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Bar News - October 14, 2011

Alternative Dispute Resolution: Common Mediation Settlement Roadblocks in Family Law Cases


James V. Ferro, Jr.
Settling a family law case is not easy. Conflicting emotions, conflicting positions, and conflicting information create many roadblocks that frustrate settlement. The most reoccurring roadblocks, however, can be classified into seven categories. While this list is not exhaustive, the family law practitioner is wise to familiarize himself with each of them.

Health Insurance

With the passage of NH RSA 415:18, many practitioners come to mediation without a solid understanding of the requirements of a participantís health insurance policy post-divorce. This issue becomes a roadblock to settlement because there may be insufficient information about the type of coverage available once the divorce is finalized.

Examples of key questions to explore to avoid this roadblock or to move past it during mediation are:
a. Does the term "health insurance plan" encompass more than medical insurance and does the plan include dental or vision insurance?

b. Is the health insurance plan self-funded?

c. If the plan is self-funded and continued coverage under the plan is not available to the non-participating spouse, what is the cost of COBRA coverage?

d. If the plan is not self-funded and continued coverage is available, what are the costs, if any, to the participant spouse?

e. Does the employer allow for continued or extended coverage for an ex-spouse with specific language in a divorce decree?

f. Does an out-of state employer or carrier govern the health insurance, and if so, what are the requirements or options for coverage after a divorce?
Tax Issues

Tax issues regularly arise during mediation and often present a roadblock to settlement. For example, in many cases, a party does not understand the impact of the child dependency exemption. The result of a lack of understanding is resistance to negotiate the allocation of the dependency exemption. In order to enhance settlement and move past the roadblock, prepare for mediation by speaking or meeting with an accountant to understand the various tax implications associated with a divorce decree. Educate yourself and your client with this information in order to make informed and meaningful choices in your negotiation. Additionally, be prepared to communicate with an accountant during mediation.

Examples of key questions to explore to avoid this roadblock or to move past it during mediation are:
a. What are the income requirements to realize a tax benefit associated with the dependency exemption?

b. May one party declare Head of Household and the other party take the dependency exemption?

c. What tax issues arise if one party, post-divorce, continues to pay the mortgage and property taxes on the marital home or other piece of real property yet does not reside in the home or at the property?

d. What tax issues arise with the exercise of stock options post-divorce?

e. What tax issues arise with the sale of real property or a business post-divorce?

f. Do the parties have carry-forward losses and how are those allocated correctly in a divorce decree?

g. What is the effective tax rate for both the obligor and obligee when discussing one partyís need and the other partyís ability to pay alimony?
Refinance of Real Property

This issue repeatedly presents itself as a roadblock to settlement. Often, the roadblock is easily lifted with specific information from a lender, mortgage broker, or other financial advisor. Specific information from an objective lender or financial institution regarding the requirements for a refinance neutralizes the emotion during mediation and removes the feeling that one party is simply jockeying for a better position.

Examples of key questions to explore to avoid this roadblock or to move past it during mediation are:
a. What is the debt to income ratio for a party as it relates to a parcel of property?

b. What are the income requirements in order for a party to qualify for refinancing?

c. What amount of time does the lender need to complete the refinance of the property for a party?

d. What amount of time does a party need to qualify for a refinance of the property?

e. Will the existing lender allow for an assumption of the mortgage debt without a refinance? If so, what are the requirements for such an assumption?

f. What are the options if a party fails to qualify for a refinance?
Personal Property Division

This roadblock is replete with raw emotion. The issue usually finds its attention at the end of a long mediation when patience is low and tolerance for continued compromise has evaporated. While practitioners dread the dispute over couches, chairs and accoutrements, be aware that numerous cases fall apart at this stage of the mediation.

