ANI MASON IS THE CREATOR OF THE DIVORCE FIELD GUIDE. YOU CAN LEARN MORE ABOUT HER HERE AND HERE.

Episode 8 Transcript: Arbitration in Divorce

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Hi, everyone, and thank you so much for tuning in to the Divorce Field Guide. My name is Ani Mason, and I’m a divorce lawyer and mediator, and also the creator of this podcast.

INTRO

Today, we’re in Episode 8, and we are talking about arbitration (which is sometimes referred to as private judging, but I’ll refer to it as arbitration in this episode). As we’ve done for all the other processes, I’m going to talk you through a couple of basic elements or questions about arbitration. I’m going to try to give you a general overview of what it is, of who’s involved in the process, of who talks to whom in an arbitration process, of where things would take place, what happens when you agree on terms, and what happens in arbitration when you don’t agree on terms, what the level of lawyer involvement is, and the likelihood of spending time in court, and then, finally, what are some of the pros and cons of the arbitration process, and what kinds of cases is it right for.

ARBITRATION: OVERVIEW

Let’s start out in understanding what arbitration is because I think it can be an unfamiliar process to some people. Arbitration is a process by which you – and I’m talking in the context of divorce here, so I won’t use the word “parties,” I’ll just talk about you and your spouse – it’s a process by which you and your spouse submit issues that you disagree on to a third-party neutral, and that third-party neutral renders a decision that’s binding.

So, an arbitrator is very similar to a judge in that way. They’re a neutral and, unlike the mediator, they can actually make a decision. In fact, they are typically brought on when you’re stuck on a particular issue, and we’ll talk more about that. The arbitrator is a neutral, like a mediator or a judge, and like a judge, they can make a decision, and you’re obligated to follow it, whether or not you like it. That’s distinct from mediation where the mediator can’t force you to do anything, and they don’t. It’s not their role to make a decision for you.

But, dissimilar to the litigation process or unlike a judge, more like a mediator, you actually choose your arbitrator. So you have more self-determination, I would say, in an arbitration process than you do in just going to court, where you’re randomly assigned to any old judge, you don’t get to choose, and that’s the person you’re stuck with. Not to say that in a negative way because there are a lot of really great judges out there! But, just to emphasize, you might be assigned to a judge in a litigation process that you don’t like. In contrast to that, when you’re in an arbitration process, you and your spouse, and, really, your attorneys, agree on a neutral arbitrator.

Arbitration is much more common in a commercial context, not so much in, what I would call a family law, or matrimonial law, or, basically, a divorce context. It’s very, very common in commercial disputes, so disputes between companies. When they sign a contract, they will frequently say, “If we have a dispute, we will not go to court. We will submit it to binding arbitration, and we will, together, select the arbitrator…” and there’s usually some common language for how they will select the arbitrator. But, the gist is, it’s very common to have in commercial contracts.

Well, when you enter into a divorce, unless you are entering into your divorce with a prenuptial agreement, you don’t specify that any disputes will be settled through arbitration. There are some prenups that do specify that disputes will be settled by arbitration, but the vast majority of couples do not have a prenup, so I’m going to assume that’s your situation. And if you don’t have a prenup and you got married, then you don’t have an arbitration clause regarding your divorce. However, it is something that you and your spouse can agree to incorporate as part of your divorce process. And, it’s not common, but in a certain subset of cases, it is a tool that’s used.

So, when is that? I would say that that is, basically, when in a very high-income or high-net worth divorce, you are resolved on most of the issues, but you have one substantial issue that is really in dispute. For instance, the issue of – whether it’s called alimony, or spousal support, or spousal maintenance – ongoing payments between the spouses following the divorce. You and your spouse could say, “We are totally at odds on this issue. We’ve agreed on everything else, but we just can’t come to terms on, let’s say, spousal support. We’re going to submit it to an arbitrator to make the decision for us.”

