Monthly Archives: July 2015

Consider collaborative

John Nicholson  Jun 11John Nicholson explains why he is such a proud advocate of collaborative practice on family or relationship breakdown.

I am proud to have been one of the early adopters of collaborative law when it came over from California to the UK more than ten years ago. As an experienced and committed family lawyer I could immediately see the advantages of a process that would keep families out of court, and save people from exacerbating the pain of divorce with stressful and expensive court proceedings. I am pleased to say I still feel as passionate about it today as I did then.

At first glance, collaborative practice in family law looks simply like a series of all-round-the-table meetings between former partners and their lawyers, but it is more than that. The key feature of collaborative law is the contract that everyone signs up to at the beginning of the process. This commits them to finding a solution without going to court (except to get approval for an agreement), so the lawyers involved cannot represent the estranged couple should they not manage to reach a settlement and decide to take the matter to court for a decision. On this basis, the lawyers are highly committed to making the process work, otherwise they lose their client, and the clients are highly committed also, as they tend to prefer not to have to go through the delay, stress and expense of instructing a second lawyer. It is in everyone’s strong interests to work towards a lasting solution to the problem out of court, whether it be property, money or children-related, or indeed all of them. There is no easy way out!

I very much enjoy working collaboratively as I believe it provides a much better foundation for life after divorce than battling in court, particularly where there are children. It is very difficult for parents who have spent three days fighting in front of a judge to get over that enough to co-parent children respectfully, effectively and constructively. By contrast, during the collaborative process I have witnessed parents who have diametrically-opposed points of view come to understand the other’s position and work together creatively and openly with their lawyers to devise practical solutions that everyone can tolerate. This must be a much better foundation for all the years of co-parenting to come.

Rapport is at the core of the collaborative process. This operates between client and lawyer, who work together more closely perhaps than in a traditional legal context, and also between the two lawyers who represent the former couple. Collaborative law does not work if there is no trust between the lawyers involved. In Creative Divorce, I am proud to say that I trust my fellow collaborative lawyers to follow the principles of collaborative practice with their client’s best interests in mind, and I hope they would say the same about me. This makes it the ideal platform for devising the best possible foundation for life after divorce.

Business on divorce: what to measure?

jeffrey-nedasJeffrey Nedas considers where accountants should focus when looking at businesses in the context of divorce settlements.

If the street cries of the French Revolution were for ‘Liberté, Egalité et Fraternité’ then for 21st century divorce finance negotiations about business interests, their equivalents could be ‘Value, Liquidity and Sustainability’.

Which of those three, in 2015, is the more important?

There has been a sea change since 2008.  Then, there is no doubt that the overriding objective was company value – and in the booming pre Lehman Brothers financial world it was almost universally assumed that value was easily realisable and liquidity was easily obtainable: private companies were easily bought and sold and raising debt was but a spreadsheet away.

Perhaps this was why so many non-business owning spouses wanted clean breaks and so many company owners protested that their businesses had little value.

The Financial Crisis changed everything. The market for private businesses is a shadow of its former self.  Buyers and lenders are ultra-cautious.  On the other hand, if a seller of a profitable business wants to maintain an income – in the broadest sense of the word – without taking additional risk, low investment returns require that seller to seek a large capital sum.  With willing buyers at the bottom of the hill and willing sellers at its peak, it is hardly surprising that there are few meetings of minds at the negotiating table.

So now it is the business owners who proffer the clean breaks whilst their spouses prefer an income stream.

If value and realisability are taking a back seat, which of the two alternative objectives should take pride of place?

In my opinion, it should be liquidity.  It is said that ‘turnover is vanity; profit is sanity’.  I would add the further precept, ‘cashflow is reality’.

A tangible, sustainable income is one which is capable of being paid to the recipient as salary, dividend or expenses – or a combination of all three – over time, and be freely spent on non-business matters. To achieve this ‘sustainability’ the business must first have adequate liquidity.

With the election out of the way and a sense of greater economic stability, banks appear to be a little more relaxed about lending to business – particularly SME’s.  The door slammed shut in late 2008 is slowly, but surely, opening again.

Whilst the opportunity to borrow to fund capital settlements by extracting funds from businesses and companies may remain limited, the ability to fund working capital on a regular basis means that there is greater scope for business owners to have the wherewithal to enjoy the benefit of tangible and sustainable income.

To those seeking a solution to disputes on divorce about business assets, there is a valid case for asking accountants to spend less time placing theoretical values on unrealisable business assets and more time looking at liquidity and sustainable income.