We all experience conflict. Often, when we can’t work it out, we turn to the courts. As a result, San Francisco courtrooms are overloaded with cases brought by people who are unable to solve their own problems. These people quickly find that litigation is stressful, expensive and time-consuming. While it is true that some cases can only be settled with a full-blown trial, most of the time there are more constructive alternatives for conflict resolution.
Mediation is a facilitated, voluntary and confidential form of dispute resolution designed to reach a negotiated settlement. Instead of the power struggle of litigation, the parties work together toward their common goal: an early, inexpensive, lasting resolution of their dispute. Mediators are highly trained in conflict management. Rather than “deciding the case” like a judge or an arbitrator, the mediator is an impartial facilitator who helps the parties hammer out their own agreement. The mediator is obligated to treat all parties fairly. The mediator must disclose any prior relationships with the parties or any potential conflicts of interest, to give the affected party an opportunity to select another mediator. The most effective mediators are familiar with the basic legal and practical aspects of the case and specialize in certain types of disputes. For example, some only mediate divorces, while others handle only commercial, inheritance, landlord-tenant, or employment disputes.
This article focuses on mediation of community property and inheritance disputes. The amount of family litigation has risen dramatically in San Francisco in the past 20 years due to poor communication, the proliferation of ‘one size fits all’ inexpensive trusts and the rise in property values. Judges listen to scripted testimony and make decisions as to how the law of the land applies to the particular situation—often the result is not satisfactory to either party.
Mediation is the answer. Most mediations result in a settlement agreement because the process encourages the parties to communicate with each other in new ways. These voluntary settlements eliminate the uncertainty involved in having a judge “decide the case,” and the risk that the legal fees of a court battle will exceed the amount “won” in court. Mediated agreements also avoid potential negative publicity because they are not a matter of public record. Moreover, mediation can occur at any stage of a dispute, even as a last-ditch attempt before filing papers in court.
Mediation is collaborative negotiation. A skillful mediator can help the parties avoid the spiral of blame and instead create their own innovative solutions. These settlement agreements are more likely to be honored than a solution imposed by a judge or arbitrator. Parties are empowered in mediation because they participate voluntarily and make their own decisions regarding their offers and counteroffers. The mediator’s job is to encourage the parties to deliberate and make thoughtful decisions at every stage of the proceeding. In so doing, the parties become clearer about their positions and better able to hear the other’s point of view. This listening is, of course, critical to successful negotiation.
In order to promote communication among the parties, and facilitate resolution of the dispute, California law provides that all mediation proceedings are confidential. This means that neither the parties nor the mediator can testify as to what was said in mediation. Notes and other documents prepared in the course of the mediation are also confidential. The mediator should clearly document, in writing, when the mediation begins and ends so that the scope of mediation confidentiality is clear to all parties. The pre-mediation agreement of the parties normally provides that any written settlement agreement prepared in mediation is admissible, subject to disclosure, binding and enforceable.
The confidentiality of meditation contrasts sharply with the public nature of litigation, and the adversarial discovery process in which the parties subpoena documents from each other, send interrogatories and take depositions. If a party produces documents during the mediation, those documents should be protected by the confidentiality agreement. If a party writes notes on a piece of paper, the purpose of the notes, and whether or not they are a confidential writing, should be clarified. If they are confidential, they should be destroyed at the end of the mediation. The parties or mediator should question the protection of writings and conversations throughout the mediation.
Prepare for Mediation
Mediation is your chance to evaluate satisfying alternatives to the less predictable last resort of litigation. Be sure to carefully consider all conceivable settlement options as you prepare for the big day. Consider mediation to be a way of testing your case and posturing it for resolution. Know that your case is not compromised by participating in mediation. Rather, mediation is a chance to look realistically at liability, damages and collection, and the cost of going to trial, as compared to the value of settlement. Getting yourself ready for mediation is the best way to prepare yourself for trial, if a trial should be necessary, because you will be forced to look at your strategies and defenses, evaluate your evidence and witnesses, and otherwise assess the strengths and weaknesses of your case. Take control of the negotiations and think of solutions that work for ALL the parties. Be a disciplined negotiator.
The Day of Mediation
Mediations are usually scheduled for an entire day, and the objective is to conclude the day with a signed settlement agreement. The mediator often meets with each party separately during the course of the mediation. Often each party’s lawyer is also present. Sometimes the parties to a mediation are never in the same room and the mediator goes back and forth with offers and counter offers. This “shuttle diplomacy” works best in commercial disputes in which the parties do not plan to continue their relationship.
