We all learn during collaborative basic training of the importance of each team member staying “in their lane”. We learn this is particularly true for neutrals, whose single biggest pitfall is perhaps the risk of losing the perception of neutrality. As we know, once a client perceives that the neutral professional is no longer acting ‘neutral’, trust is lost, and the case is likely headed down a destructive path. Thus, it is crucial for the Neutral to do whatever it takes to maintain the perception of neutrality.
For the Financial Neutral, the safest way to maintain this perception of neutrality, once information is gathered, is to provide the team with the ‘data only’, as opposed to providing a potential range or typical way to reach the ‘right’ answer. As we know, certain interpretations or explanations could “rock the boat”. Therefore, the Financial Neutral’s role, to maintain the perception of neutrality, is to stick to the facts and only the facts… that is, until the clients get stuck, the case loses momentum, and the team needs the Financial Neutral to “weigh in”. In this article, we’ll explore the role of the financial neutral as it relates to some of the more challenging areas of our collaborative cases and discuss how far the Financial Neutral should go in “weighing in” with their professional expertise while also maintaining the crucial perception of neutrality.
The Financial Neutral’s role involves three components: Gather, Educate, and Facilitate – as follows:
- Gather all information needed to make informed decisions.
- Educate both clients so they are on “equal footing” for options building.
- Facilitate discussions so that the clients can determine the best outcome for their family.
We’ll briefly discuss each of these three components below.
Gather: The balance for the Financial Neutral is to keep information gathering streamlined, yet also complete – the goal being to keep the process as efficient as possible, but as exhaustive as needed. The question is: who gets to decide how much and what type of information is gathered? There are risks with leaving this up to the clients. For example, the spouse seeking information doesn’t want to be labeled the distrusting antagonist for requesting information. There could also be professional liability risks in not obtaining a minimal amount of documents, as a former client could later get “buyer’s remorse” and come back asking for the statements compiled. On the other hand, there are also risks with leaving the scope of information gathering up to the Financial Neutral. For example, the clients could become frustrated by having to compile documents relating to items not in contention, or by having to pay for unnecessary tasks.
To strike a healthy balance for information gathering, the Financial Neutral will often request a typical or “standard” list of documents up-front, after discussing this initial list with the professional team. The Financial Neutral informs the clients of this list and lets them know there may be other documents requested along the way. This opens the door for additional requests upon individual meetings with each client and/or their attorneys. Also, this initial standard list may be culled down to some degree, depending on the case, but only if both clients agree. It is often better for the Financial Neutral to request the documents up-front and explain to the clients that the team may not ultimately need them, but that it is better to have them on hand for efficiency, just in case they are needed later.
Educate: What does it look like for the Financial Neutral to “educate” each client? It’s rather simple when the question is ‘what was the bank account balance as of last Thursday?’ or ‘how much cash was withdrawn from the investment account over the last six months?’. However, this becomes more challenging when the clients’ questions don’t necessarily elicit a straight-forward “data-only” answer. Some examples below:
- What portion of the account is considered ‘marital’ vs. ‘non-marital’? (e.g. How closely is the team going to follow case law on issues such as co-mingling, trace-ability, burden of proof, potential for unequal distribution, etc.? Is it assumed the Financial Neutral is going to use a straight coverture fraction for defined benefit plans and the typical pro-rata allocation of passive earnings for defined contribution plans?)
- What is the appropriate tax rate to apply to retirement assets? What about taxes or closing costs on real estate? What is the true net-of-tax value on our cash value life insurance policies?
- What is the value of the business? What portion of the business relates to marital enhancement, personal goodwill, etc.?
- What are my historical living expenses? (e.g. How is the scope for a Standard of Living Analysis determined? What is the process for reconciling adjustments from each spouse’s perspective?)
- Is the rate used for estimated ‘investment income’ based strictly on a typical rate of return going forward, or should other factors also be considered, such as the client’s historical returns, age, or risk tolerance? Who determines what qualifies as ‘investable’ assets?
- How much forensic analysis is needed to determine the ‘available income’ of each spouse? (e.g. How closely are we following case law on issues surrounding distributable income, in-kind benefits, etc.?)
- What’s a ‘reasonable’ amount, term and type for spousal support?
In a recent informal survey, practice group members were provided the challenging questions listed above and asked to rate how far the Financial Neutral should go in resolving these questions. The spectrum of potential ratings was as follows:
- Left end of the spectrum: “Provide Data Only”
- Middle of the spectrum: “Provide Range of Solutions”
- Right end of the spectrum: “Provide the Solution/Answer”
The median results fell generally in the middle of the spectrum, with most professionals feeling comfortable with the Financial Neutral providing a potential range of solutions overall. The exception to this was most Facilitators’ median responses fell left of middle, toward the “provide data only” end. Generally, for specific questions like determine the ‘tax effect’ or ‘rate of return on investments’, median results fell to the right of middle, toward “provide the solution/answer”, and for questions like determine the ‘business value’ or ‘alimony award’, the results fell to the left of middle, toward “provide data only”.
Based on feedback, the common theme stressed among all professionals was the need for the Financial Neutral to always consult with the professional team first before deciding how far to go in addressing these questions.
Facilitate: Unlike in many other parts of the state and around the country, attorneys generally place a very high level of trust on their neutrals in the Tampa Bay area, giving the them plenty of latitude to help the clients in whatever ways the neutrals think best – particularly when it involves facilitating discussions around option building and creative problem solving. Generally, the attorneys have selected the Financial Neutral because of their financial expertise and experience and are comfortable with them providing creative options based on what may be typical in certain circumstances. However, the key question is: How does the Financial Neutral facilitate discussions in a way where the professional team maintains control of the process without controlling the options developed?
In a recent TBACP survey on the topic of “Things Other Professionals Do to Make Your Cases Harder” (presented by Ky Koch and Kristin DiMeo), one of the actions Financial Neutrals should avoid is “steering option development toward the “right” outcome”. While it is important for the Financial Neutral help the clients think creatively to explore as many options as possible, Financial Neutrals should ‘live in the question’ with the clients and allow the clients to determine the best options for themselves without steering them toward a particular outcome. This is not always easy. There are times when the clients get stuck – either because they are taking polarizing positions, or sometimes, because they simply say neither of us want to be “unfair” to the other – just tell us what’s reasonable. Sometimes it may be necessary for the Financial Neutral to ‘weigh in’; however, any time he or she does, the risk of losing the perception of neutrality increases. But sometimes ‘weighing in’ is needed by the team to help the clients reach agreement.
In many ways, a crew team resembles the work we do as collaborative professionals. It is important that the team is rowing together, in the same direction, with the same pace and strength. What happens when one side is too strong or too weak? The boat goes around in circles. To keep the boat moving forward, the Financial Neutral’s primary responsibility is to bring financial issues to the professional team first and to ensure the professional team is aligned in addressing challenging financial questions as they arise. Together, the team addresses the important question of ‘how far’ the Financial Neutral should go in helping to move the case forward.