Can You Mediate if Your Spouse Might Not Be Honest?
Are you interested in divorce mediation but concerned that your spouse may not be honest? Such fears may or may not mean that mediation is out of the question. Before you jump into an expensive litigation process, take some time to think through your options. Keep in mind that the adversarial nature of litigation can contribute to secrecy. Mediation, on the other hand, generally fosters an atmosphere of openness.
Spouses have a fiduciary duty to each other. This means they are required by law to be honest with each other about their assets and finances, even during a divorce. While most spouses understand this, a few will attempt to hide or devalue assets to prevent the other party from receiving a fair share. Sometimes this is because they fear being treated unfairly themselves. Sometimes they are just trying to get away with as much as possible. Mediation requires good faith negotiation and a willingness by each side to find fair solutions that work for both parties. This means that both parties need a thorough understanding of their own and each other’s finances.
Mediation does include some built in protections. Each party signs a participation agreement which should include mutual promises of honesty. The process requires face-to-face interaction, and most people willing to attempt mediation want to at least try to be cooperative. So, there is always the possibility that a spouse who originally contemplated holding some information back will decide not to do so in mediation. The bottom line though, is that if either spouse persists in hiding anything, the process will not work.
Preparing for Mediation or Litigation
Regardless of which path you ultimately pursue; you need to begin the same way, by collecting as much information as you can about your family finances. Start with statements from joint bank or investment accounts, credit cards, mortgages and other loans, retirement accounts and tax returns. If your spouse keeps control over the finances and is unwilling to give you physical access or passwords, this is a big red flag. Even if all you have is a vague feeling that your spouse may not be totally honest, that should prompt you to consult an experienced divorce attorney as soon as possible.
Meanwhile, you can search for information everywhere under your control – the computer, the file cabinets or bill drawer, even the trash. All you need is the name of a bank or credit card company to obtain joint statements or a lead to a separate account. Documents or small items like cash or jewelry can be stashed in closets, dresser drawers, shoe boxes, or books. If your spouse is intent on hiding assets, they may be harder to find. Private offices, relative’s homes, safe deposit boxes, and even clandestine apartments are common hiding places. A dishonest spouse might withdraw large amounts of cash, purchase expensive but easily hidden items, or transfer money to friends or family members to hold until the divorce is final.
Hiring a Consulting Attorney and Choosing a Mediator
Once you have collected as much information as you can on your own, it is time to find a consulting attorney. Look for someone who has both mediation and litigation experience. If you still do not entirely trust your spouse but you have not found any obvious red flags, ask your attorney about giving mediation a shot. If you decide to go forward, choose a mediator who is also an attorney. An attorney-mediator will know how to ensure that both parties produce all necessary information. They will also know when it makes sense to impose extra safeguards, such as involving consulting attorneys more than usual, and when it might make sense to move to litigation.
Exchanging Financial Disclosures
Financial disclosures are not required in mediation, but they are always a good idea. If there is any question of asset hiding, they are critical. You should prepare your own New Jersey Family Law Case Information Statements (CIS) in consultation with your attorney. Your attorney can also review your spouse’s CIS, tax returns and other supporting documents. The CIS requires a detailed accounting of income, expenses, assets, and liabilities. Some things it could reveal include previously unknown separate or joint accounts in your spouse’s name, credit balances on credit cards or loans, payments of separate debts with marital funds, or recent sales of property for low amounts. A good attorney will be able to spot potentially missing information. If there are significant anomalies, your attorney may recommend review by a forensic accountant.
Using Appraisers and Business Valuators
If your main concern is that your spouse will try to undervalue assets to keep you from getting a fair share, then you will need appropriate appraisers. Be sure the appraiser is qualified to evaluate the particular asset in question, e.g., real estate, artwork, or jewelry. If the asset is a business, there is more of an opportunity for manipulation of its value. Some spouses misreport business income, funnel out money by paying salaries to fake employees, pay off fake business debts, or park assets elsewhere through fake sales. Business valuators are usually CPA’s who specialize in analyzing the assets, liabilities, and capital of companies. Different professionals tend to be experts in different types of businesses. Your attorney should be able to suggest appropriate valuators for your case.
Shifting to Litigation
A major difference between mediation and litigation is that in the former, the parties produce records voluntarily. If one party refuses to complete a CIS, or refuses to sign necessary releases of information, mediation will not succeed. There may not always be a bright line, however, that shows the need for a switch. You can do many of the same things in mediation as in litigation. Sometimes an isolated hearing in court can resolve an issue, and the rest of the case can stay in mediation. In most cases, child custody mediation can go forward even if all financial matters must move to court.
Moving on to litigation generally makes sense if it appears that your spouse is hiding assets and also has the means to cover the costs of searching for them. If asset or income hiding is confirmed, a judge can order your spouse to cover costs. In some cases, professional asset tracing or a formal lifestyle analysis may be appropriate. In other cases, it may be most cost-effective to simply inform the court of the facts and request that missing assets be charged against your spouse.
Penalties for Noncompliance
A court can award sanctions for hiding assets to the other party, including reimbursement of the asset’s value, attorneys’ fees, and appropriate monetary penalties. The innocent spouse may receive a greater share of assets. While it is difficult to reopen final orders in divorce, it is not impossible in the presence of substantial fraud.
Do you have questions about the suitability of your case for mediation? Contact one of our experienced mediators today.