Estate disputes usually involve family members who are likely to have lifelong relationships, regardless of how much they currently dislike each other. Accordingly, in family mediations, it is useful to keep everyone in the same room to facilitate possible breakthroughs. A face to face mediation can begin to repair relationships for those who must continue to interact such as co-parents, neighbors or business partners. Parties may also learn skills needed to address future conflicts.
Working the Conflict
Many people consider conflict avoidance a virtue until they discover that denial today creates a bigger problem tomorrow. The real choice is often between talking about it now or acting it out later. In estate planning I often tell my client that if their children can’t say “no,” they can’t say “yes” either. In other words, a conversation involves more than “yes” or “no”.
Working the conflict often generates high emotional tension and there is a tendency for inexperienced mediators and parties to skip over it, and not even recognize what the real issues are, because it can be uncomfortable. The risk is that the parties will not address their true concerns and lose the opportunity for true understanding and a durable resolution. It is often the struggle over the differences that can lead to a meaningful and lasting resolution.
Most of the time, people in conflict have not fully communicated with one another. Siblings and their parents may develop expectations about division of the estate without fully discussing their assumptions. For example, a child working in the family business, providing care for a sick parent, or the one child who didn’t take money from mom and dad for college, may expect a larger share of the estate. The potential conflicts are ignored or minimized during the estate planning process, and then a firestorm breaks out upon the death of the parents. Sibling rivalry, held in check while the authoritative parent is alive, often ignites in courtrooms upon the death of that authoritative parent. These litigious situations can be avoided through early mediation. A skillful estate mediator can help family members communicate and develop a plan of interaction that will promote all of their interests, both during the planning process and after a death.
Heirs are involved in the planning process in only a small number of families. More commonly, the parents do not talk to their kids until after the estate planning documents are signed. Mediators therefore rarely get involved in the estate planning process. Mediation, or unfortunately litigation, is more common in sorting out problems after the death or incapacity of the older generation. Direct communication, with or without mediation, in the planning stage can prevent misunderstandings, disappointment and disputes after a death.
Marital Property & Mediation
The biggest financial sticking point upon death or divorces of married people and domestic partners is the question of community and separate property. Anything earned during a marriage or domestic partnership is legally recognized as community property. Often, people think that if they earned the money and saved it, it is theirs. But unless that is specified in a prenuptial or postnuptial agreement, that money generally belongs to both of them equally as community property.
Debts become community property when incurred to pay for necessities because spouses and domestic partners have a legal obligation to support each other. But a debt is separate if, for example, a spouse or domestic partner buys an unnecessary luxury car.
Sometimes couples are paying off the debts that one party brought into the marriage or domestic partnership with income that is community property. A common scenario is that one spouse makes a lot of money but had a lot of pre-marriage debt. The other had no debt and saved income in a 401(k). When the marriage ends, the debts are paid off and the non-saving spouse requests half of the 401(k). A mediator can work with you to make arrangements — especially before marriage — about who is responsible for debts and how they will be settled.
Marital property agreements are effective for those who want to write their own rules for marriage. Kids from the prior marriage often insist upon marital property agreements for the parent who is the archetypal older wealthy individual marrying a beautiful younger person with little or no assets. They are also used by those with a history of contentious divorce, and by younger people whose parents want them to protect their future inheritances from a new spouse. Single people participating in the joint ownership of property can clarify their property rights with a co-ownership agreement. These agreements effectively simplify negotiations upon death or divorce, and mediation is often not needed when such agreements are well-prepared.
People are often afraid to bring up sensitive topics in their most intimate relationships. A mediator can help them break through these barriers because sorting out who owns what, and who owes what, is one of the first steps after death or the initiation of divorce proceedings. It is usually messy to unwind the joint ownership of spousal or other property when there is no property agreement. Most people with community or other joint ownership of property, however, do not have a written property agreement with their spouse or co-owner.
The process of dividing assets takes time and careful consideration. One of the first financial steps in every death and divorce is an inventory of assets and liabilities. The parties then document and divide the identified assets. Sometimes the “new” relationships include connection through joint ownership of apartment buildings or other assets. This can be an ideal time to consider mediation to develop co-ownership agreements.
Most lawyers now recognize the important role mediation can have in resolving client disputes outside of the courtroom. Participants in mediation uniformly report a higher level of satisfaction than do participants in litigation. The use of a mediator will help to assure a result that is fair and accepted by the parties. Make a proactive effort to stop the inevitable drift toward litigation. After all, would you rather spend $70,000 in legal fees for a court battle next year or $7,000 for a mediated settlement this month?
© 2012 John E. O’Grady
The information contained in this article is general in nature and should not be relied upon for any specific situation. Consult a qualified attorney for any specific legal advice.