Posted on May 2, 2019 by Lisa Sharpe
Bringing your financial expert to mediation increases the likelihood that the parties, attorneys, and the mediator have a clear understanding of the financial aspects of your case – which is likely to lead to a better resolution. Here are the pros of bringing your financial expert to mediation.
1. Calculating, Presenting, and Explaining the Numbers
An appraiser helps to clarify valuation issues when the heart of the case is a valuation dispute. The expert can provide valuable support and explanations for their reports in real time at mediation. When attorneys are focused on client advocacy (often perceived by the mediator as there to “argue”) and clients are caught up in their own emotions, the expert is viewed as more persuasive to the mediator. The expert can also be better positioned to marshal, present, and convey the financial facts of the case to the mediator and the opposing side, particularly if either or both need to be “educated” on the complex financial matters at hand. Valuation experts focus on the critical valuation issues, explain the valuation differences, and why his/her valuation methodology and numbers are appropriate.
2. Preparing and Updating the Marital Balance Sheet
A financial expert will generally “own” the marital asset and liability spreadsheet. Attorneys may try to get experts or opposing counsel to agree to the spreadsheet and asset list before mediation. The expert can update the numbers throughout the mediation day, which will expedite the resolution process. Your expert should be able to simplify rather than complicate the asset allocation spreadsheets.
3. Creating Visual Charts and Graphs to Help Clients Understand the Financial Facts
The expert may prepare a short presentation for mediation and can also provide data visualization to facilitate effective communication of the financial facts of the case. The expert will often use bar charts, tables, or graphs making the financial information more readily understandable by providing clear visual displays. For example, for the disadvantaged spouse: cash settlement and alimony spend-down to show financial disparity in the future. The expert can also calculate controllable cash flow and determine the value of total compensation, including the perks and payment of personal items with business funds when a spouse owns a business. On the other hand, an expert for the money-advantaged spouse charges can show problems with cash flow.
4. Explaining the Tax Ramifications of the Proposed Settlement
A CPA can explain complex tax issues. For example, in cases with stock awards, the IRS withholds a 25% at vest, but the actual t ax burden is almost always higher. The changes in tax law have also resulted in greater SALT (State and Local Taxes) liability and using prior tax returns will not provide an accurate indication of future net income in states with high property taxes and income taxes. The expert is able to run tax calculations and answer income tax questions in real-time at mediation. The tax ramifications of settlement are particularly critical after the 2018 Tax Cuts and Jobs Act, which cuts individual income tax rates, doubles the standard deduction, and eliminates personal exemptions.
A well-prepared expert can save you and your client time and expense by clearly identifying and presenting the key facts and disputed issues in an objective manner. They can provide assistance in educating your client, the opposition, and the mediator as necessary. And finally, your valuation expert can assist in diffusing unreasonable expectations of your client or the opposing side, focusing the parties instead on realistic resolutions to their case.
As a testifying expert, your financial expert’s file is generally available for discovery. This opens the potential for waiver of confidentiality or work product by prematurely disclosing the expert witness or your work product to opposing counsel, if the case does not settle at mediation. Here are four tips to help you avoid this potential pitfall.
1. Carefully evaluate what information you provide to your expert.
2. When providing settlement communications to your expert prior to mediation, label all information as “Confidential Settlement Communication – For Settlement Purposes Only.”
3. Make sure your expert understands that mediation statements may not later be used by them in future reports or in providing testimony.
4. Emails to and from the expert with settlement strategy should be kept to a minimum. Critical strategy sessions should take place in-person or on phone calls to avoid creating a discoverable email trail on your settlement strategy.
Most states have statutes protecting settlement communications occurring during mediation, but you should discuss these issues with opposing counsel and the mediator before mediation. This will confirm that there is a clear understanding and agreement on how communications will be protected going forward.
Published by Family Lawyer Magazine, Spring 2019. This article has been condensed from the original; to read the full article, go to https://familylawyermagazine.com/articles/bring-valuation-expert-to-mediation/.