In general, the issues tend to be financial, I should say. You would not be submitting where your children should live or what kind of parenting schedule you should have to an arbitrator to make a binding decision for you. If you really can’t come to an agreement, a decision about your kids really needs to be made by a judge.

But, for financial issues… so, it could be spousal support or spousal maintenance. It could also be an issue about how to divide a particular asset or how you’re going to share responsibility for a particular debt. Maybe one of the spouses has their own business, and you’ve agreed on the division of every single other asset in your divorce, but you cannot agree on how the non-titled owner spouse will be compensated for the titled owner spouse keeping the business. Anyway, the gist is financial issues, and I would say that it’s when you are almost resolved on all other issues in the case, and you have an isolated issue that’s really thorny and you just can’t get through.

ARBITRATION: WHO’S INVOLVED

I do want to say a little word about who is this arbitrator and what’s the background of somebody you’d be choosing? Do they have to be a judge? They don’t have to be a judge. It’s common that somebody may have had experience as a matrimonial judge and when they retire from the bench they may offer their services as a mediator and arbitrator, but, it may well be and can often be, someone who’s not a judge but is a matrimonial attorney with a very long history of practice, who has a great reputation in your particular locality and in the field.

So, who’s involved in an arbitration process? So, like every other process, you and your spouse are involved, of course. Your attorneys are absolutely involved. They’re an integral part of an arbitration process. And the arbitrator.

You may agree to have a neutrally appointed or a neutrally agreed upon expert on a particular topic. If the issue that’s in conflict between you requires some specialized knowledge or understanding of a particular topic, you may agree to have a neutral expert participate in and contribute to your arbitration process, but, generally speaking, the core team would be you and your spouse, your two attorneys, and then your neutral arbitrator.

ARBITRATION: WHO TALKS TO WHOM

So, who talks to whom in this arbitration process? How does it work? Well, you and your spouse each talk to your own attorneys. Somewhat similar to court, your attorneys will be primarily talking to the arbitrator on your behalf. However, I would say that there is, generally speaking, more room in an arbitration process for you and your spouse to be able to speak directly to the arbitrator. That’s not to say that it’s a free-for-all and it’s, kind of, a free flowing discussion and people can weigh in whenever they choose. It’s more of formal and prescribed process than, say, a mediation would be. But you definitely have more direct access to an arbitrator than you do to a judge in a traditional litigation proceeding.

ARBITRATION: WHERE THINGS TAKE PLACE

In terms of where things take place, arbitration is most likely to take place in the office of your arbitrator, in the office of the neutral professional. It’s, kind of, similar to mediation in that way. It’s not to say that it can’t take place at one of the attorney’s offices – maybe it could alternate between them, and that sometimes happens – but if your arbitrator is someone who is based in your particular locality, it’s most likely that your arbitration session or sessions would take place at their office. I think that’s really just to solidify that feeling of being on neutral ground, similar to a courtroom or a mediator’s office.

Another key thing to know is that arbitration does not happen in the courtroom. So, the cool thing about arbitration – and I’m skipping ahead a little bit to talk about one of the pros – but, a nice thing about arbitration is that it does allow you to outsource a decision that you feel you and your spouse are just not able to resolve, to a third party, but you don’t have to go to court to do it. You’re not on the court’s timeline. You would be choosing dates that work for you and your spouse, that would not interfere with your work schedule, or interfere to an acceptable degree with your work schedule. The court does not particularly care, because they just can’t for a number of cases – not to paint them in a callous way at all – but for a number of cases that they’re handling, they are totally overburdened. Every judge is so overburdened, they barely have enough time to either preside over, or have their law clerk or court attorney preside over, the conferencing of your case every couple of months. It’s not common that they will bend to accommodate your schedule. They may, you know; it’s somewhat personal preference of the judge. An arbitrator, on the other hand, is privately hired by you and your spouse. You’re paying for that person. So you and your attorneys will be dictating, along with the arbitrator based on their own schedule, when you’re going to be meeting, which is a really nice accommodation that you pay for.

