8 Steps of the Financial Mediation Process
Many couples who are going through a divorce or separation can find it difficult to agree the financial arrangements of their divorce or separation. There is so much differing advice out there; many well-intentioned family and friends who can give incorrect advice – and just try googling ‘what should be a fair financial settlement’, you will likely end up with a lot of different answers and even more confusion. This blog explains the mediation process that Mediate UK use to help you reach a fair and good financial agreement. We know following this process works in 90% of cases.
Family law is all about ensuring your future needs are met and your children are prioritised in any agreement reached. Our Ultimate Guide to a Financial Settlement explains in depth the Section 25 factors that a court would take into account.
Of course, you are able to agree anything between you that you both consider fair. But in order to have your agreement made legally binding by way of a financial consent order, the court will need to agree that you have come to a fair agreement.
Our blog – the 11 ways to reach an agreement can be helpful here. Even if you cannot reach an agreement, agreeing on the method(s) you will try to finalise a financial settlement can save you both a lot of time, stress and money.
One of these methods is family mediation. Family mediation is usually a pre-requisite before you can apply to court for a financial order and this is for good reason – it works! Here we take you through that financial mediation process.
What is the financial mediation process?
Step One – MIAM
We meet you individually at first. This appointment is called a MIAM – a Mediation Information and Assessment Meeting. We have to do this with you both individually (you can bring someone in support) and we hold these sessions through online mediation or face to face at one of our family mediation branches. Most people find it easier and quicker to hold this initial MIAM online.
Our page ‘What is Family Mediation’ explains the process in more detail by way of a flowchart.
Once you have both completed your MIAMs you can complete your financial disclosure, unless there is an urgent and pressing matter to mediate on
Urgent Financial Matter
Some couples may have a mortgage payment coming up that they know will be missed, or other urgent bills that need agreeing. This is before they can start to do a financial disclosure or agree a division of the assets. In such cases, if both clients agree, you can meet with your family mediator and agree this urgent matter(s) at a joint mediation session.
Step Two – Financial Disclosure
If no such emergency exists, then you will both need to do a financial disclosure.
You have three options on your financial disclosure.
Option 1 – Full financial disclosure on a Form E
This includes various proofs such as 12 months of bank statements. You will need to complete this form if you apply to court for a financial order. Both parties must sign their Form E as being accurate and if you deliberately provide false information, you may be committing fraud and it could land you in trouble if you go to court for a financial order. You can view and download a Form E here.
Option 2 – Disclosure on Mediate UK’s forms
This is the option 80% of our clients opt for. The spreadsheets include a full financial disclosure as recognised by the courts and solicitors, but are less onerous to complete than a Form E.
Option 3 – High Level Disclosure
This is the minimum information required for a Form D81. It has the totals of your properties, assets, pensions and debts. But they are not broken down. If you wish to use this option, you should take legal advice on the possible legal consequences and you will need to sign Mediate UK’s disclaimer. Read more about Form D81 here.
If you cannot agree on which method of disclosure to use, you will need to default to completing a Form E, option one, as this is what a court would request.
Why do we need to do a financial disclosure?
If you want to have a legally binding agreement at the end you will need to a get a financial consent order. This is the only way to ensure you have a clean break and that your agreement reached is legally binding to protect you both. In order to have a consent order that is agreed by the courts and cannot later be challenged and set aside, you both need to do this financial disclosure.
Step Three – Agreeing the Financial Disclosure
This is a key step in the process. Any method you use to reach a financial settlement will need you both to have made and agreed a financial disclosure. If you don’t, the court will order you to do one. And if they believe you are being unreasonable or frustrating the process, they can take this into account in their allocation of legal costs and even in the judgement they make.
Your mediator will take you through the financial disclosures you have made and check that you both agree with this disclosure. It is difficult to move on with the mediation process to reach an agreement without the whole financial picture, so this is why we ask you to have all your financial information to hand, including your pension valuations, in order to proceed with financial mediation. You don’t need this if you are discussing parenting matters.
Case Study – Full Financial Disclosure
Julia and Khaleb entered mediation to agree their finances. Their assets were not substantial; they had a house, some savings, a few credit card debts and a pension each. They agreed to Julia staying in the house with the children and it would be sold in 7 years’ time when the children were older. The equity would then be split 50/50. Julia didn’t want to make a claim on Khaleb’s pension, but they didn’t know the value.
They had their agreement drafted but when Khaleb’s pension value was received, it turned out to be worth a little over half a million pounds. This made the agreement strongly imbalanced in Khaleb’s favour and unlikely to be accepted by the court. They returned to mediation and a pension sharing order was finally agreed with 30% going to Julia to reflect the fact Khaleb would need to rent somewhere else for seven years.
Having all the information at the start of the mediation process would have saved them both a lot of time and money and allowed them to make decisions knowing all the facts.
Step Four – Exchanging Disclosures
Another key part in the process is to exchange your financial disclosures. This can be done prior to your first joint mediation appointment or, more usually, at the end of the above financial disclosure session. The mediator will not analyse your financial disclosures or keep copies of your proofs, such as bank statements etc. They will record what information has been exchanged between you.
Exchanging financial disclosure prior to your first joint mediation session allows you to take legal advice, which can be helpful for your situation. If not, you can take this advice between later sessions if you feel you need a legal steer.
Step Five – How do we divide up our assets and debts?
This is where the following question needs to be answered:
“How do we divide up our assets and debts fairly, so we can both move on with our lives and meet our reasonable future needs?”
If you can work together with your mediator, to solve this problem, you are far more likely to reach a fair, good and manageable agreement than if you try to think “how can I get as much as I possibly can out of this situation?” Family law genuinely does not support the latter question.
