions go as smoothly as possible.
In sum, collaborative divorce recognizes that divorce attorneys cannot reasonably be expected to be experts in every field that intersects with the lives of divorcing families. Collaborative divorce allows lawyers to be legal experts, but pulls in professionals such as financial neutrals to work with the parties in their distinct areas of expertise, leaving the clients with a much richer palate to work from in making settlement decisions.