Also, I should say the different courthouses that a divorce case could take place in are not – they’re not unpleasant places to be – but they don’t have the same level of comfort that an arbitrator will have in their office for you. It’s just a greater level of accommodation. It’s sort of like, in a way, like opting to pay for – I don’t want to say it’s the “luxury option” – but it’s sort of opting to upgrade your experience a bit. You’re in a private office, you schedule things on your schedule with the arbitrator, it’s a nice accommodation, and you pay for it.

ARBITRATION: WHAT HAPPENS IF YOU REACH AGREEMENT (OR NOT)

So, let’s talk about what happens in arbitration if you agree, and then what happens in arbitration if you don’t agree. Well, remember that similar to litigation, arbitration is a process that provides for a third-party neutral to make a binding decision. So, you don’t have to agree and, in fact, if you do agree, your arbitration would stop. If you and your spouse came to an agreement – let’s say you have been disagreeing on spousal support – if you and your spouse came to an agreement on spousal support, you don’t need the arbitrator anymore, and they would not need to render a decision. You could mutually agree to do whatever you agree to do. That’s always true. Same as litigation. So, if you come to an agreement in litigation, the litigation can stop.

What happens in arbitration that’s more significant is when you disagree, and that’s why you’re in arbitration and it’s, similarly, why you would be in litigation if you were in a litigation process. So, if you can’t come to an agreement on the issue, the arbitrator will hear the presentation of facts and of law from both sides, from your attorney, and from your spouse’s attorney and they will consider those. And in light of the law, and the facts that they understand and that they assess to be accurate, they will make a decision. And, they will render that decision in writing and then it would, typically, be incorporated into a contract between you and your spouse that would ultimately be incorporated into your divorce papers.

So, an arbitrator, I want to be clear, an arbitrator is a private citizen. They are not a judge. They do not have the power to issue a divorce for you. So, you still, no matter what process you’re in, you still need to submit your ultimate agreement and your ancillary divorce papers to the court for a judge to review, approve, and issue your divorce. So, the arbitrator is really just helping you conclude a particular issue that you’re in disagreement on, and then, with whatever resolution they dictate which is binding on both of you, whether or not you like it, with that resolution and with all the other agreements you’ve made that are relevant to your divorce, you then submit your paperwork to the court for approval and for the issuance of your judgment of divorce, which dissolves your marriage.

ARBITRATION: LEVEL OF LAWYER INVOLVEMENT

In terms of the level of lawyer involvement, it’s probably self-evident, but it’s very high in an arbitration. Same as a litigation, honestly. In terms of preparing for an arbitration session, there are, maybe, fewer attorney hours that are required because the mechanisms for exchanging relevant documents, and making requests of the other side, and submissions to the other side are slightly less formal than in court, so maybe it’s slightly less onerous in terms of attorney hours.

But, an arbitration process is not something, generally speaking, in a divorce, that you and your spouse would go through without attorney representation. That would be highly uncommon. I don’t know of any cases in which that happens, where you’re both pro se. Say you’ve opted to do – “pro se,” meaning, you’re representing yourselves – say you’ve opted to do a kitchen table or a DIY Divorce. Neither of you has an attorney. It would be highly uncommon for both of you, on your own, with no attorney representation, to identify and retain an arbitrator to decide a particular issue for you. That, generally, doesn’t happen in family law cases. That’s not to say that it can’t, or that it shouldn’t, but it’s just very uncommon.

So, if you’re in an arbitration process, you almost certainly have an attorney representing you, and their level of involvement is quite high. So, that’s similar to litigation.

ARBITRATION: LIKELIHOOD OF TIME IN COURT

In contrast to litigation, the likelihood that you’re spending time in court could actually be quite low. It varies from case to case. So, you may be in a settlement negotiation – there’s no action in court, there’s no active court case, nothing’s happening in litigation. Your two attorneys are trying to negotiate a settlement, and they, with you and your spouse, have gotten all the way there, except on a particular issue – I’m just using spousal maintenance as an example – except on this particular issue that’s really an obstacle for both you and your spouse. You just can’t come to an agreement on it. Your attorneys could retain an arbitrator, and you might never set foot in court. The arbitrator renders their decision, and you incorporate it into your ultimate agreement, and you submit it to the court, and you never set foot in court.

