When a Deal is Not Equal

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We had this situation come up recently.  It doesn’t come up often, but it certainly comes up from time to time. 

What do you, as the mediator, do when a deal isn’t equal?  And not just sort of unequal, but big bucks unequal?  And you know your clients aren’t talking to attorneys.  What’s your role and what’s your responsibility?

I’m not pretending to know all the answers. But when this comes up at Peace Talks, we handle it in a very straightforward way, even though the client with the better end of the deal typically objects very loudly.

Please tell me what you would have done in the comment box below!  I’m really interested to hear everyone’s take on the situation. 

I know that some of this is a style issue.  I know there are mediators who don’t talk about the law in their sessions, and I know that that the “no law talk” style can be equally successful in resolving cases as our more middle of the road style.  So this essay is not a comment on mediator approaches.

Here’s my take:  Why It’s In YOUR Best Interests for Your Mediator to Explain Things Fully to Your Spouse (Even Things You Don’t Want Him or Her to Know)

A client called the other day complaining that his bill included time we spent explaining to his wife why signing the agreement they negotiated was a bad idea.

He shouldn’t have to pay for our explanation of why she shouldn’t do the deal he talked her into, should he? I know that some of this grousing is just that our mediation clients are very nice people who are having a really, really bad day. But he got me to thinking.

A few years back we had another set of clients where the husband wanted to waive spousal support (alimony) and the wife made $1million a year.  We insisted on running the California Guidelines for Spousal Support computer program and discussing the California spousal support statute even though the wife threatened to walk out of the mediation.  She felt a lot more comfortable with her husband being in the dark about what he might be entitled to claim for support (In LA, negotiations would’ve started at about $30,000 per month!).

Here’s why it’s actually better for the spouse receiving more than it was for the spouse receiving less that we explained everyone’s legal rights fully.  Counter-intuitive, I know.

Note: in last week’s example it’s is a husband receiving 60% of the assets and the wife receiving 40% of the assets, and in the older example it’s the husband waiving spousal support, so although I’ve used “him” and “her” references because last week’s case is fresh in my mind, it happens just as often the other way around.

An early criticism of mediation was that mediators would gloss over tough issues to reach agreements quickly and to go around bragging that they have a 100% settlement rate.

The main problem with this approach is that as soon as the spouse who gave up too much has a chance to think about it and talk to some friends….or an attorney, or an accountant…he or she will not sign the agreement as negotiated.

Or, if the agreement has already been signed, he or she will hire an attorney and try to re-open the case.  If there’s anything worse than getting divorced once, it’s doing it twice in the same case!

If we kept the spouse in the dark about what he or she is giving up as part of the mediation process, here’s a partial list of criteria her expensive litigation attorney would use to get the case re-opened:

• She was feeling guilty about the situation and signed in haste
• Her husband muscled her into signing the agreement
• She’s not financially sophisticated and her husband and their mutual financial advisor (who took the husband’s side) talked her into a deal she didn’t understand but since she trusted both of them she just went ahead and signed
• She didn’t consult with an attorney during the divorce
• She relied on the mediators to inform her of her rights and the mediators didn’t do so (for whatever reason)
• She signed the agreement under duress
• She signed the agreement because the husband and financial advisor said to, and since it wasn’t a 50/50 agreement as provided under California law, they both violated their fiduciary duty to her

 

Do you think the Judge would re-open the case? I do.

I think the Judge might also refer the financial advisor’s breach of fiduciary duty to the wife to the advisor’s licensing board…and I think that financial advisor could be in real trouble. Big trouble.

So while the mediators at Peace Talks were stirring the pot by making sure both parties (and that financial advisor) understood how California Community Property laws work and the math behind those laws as it pertains to their individual case, the mediators were also protecting both parties and the financial advisor.

The way the Peace Talks mediators resolved the case was to create a community property division spreadsheet showing how California Community Property laws would have divided the parties’ property and contrasted it with the deal that the financial advisor had brokered and talked the wife into signing.

The Peace Talks spreadsheet showed a 50/50 division. The financial advisor’s deal was more like 37% to the wife and 63% to the husband.

We asked the wife to sign a copy of the memo showing the two spreadsheets along with a sentence “A copy of this spreadsheet was provided to me via email on [date]. I acknowledge receiving a copy of this, I’ve read it, and I understand it.”

Simple enough.

So while that doesn’t necessarily get rid of the “duress” or “I trusted my husband and our mutual financial advisor and they violated their fiduciary duty” arguments if wife has second thoughts and wants to re-open the case, but I think it provides protection against some of the strongest arguments for re-opening the case:

• She relied on the mediators to inform her of her rights and the mediators didn’t do so (for whatever reason)
• She signed an agreement that she didn’t understand

 

So I’m really sorry that I had to charge for that time. Trust me, I didn’t appreciate having to work on this at 11 pm on Easter so he could get his Judgment signed to accommodate their travel plans.  I also woke up with nightmares about “does the wife understand what she’s doing?”  There was no charge for that, at least.

But it’s really in YOUR best interests that your spouse understands what her rights would have been under the law.  We were protecting you when we had your spouse sign that document that the difference in the math was understood and that she was agreeing to a less than 50% split.

What do you think? What would you have done if you were the mediator in this case?