Your mediator will help you agree what your needs are and how they can be met from the assets available. The table below may be helpful in showing you the factors that are and are not generally considered by a court in reaching an agreement.
Don’t forget to revisit the ‘Ultimate Guide to a Financial Settlement’ which goes in depth into these factors.
What are my reasonable needs?
For many clients, the need to fund two households, whereas before only one was needed, is the main problem that you both need to solve. Look at our blog on the 10 options on a property as part of a divorce or separation as this may provide some ideas you have not thought about.
Find out your mortgage capacity based on your current or expected income. How much can you borrow? And how much will the monthly mortgage payments be? Can you maximise your income when you are living separately? You may be entitled to some additional help through universal credits or able to get a reduction in your council tax bill. The calculator here can help you see if you can get any additional help with your monthly budget.
Case Study – Reasonable Needs
Jessica and Tyler had 2 children, a boy and a girl aged 12 and 10. They were living in a 4/5 bedroom house. Jessica ran her own childcare business and did some private nannying on the side. Tyler was an IT project manager.
They had agreed that the children would stay primarily with Jessica as she was able to fit her work in around the children and the children would see their dad every Wednesday evening and every other weekend.
Jessica wanted to stay in the house and for Tyler to rent somewhere nearby. Tyler wanted the house to be sold and for them both to buy a 3-bedroom property. They decided to use family mediation to help them reach an agreement.
In mediation they followed the above process of disclosure and looked at their earning capacity, mortgage calculators and house prices. They could not afford two 3-bedroom houses, but they could just about afford a 3-bedroom house and a 2-bedroom maisonette. The former marital home was sold and Jessica used £300,000 from the proceeds on top of a £80,000 mortgage to purchase the 3-bedroom property.
Tyler used £75,000 from the equity alongside a mortgage for £200,000 to fund a 2-bedroom maisonette that had a large living area that could be converted to a sleeping area for his son when he stayed over.
Having met their needs, they split the rest of their assets equally between them. They also agreed that Tyler should keep a higher percentage of his private pension, to help offset the unequal division of the house equity.
This was the only option that allowed them both to be accommodated in their own places and that allowed them to achieve a clean break financially.
The above agreement was sense-checked by the family mediator and they agreed that Jessica could afford her mortgage and household bills. This was done with a future forecast
of her budget, based on the size of the property in the area, council tax and all household expenses. But had Jessica not been able to afford these bills and therefore got behind on her mortgage payments, and the house was repossessed – this would not have been a good, viable agreement.
Sense checking the agreement and discussing whether any ongoing payments are needed between the couple is an important part of the financial settlement. It shows the court that you have considered your future needs and those of the children. Spousal maintenance can come into play here – just remember you cannot get a clean break if you have a spousal maintenance order in place. Read our ‘Ultimate Guide to Spousal Maintenance’ for more information on how this works and the option of capitalising (paying a lump sum) for the spousal maintenance.
If you have children, you may also need to look at child maintenance, depending on the child arrangements agreed and the age of the children.
Both parties should plan for their future budgets and agree what is reasonable. Whilst child maintenance is statutory in many cases, the issue of spousal maintenance should become clear once you have both done this exercise.
Step Seven – The paperwork and legal advice
Having reached an agreement, your family mediator will draft two documents for you:
- A financial statement, which can go to court. The financial statement shows what assets, debts and income you currently have.
- A memorandum of understanding. The memorandum outlines how these assets will be divided up and any ongoing payments.
At this stage, the memorandum is not legally binding and you can take it to your own solicitor for checking or take advantage of Mediate UK’s one-hour memorandum legal check, which includes a written report of your legal advice.
Minor changes can be done between you by agreement, any typos can be corrected by the mediator, but any substantial changes will need to be agreed at another joint mediation session.
Once you are both happy with your memorandum, you can proceed to the final step.
Step Eight – Make your agreement legally binding
Once you have reached an agreement you can just enact it and not have it made legally binding. But many people want the security of having a financial consent order on divorce, or a separation agreement if they are not married or getting divorced at a later date. See our ‘Ultimate Guide to a Separation Agreement’ for details of what this does and does not allow.
For many people a financial consent order is the only way to ensure a legally binding financial agreement and, where agreed, a financial clean break from their ex-spouse.
You can get a financial consent order through one of three ways:
- Online Consent Order. You can look at an online service to process your agreement into a legally binding consent order.
- Mediate UK Package – we offer a fixed fee mediation and consent order package. It includes all your mediation, your memorandum and a solicitor to amicably manage your consent order with the court.
- Use Your Own Solicitor. They can draft the order for you and liaise with the court. You may have a solicitor each to advise on the contents of the order as well.
Whilst there are different options to suit different budgets and complexities of agreement, the actual drafting and processing of the consent order should always be done by a family solicitor.
But it is reaching your agreement where the real value lies. If you cannot reach a fair agreement either between yourselves, through family mediation or another alternative dispute resolution process, you could find yourself at court and spending an average of £20,000 plus VAT on solicitor and legal fees, before you get told what will happen by a judge.
This blog takes you through the mediation process to reach a fair agreement and offers up some help on what factors you should be considering to help you agree you futures, it does not constitute legal advice and we always recommend taking independent legal advice, either during, during or after the mediation process.
Mediate UK are the top-rated family mediation service in England & Wales and have a 90% success rate. We follow a tried and tested method of progressive family mediation that we know works for our clients.
Get in touch with our friendly team today on 0330 999 0959 or email firstname.lastname@example.org to find out more.