Alternatively, you may have started out in a litigation process, and you may be following the prescribed formal steps for a litigation in court, and negotiating the settlement on the side, and find that “Okay, we pretty much negotiated everything, but this particular issue we’re stuck on, and the court system is just taking too long for us, or we… neither of us has faith on this particular judge. We’re going to outsource this issue to an arbitrator.” So, in that situation, because you have an ongoing litigation, you have a very high likelihood of being in court, but not by virtue of the arbitration process itself. You do not have to have an ongoing court case to be in arbitration, and, in fact, many people do not.

ARBITRATION: PROS + CONS

So, let’s talk in terms of different pros and cons of the arbitration process. I would say one of the big pros of the arbitration process is that it brings together a couple of things that are nice about mediation and nice about litigation. On the one hand, it allows you to privatize and tailor the divorce process. It allows you to pay for a divorce process of your own construction. You can choose the arbitrator, just as you chose your attorney, or you would choose your mediator or collaborative lawyer. You can select when you’re going to be meeting. You can really tailor the process and make it work for your own convenience. You can have somebody, for instance, who works internationally appear via video conference, and it’s no problem, whereas, in court, there’s a whole hassle about doing that, and you really need to appear in person. (At least, in 2016 when I’m recording this. Maybe ten years hence that won’t be an issue anymore, and I hope it’s not.) Arbitration is just a more accommodating process, but it does bring with it the power to obligate you and your spouse to a particular resolution, which mediation, collaborative law, and settlement negotiation do not bring to the table. That’s something that only litigation brings to the table, or arbitration, if you engage in that process.

I think, at the same time, just as I’ve said for litigation, the fact that you can be obligated to a particular resolution, it can be a good thing if you like the resolution, and it can be a bad thing if you really hate the resolution that the arbitrator came to. It carries risk with it. You are outsourcing the decision, this important decision, to a third party who doesn’t know you or your spouse. They’ll never know your situation as intimately as you guys do, and you’re trusting that person to make a decision that is likely not going to be your ideal. It’s likely not going to be the ideal resolution for either of you, but you’re trusting that they’ll make a decision that’s workable for both of you, and there is some risk there.

WHAT CASES ARE RIGHT FOR ARBITRATION?

So, what’s the right type of case for an arbitration? I want to flag, again, that arbitration is not really a process that you, for divorce, would engage in on its own. It’s, kind of, like an add-on to, either, a mediation process, or a collaborative law process, or, more commonly, a traditional settlement negotiation process, or a litigation.

The cases that involve arbitration, typically, are much higher income and very high net-worth cases. This, obviously, requires you to pay not only for your two attorneys, but for your own private judge in the arbitrator, so it can be more expensive than just going to court. However, if it saves you hundreds of thousands of dollars in trial preparation, it’s a less expensive process, or can be, than litigation.

And, again, it’s really where you and your spouse are stuck, typically, on a particular financial issue. It’s not an option as commonly for child related issues, for issues of custody or visitation. It’s more focused on figuring out a spousal maintenance decision that makes sense for both spouses or that is acceptable to both spouses, or figuring out something around property division, that is a particular issue that you were stuck on, and helping you resolve that issue, so you can resolve your case.

NEXT UP

That is it for our summary of arbitration. Next up is Episode 9, and we’re going to be running through a summary of all of the processes that we’ve been talking about from Episode 3 to this episode, Episode 8. We’ll do sort of a high-level summary of them and talk about a couple of common questions that come up whenever someone is at the outset of their divorce process that, no matter what process they’re in, they often want answered at the outset.

So, thank you so much for tuning in today. I’m really glad you joined me, and I will look forward to talking to you again soon. 

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