Examples of key questions to explore to avoid this roadblock or to move past it during mediation are:
a. Does your client have an inventory of the partiesí furniture and personal property?

b. Has the personal property been appraised or valued? If so, has this information been shared with the other party?

c. Do any items of personal property originate from either partyís family?

d. What mechanism(s) is available to resolve the selection process? Flip a coin? Roll the dice? Further mediation? Use a neutral stand-by?

e. Does any item(s) need to be temporarily stored or remain at a property post-divorce? If so, what are the costs, if any, and who bears the responsibility if the item(s) is damaged?
Financial Disclosures and Updates

Settlement is quickly paralyzed when values are not known, are outdated, or are not backed-up with the actual statement(s). Endless hours are spent at mediation dispelling the belief that asset or liability values are not what a party perceived them to be before the mediation.

This roadblock also arises during the discussion of how certain assets may be divided upon divorce. For example, many investment holdings cannot easily be split in two without significant fees or tax implications. Further, some assets like stock options may not be alienable. Not knowing the particular nuances of the type of asset and the options for its division will create a roadblock to settlement.

Examples of key questions to explore to avoid this roadblock or to move past it during mediation are:
a. Has your client obtained current, updated statements for each asset?

b. Do you have hard copies of the updated statements for each asset to share with the other side?

c. Will the financial planner or advisor be available during mediation to discuss the division of the financial asset?

d. Can the asset be divided into separate holdings post-divorce? If not, what other options exist for allocation of the asset?
Valuation Dates

Another common roadblock to settlement is the controversy over which date to use for a valuation date of the assets and liabilities. Will it be the date of signing a stipulation, the date of marriage, the date of filing for divorce, the date of divorce decree, or the date of the actual division of an asset or liability? New Hampshire law may control the selection of a particular date. A review of the applicable cases before mediation may help lift this roadblock. This roadblock is particularly more apparent given the recent volatility in the stock market. For example, fixing a valuation date at a given point in time may be detrimental if the amount awarded to a party is more than the value of the asset when it is actually divided.

Examples of key questions to explore in order to avoid this roadblock or to move past it during mediation are:
a. Do you have statements showing the value as of a desired date?

b. Have you analyzed the monetary difference between valuation dates? If so, are those differences material to the settlement of the case?

c. Is your client prepared to negotiate different valuation dates?

d. Do you know the difference between a defined benefit plan and a defined contribution plan?

e. What are the survivor beneficiary options for the plan?

f. Who will draft and pay for the drafting of the QDRO or other asset transfer document?

g. Have you researched the applicable case law as it relates to the type of asset to be divided and the desired valuation date?

h. Does the NH State Retirement System control your asset? If so, are you familiar with the types of divisions that are acceptable to this particular plan and are you prepared to address the survivor beneficiary options?

i. Does federal government control your asset? If so, are you familiar with the federal regulations that govern the division of the asset?
Financial Responsibility Timeline

This roadblock has become much more apparent in recent months because of present economic conditions. It is also riddled with high emotion, and similar to the personal property category discussed above, the roadblock arises toward the end of the case. Inadequate awareness of the issue may crush settlement because a participantís patience and tolerance for further compromise may be very low. Present economic conditions have resulted in many divorcing families agreeing to continue to live together or to co-own a business or a property until a post-divorce triggering event. This special situation requires preparation of how post-divorce life will work. Many cases result in the non-paying party assuming that that status quo will continue while the paying party assumes that the prior financial obligations will terminate upon the divorce decree.

Examples of key questions to explore to avoid this roadblock or to move past it during mediation are:
a. When will joint credit cards be closed?

b. When will child support commence?

c. When will alimony commence?

d. How long will the parties maintain the temporary financial arrangements for the payment of household and other bills?

e. When may a party stop using a joint credit card or joint bank account?
These roadblocks can be strong. To move past them, be prepared to recognize them and to deal with them in a substantive way, thus enhancing the quality of the negotiation, the ability to compromise and the likelihood of reaching an agreement..

James V. Ferro, Jr. is a partner in the law firm of Wiggin & Nourie in Manchester. He is a certified marital mediator and provides mediation services for divorce practitioners.

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