Understanding Finances in Mediation: What You Need to Know
One of the main reasons couples come into mediation is for help in organising their finances following a separation writes Michelle Rumsey. Couples often don’t know where to start and look to mediation to help them navigate their way through the process with the support of the mediator. Sorting out financial issues can seem overwhelming so breaking it down into manageable steps is essential.
What Is Financial Mediation?
Financial mediation is a confidential process where the mediator helps a separating couple to resolve financial issues. This means looking at all your finances, for example property, income, debts, child maintenance, business valuation, assets, pensions cars, bikes, boats and so on. The goal is to help people to reach an agreement in how the assets and debt are split in a fair, sustainable way that is tailored to the needs of the people involved.
Unlike court proceedings where a Judge may make a decision, mediation gives participants more control over the outcome. YOU make decisions together about what happens with regard to YOUR finances.
How Finances Are Handled in Mediation
Here’s a step-by-step look at how finances typically work in the mediation process:
1. Full Financial Disclosure
Both people are required to provide a complete and honest disclosure of all their financial assets, debts, income, and expenses. This transparency is essential — without it, fair negotiations can’t happen because you can’t properly understand your financial situation. Providing the information doesn’t mean that you won’t keep that asset, it just enables both of you to ensure you have a clear grasp of your situation. The financial information provided is what we call “open” which means it could be provided to a court if you ended up in court proceedings at a later date. This might sound scary but it’s only to ensure you only have to provide the information once (and potentially update it) rather than doing it twice. It is imperative clients are open and honest about their finances.
Common documents shared in this phase include:
- Bank statements
- Tax returns
- Pay slips and P60s
- Mortgage documents and especially an up to date redemption statement
- Investment/saving account statements
- Business valuations
- Information on debts such as credit card statements and loans
- Pension statements including a Cash Equivalent Transfer Value which gives the value of your pension at the current point in time
- House valuations
- Estimated budgets of outgoings
It is not the role of the mediator to check or validate the documentation provided. The clients are in control of this taking place and will agree when they would like to exchange documentation (with the help of the mediator) and will be responsible for checking the information. It’s likely you will have questions about the information your ex-partner has provided and these can be discussed in mediation. It’s often simplest to resolve these kind of questions by talking to each other directly with the support of the mediator.
2. Identifying Key Financial Issues and your respective needs
The mediator helps outline the financial issues to be resolved. These may vary depending on the clients’ assets and debts and if clients have children:
- Division of assets and debts
- Determining spousal or child support
- Deciding what happens with a jointly owned home
- Valuation and division of a business
- Future budgeting and planning
- Your respective financial needs
Both of you will have financial needs going forwards. You both need to be housed and you both need to be able to pay your bills. You may have other financial needs too e.g if you’ve had one car between the two of you, you may feel that you need two one you move to living in separate homes. Understanding what those needs are and the likely costs is a key part of the process.
3. Valuation and Analysis
If necessary, outside experts such as financial advisors, or accountants may be brought in to help assess asset values or complex finances. This might be done outside of mediation between meetings or, it if would be helpful, an expert could join your meetings to answer questions and to provide guidance. Financial assets and situations vary and the most important thing is that you both fully understand your financial situation and any potential changes and tax liabilities. You need to understand your respective financial needs too.
4. Negotiation and Problem-Solving
This is the heart of mediation. With the mediator’s guidance, both people start by ensuring they properly understand their financial situation. They can then move to understanding the various issues they both see and understanding their respective needs. It also enables them to explore different settlement options, to understand what they look like. This is essential in working out what resolution will be right for you.
Unlike court, where a judge imposes a decision, mediation empowers the parties to create their own agreement — which often leads to more creative and satisfying outcomes.
5. Drafting the Agreement
When a proposal is discussed in mediation and both people feel it will work for them we talk about how to move forward with this. Mediators will always suggest that people get legal advice before formalising any agreement to ensure everybody feels confident and comfortable with decisions they’re making about their finances.
6. Agreement
Once you reach this point the mediator can draw up an Open Financial Statement that simply summarises your financial situation and the documents you’ve provided together with a Memorandum of Understanding which summarises what proposals you want to put in place. The documents will be comprehensive and clear and can then be taken by each person to their lawyers. Their lawyers can then prepare a financial consent order that formalises the agreement. This is sent to the court as part of the divorce proceedings (it can only be sent once they have reached the Conditional Order stage). Once the financial consent order has been approved by a Judge the arrangements that are set up are binding on both people. This is why it is so important to not rush the process or agree to proposals.
Benefits of Handling Finances Through Mediation
- Cost-Effective: Mediation is far less expensive than lawyers and court.
- Faster: Resolving financial issues through mediation can take weeks or months, rather than years. Talking to each other directly (with the assistance of the mediator) often speeds things up quite a bit.
- Confidential: Discussions and proposals remain private until a settlement is reach — unlike court proceedings, which are often public.
- Flexible Solutions: the finances are the clients, and they get to reach a settlement that is tailored to them. It takes into account each person’s objectives and concerns.
- Preserves Relationships: Mediation helps reduce animosity and this is especially important for people who have children together and need to retain a positive co-parenting relationship.
Final Thoughts
Finances can be one of the most stressful parts of any separation. Mediation offers a path forward that ensures fairness and transparency and takes into account the particular needs of each person. Financial mediation can save you time, money, and stress. Lots of people find it overwhelming trying to work out what to do first or what the order of the particular steps they need to take is. The mediator provides guidance on this so that a tailored set of steps can be created for each separating couple to assist them in finding the right resolution for them.
For more information call us on 01306 320520 or email admin@lkwfamilymediation.co.uk
For more in depth guidance you may find our Road Map to Surviving and Thriving in a Divorce self-study course useful. It’s all you need to know about divorce broken into bite size videos you work through at your own pace.
