Financial issues and mediation

by Sally Clarke, Family Mediators Association board Secretary

Financial issues can often lead to worry and very difficult conversations following separation. Very often in a relationship one party deals with all financial issues and the other party may be left feeling very vulnerable and quite frankly scared at the thought of sorting out financial issues.

The process of mediation can assist both parties to understand their financial situation and with the assistance of the mediator a settlement can be negotiated.

However finances associated with the breakdown of a relationship/marriage are resolved there is an important two stage process:-

  • The exchange of financial documentation ;
  • Negotiating an outcome

 How does this work in the mediation setting?

The first stage of the mediation process, i.e the MIAMS stage involves the mediator meeting each party separately and discussing with each party what issues they would like to resolve. Providing that mediation is assessed to be a suitable process and both parties are willing to attend then each party is provided with a mediation financial disclosure booklet. The mediator will typically go through the mediation booklet during the first session of mediation, discuss what information/documentation is required and agree with each party what they need to provide/bring with them to the second session.

The process of financial disclosure is an important one. The reason being is that each party needs to be in a position to make informed decisions regarding their financial situation and future. Financial disclosure exchanged within the mediation setting is what is known as “open disclosure”. This means that the disclosure can be shown to each party’s solicitor and if the mediation process was to unfortunately break down then that documentation can be provided to the Court. This is to encourage parties to be open and transparent.

It may be the case that certain information is not available straight away and needs to be requested or third parties need to be appointed to obtain that information. Keys aspects of financial disclosure may include the following:-

  • Valuation of the family home and/or any other properties
  • Pension information known as the Cash Equivalent Transfer Value may need to be obtained
  • If there is a business involved then key information may be required such as company accounts/letter from the company’s accountant
  • Information relating to income for example P60 and wage slips or if one party is self – employed then tax returns may need to be provided
  • Income needs – the mediator will provide each party with a form to complete so that each party can work out what they need to live on each month, for example

An example of when a third party needs to be involved may be the appointment of an expert to provide input upon how pensions should be valued or shared, or it may be that an expert is appointed to value property such as the family home, or to value one party’s interest in a business or other asset.

How does the mediator help parties negotiate a financial settlement?

Once the financial disclosure has been obtained then the mediator will take copies of each party’s disclosure and provide each party with a copy of the other party’s disclosure. When both parties and the mediator are happy with the disclosure provided then discussions can begin as to what a financial settlement might look like.

The role of the mediator is to collate information and facilitate discussions. The mediator can provide legal information from an impartial point of view but cannot provide either party with legal advice. That is the role of each party’s solicitor. The mediator will suggest to the parties that legal advice is obtained in between mediation sessions. Each session will typically be a few weeks apart to provide the parties time to consider options, take advice and reflect upon discussions which have taken place within the mediation setting.

Negotiating a financial settlement is a bit like putting a jigsaw puzzle together. There are different aspects which inter-relate. Once the financial disclosure has been obtained then the mediator will typically draw up an agreed schedule of assets which is essentially a summary of the disclosure provided. The mediator then uses this to help the parties look at options.

The starting point is typically that each party needs a home for themselves and crucially any minor dependant children. The mediator works with the parties to look at how that can be funded from available resources i.e capital and by looking at what capacity, each party has to borrow monies for instance by way of a mortgage to help fund that. There is then the issue of what income each party has and how that can be used to meet their respective needs. Other factors may include looking at what debts/liabilities each party has and how they should be met and then looking at other matters such as pension provision and whether that should be shared or off-set in some way. It is the role of the mediator to help each party understand what is there and to help facilitate discussions relating to how assets/income/pension provision should be treated to help both parties reach a financial settlement which meets each party’s needs.

Financial mediation tends to take place over a number of sessions and in between each session there is the option for each party to take independent legal advice.

How is an agreement reached in mediation made legal?

Once the parties have hopefully reached an agreement in mediation then the mediator draws up two documents. One is the “open financial statement”. This is an open summary of the financial disclosure provided by each party. The other is the “memorandum of understanding”. This second document contains a confidential summary of proposals reached. The mediator will send both documents out to the parties at the end of the mediation process and once each party is happy with the contents then they are signed by the mediator and the parties. Once in a signed form then either the parties take the documentation to their respective solicitors, who convert the documentation into a legally binding form called a “consent order” which is submitted to Court for the Court to make a binding order as part of the divorce process. Alternatively it is up to the parties to what is called “waive privilege” on the documentation and submit it to the Court, if neither party has legal representation.