The Domino Effect of The Current Economic Crisis

The following article is written by guest bloggers Sue K. Varon, Esq. and Martin S. Varon, CPA, CVA, JD, of Alternative Resolution Methods, Inc.

Sue_varon_profile  Marty Varon

The deepening recession, increased unemployment, and a stalled housing market have negatively impacted most of our clients’ financial situations. Many clients’ homes are underwater because of declining values.  Other divorcing couples who are fortunate enough to have equity in their most significant marital asset, their home, can not sell their house. Combine that with the plummeting values of retirement accounts, and we are looking at marital asset balance sheets that are nothing less than bleak. 

Although, historically, divorce rates tend to rise during a bad economy, divorce practitioners nationwide have noticed a change in their practices. Experts attribute the decline in divorce filings to the severity of the economic downturn. Typically, a recession results in decreased divorce rates for couples with limited financial resources. The prospect of incurring expenses for two households seems overwhelming for those with limited resources. On the other hand, high net-worth clients may seek to take advantage of the diminished value of their homes, stock and investment portfolios, and businesses to decrease their overall financial liability to their soon-to-be ex-spouse.

When the marital residence or small business is the most significant marital asset, the party who is able to retain the house or business may reap a significant benefit down the road, rather than the one who is compensated by cash or other assets, because the value of the house or business is likely to increase once the economy recovers.

The credit crisis has impacted us, as practitioners, as well. How many times have you heard from a client that their credit card is maxed out and he/she can not replenish their retainer? Discovery has been completed but there is no more money to fund the litigation. Where does that leave us? 

Instead of thinking of ways to get out of the case, perhaps we should begin to think of alternative ways to resolve the case in a more cost-effective manner. We are all familiar with mediation and late case evaluation. Arbitration is another alternative when impasse has positioned the parties and created a standstill. A three person arbitration panel, comprised of a family law expert, a financial expert and a mental health professional, may provide an insightful resolution that is far more productive than going to court. Bringing additional professionals into the picture may bring difficult issues into focus.

If the main problems are financial in nature, involving marital asset division or support alternatives, introducing a financial neutral to work with the parties may move things in the right direction. One thing many of us have not considered is the value that a financial neutral would contribute to helping the case settle in mediation. The presence of the financial expert at the mediation, working in conjunction with the mediator, would provide answers to many of the financial issues that impede the settlement process. Issues such as the tax savings associated with different support options, the variations in pension values caused by using different interest rate assumptions, and the after tax versus before tax values of various assets could be resolved right on the spot. When the primary sticking points center on custody issues, the assistance of a parent coordinator or child specialist could prove invaluable.  

Today’s economy requires us, as legal professionals, to assemble a team that will serve our clients in a cost-effective manner. Although we all know that some cases are destined to go to litigation, we should attempt to utilize alternative methods of resolution prior to taking this final leap. Mediation, arbitration and a form of the collaborative law model are just a few possibilities. We are fortunate to live in a community replete with knowledgeable and experienced experts who can provide our clients with wonderful resources. It is up to us to inform our clients of the availability of those options. 

7 Roadblocks to Successful Mediation

Dreamstime_345538 Mediation is a very popular and widespread process used to resolve disputes, especially in divorce cases. In many places . . ., mediation is virtually a requirement before a case can go to trial. The reason is obvious — it works! My observation is that mediated cases settle about 90% of the time, or more.

For mediation to be successful, it takes a good, well-trained mediator. In Texas [and here in Georgia], we normally have attorneys present and participating with the parties in the mediation; some other states often have the parties attend mediation without attorneys. Both systems obviously can be effective. Success, however, is not guaranteed and should not be taken for granted. Here are seven problems that can prevent a successful outcome from mediation.

1. Lack of preparation by one or both sides. The parties need to have all the information and records at hand so they can make intelligent decisions. It’s also very helpful for both parties to have thought through their personal goals, needs and interests so they know what they should try to accomplish in the negotiations.

2. Unrealistic expectations. If one party has goals or ideas that are very unrealistic, agreement would be unlikely. It is normal for the parties to disagree about things, but sometimes there is no way to accomplish what one of the parties wants. An attorney should work with the client to help them reasonably define and describe what they want to end up with. If a party demands 80% of all the assets because the spouse has had an affair or drank too much or abandoned the family, usually the case is very unlikely to settle. As the Rolling Stones said, ‘You can’t always get what you want.’ The parties need to be realistic and keep in mind the costs of not settling.

