Divorce Without Pain © : Case Study 5

Note that the case studies mentioned in this blog have been anonymised and particular details changed so as to avoid any chance of recognition or attribution.

THE FACTS
'Divorce Without Pain' were consulted by two solicitors - acting for the husband (Sydney) and wife (Leticia).  The parties wanted to reach an agreement if possible in relation to their financial affairs following the breakdown of their 27 year marriage. Both were mature in age. Their children were adult and independent. 

After having separate careers, they had launched a business together in the technology sector. The business was essentially run as a family affair, initially from their home and later from business premises nearby. They employed a small team of technical, artistic and administrative staff and the business progressed well. About five years ago, it was incorporated into a family company, and now comprised their main asset. It had been largely self-financing, save for a modest loan by Leticia's father (Gilbert) as part of his wider investment portfolio. On incorporation of the company, he received a proportionate share issue to reflect his financial investment. The remaining shareholding was divided between Sydney, Leticia, and Gilbert, but with Sydney holding the majority, and thus exercising a controlling interest. 

Both Sydney and Leticia brought distinct skills to the enterprise, and it would be fair to say that both were equally valuable to the business viability. Although their marriage had failed, neither could really afford the lucrative business to fold. They agreed to separate, but economically and financially they were to remain tied. Matters were further complicated by the prospect of a commercial buy-out of the company which, if it came to fruition, would result in a big windfall, whilst retaining both Sydney and Leticia's services within the enterprise.

THE ISSUES
The issues for 'Divorce Without Pain' facilitators were:

• How to manage both the emotional and the financial separation?
• What changes were needed to ensure an equitable division of assets from the marriage?
• What changes were needed to the structure or the company and its shareholding?
• How best to manage the company for the future, given their divorce?
• How to retain the functionality of their working relationship at a time of considerable stress?
• How to deal with the share imbalance between the parties, and the possibility of Gilbert's shareholding being deployed to effectively control the company?

THE FACILITATION
Increasingly, 'Divorce Without Pain' is asked to provide 'paired facilitators' with experience of working together on financial affairs, especially in the field of Financial Remedies and trust law. This was yet a further case where two facilitators were sought, with the aim of reaching a resolution of all issues within two days.

The facilitators were selected on the basis that they had worked together on numerous occasions in relation to high-pressure cases, and had a track record of success. They worked with both parties and their legal teams. All information was shared between them and the parties. The process was devised to eliminate any element of adversarial or competitive practice.

The facilitators reported that the case was fundamentally simple as regards the principles, but proved difficult with regard to the detail. Had attention not been given to the practical details of the case, the facilitators felt that any deal would not have lasted. The facilitators also embraced the emotional issues and helped the parties devise suitable, strenuous strategies to hold their working relationship together. Special attention was given to the methods, manner and frequency of communication - so that both parties had identical expectations and robust systems to fall back on. Without seeking to stifle the creativity that had made the company so successful, the facilitators addressed the use of agendas and how these should be formulated, as a 'prequel' to meetings. Both facilitators had experience of employment mediation and conciliation, and reported that this was of great value in reaching the settlement.

OUTCOME

As was evident from the list of issues above, a major concern was to reach a balance between equality of outcome for the parties, whilst addressing the possibility that Gilbert's share holding could be deployed to gain control of the company by Leticia. For this reason, the facilitators suggested that Gilbert should be separately represented in the mediation. Whilst it was critical that Gilbert should retain value in the company - both in capital worth and dividend - it was unnecessary for him to exercise control. He acknowledged that the enterprise in which he had invested had resulted in exponential profit under the joint management of his daughter and son-in-law, and that a balance of control between these two was critically important to the company's future success. It was suggested that a new, separate and non-voting shareholding could be issued to retain the value of his investment and protect future profit sharing, to which with his legal adviser's assurances, he agreed. All that remained with regard to share alteration was to equalise Sydney and Leticia's voting shares. As part of this arrangement, both Sydney and Leticia made new Wills to provide a compatible arrangement in the event of their death. Advice was taken at this time to address tax liability, and this was integrated into the agreement.

The issues arising from the emotional side of separation were more problematic. These had the potential to impact seriously on the viability of the company. New, intelligent working practices were needed to separate their respective areas of responsibility whilst preserving their dynamic communication that was integral to this business. The facilitators spent time dealing with these particular issues, developing systems of meetings, the formulation and use of agendas, specifying methods of communication, and separating Sydney and Leticia's functions as much as possible. Whilst is was not feasible for the parties to work exclusively at different locations, their contact together was delineated by agreed strategies which were captured in a 'working agreement'. A principal part of the agreement was what to do in the event of Sydney and Leticia having conflicting views. The 'conflict management' provisions were tightly drawn so as to make their responsibilities very clear in the event of disagreement.

Clearly, Sydney and Leticia had other assets, and these were the subject of agreement in accordance with the Matrimonial Causes Act. The whole arrangement was then captured by way of a settlement order which both parties, having been advised by their respective solicitors, agreed to hold as a Xydias v Xydias compromise.

POSTSCRIPT

Feedback was sought from both the parties and their legal teams. A very high level of satisfaction was evident, all parties expressing "total satisfaction" with the method of facilitation, the mediators and the outcome. The respective legal teams considered that the result was "one that would not have been achieved by going to court" and that "probably could not have been negotiated without the intervention of the facilitators". Importantly for the parties, the result was achieved within the strict time-scale of two days, and at a fraction of the cost of litigation.