3. Lack of commitment by a party. If one party or both don’t take the process seriously or don’t want to settle, there won’t be an agreement. Both parties need to see and feel the advantages to themselves from a settlement. Without commitment, the parties won’t stay in the compromise mode long enough to settle. They can easily become discouraged if there is not a quick, painless settlement.

4. Inability of a party to make a decision. I have seen situations where we have waited two hours or more for the other party to respond to a changed settlement proposal that wasn’t particularly complex. Some people don’t handle stress well and some don’t like to make quick decisions. The parties should learn in advance how the mediation process works and how decisions are made. They need to learn to approach the process as if it were an impersonal business deal. Participants should expect to face choices and they need to understand that they probably won’t be happy with everything that happens at mediation. Even highly educated people used to making tough decisions affecting others sometimes have hard times making decisions in mediation.

5. Positional bargaining. People who begin negotiations without clearly defining their goals and needs will usually begin by staking out a territory or percentage as a starting point and leave themselves room to compromise. Sometimes, both parties figure out a middle ground for a target and figuratively both take ten paces backward before negotiating. Some people want a percentage of the property, regardless of what their needs are. For example, many husbands will insist on a 50-50 split and some wives will choose a starting point of 70% or 65% of the assets, when it may be that certain assets would be preferable for one party, such as cash in the bank (with no tax consequences) versus funds in a retirement plan (with penalties for early withdrawal plus income taxes for the amount paid). Positional bargaining can make for easier negotiations, but the results may not be very helpful to either party.

6. A mentally ill participant. There are, of course, varying degrees of impairment from mental illnesses. Medication and counseling are often helpful for a patient. Sometimes having a close family member or friend present during the mediation can help the party be in a frame of mind to negotiate effectively. Without extra support and/or meds, a mentally ill party can scuttle the effort to settle.

7. A mediator perceived as biased for one side. Unless both parties have confidence in the quality and neutrality of the mediator, it is unlikely that the mediation will be successful. Some parties don’t trust a mediator who is a male or one who is a female. The location of the mediation or the mediator’s office may produce distrust by a party. If the mediator is seen as a friend of the other attorney or party, the mediator will probably not be acceptable. Attorneys should make sure that the mediator is someone who will be acceptable to both parties.

There are other potential pitfalls for mediation, but these are some of the major ones. If you are planning to go to mediation, you should work diligently in advance to be prepared, committed and ready to decide. Keep an open mind throughout the process so you have the best chance for success.

Source for Post Divorce and Family Law in Tarrant County and Divorce Help Network

Divorce Wars Hazardous to Financial Health

Dreamstime_2800503 In its February 2008 issue, Consumer Reports lists and discusses "12 Money Blunders That Could Cost You $1 Million." Coming in at number 3 is: "Launching a divorce war":

3. Launching a divorce war (CR estimated cost: $49,000 to $188,000)

Divorce may be unavoidable sometimes, but spouses can take steps to reduce the
financial impact. Hiring lawyers can ensure everyone’s interests are
represented, but the more issues spouses want to slug out, the more billable
hours attorneys can charge. CR’s report found that a low-conflict divorce can
generally be mediated for about 75 percent less than using attorneys and going
to trial.

— CR’s Advice:  Because the intensity of the conflict is a major driver of
legal costs, work more toward diplomacy than war, which will increase the
viability of the low-cost mediation option. Try hardest to get along on
custody, often a hot-button issue. Property settlement is a Solomon-like 50-50
split in most states.


Tips for Success at Your Settlement Conference

Many cases can get settled simply by getting the parties together to talk.  This type of informal meeting is called a "settlement conference."  The following steps can help you prepare for a settlement conference and improve the chances of its success:

  1. Identify the issues in your case.
  2. Understand how the law affects your case.
  3. Know the estimated costs of trial.
  4. Remain open to unique opportunities.
  5. Keep a few secrets.   
  6. Be determined.   
  7. Be ready for a little give and take.
  8. Be patient.
  9. Get it in writing.

You can read much more about each of these steps by clicking here.

Source:  "Settlement Conference Success" by Helene Taylor, published at The Modern Woman’s Divorce Guide.
SOURCE FOR POST: South Carolina Family Law Blog