Joint Retainers – Part 1: The New Norm
by FDRIO Board Member and Certified Business Valuator Matthew Krofchick
With FDRIO’s bi-annual Unconference taking place on May 3rd, 2018, I thought I’d write an article about a different way of looking at the use of Chartered Business Valuators (“CBV”) in a family law situation in the context of FDRe-think the Future.
All too often CBVs are called in late in the process and told to base their report on a set of assumptions given to them by one of the separating parties. The CBV will then do their due diligence and ultimately write a report based on the assumptions provided to them (within reason). What often happens next is that the other party will hire a different CBV to critique the first CBV’s report, which can often lead to the first CBV being retained to provide a critique of that critique, and so on.
Needless to say, this back-and-forth could go on for quite some time and as it does it becomes very costly and hugely time-consuming, with clients often feeling as if this matter could go on indefinitely. While there may be very specific situations where this process is both necessary and unavoidable it is often an unnecessary use of both time and money.
One solution we often suggest to clients is the use of joint retainers, which are used in the Collaborative Practice model and in some mediations.
A joint retainer as the name implies is an arrangement whereby both parties in a marriage breakdown retain the same expert together, thus eliminating the need for competing reports from numerous experts. So why isn’t this the industry standard instead of the exception?
Although jointly retained, there is no obligation for the expert’s fees to be shared equally (or at all) by the parties retaining them. This is an important feature of a joint retainer because it provides a sense of ownership to both spouses where only one has the resources to pay for the valuation assignment. Regardless of how costs are shared both spouses have access to the CBV, can ask for clarification on any part of their report, and are included in all communications.
Both parties also have the opportunity to review all documents used in the preparation of the CBV’s report. This can be particularly significant to the non-owner spouse because it provides them with timely disclosure of information relevant to the valuation assignment, which although required by law can be a difficult and costly exercise in certain situations.
Will this arrangement work for everyone? The answer is unfortunately, ‘no’. In order for a joint retainer to be effective there has to be a minimum level of trust between the parties, thus ensuring that both abide by the results of the CBV’s findings. If one party has a significant power imbalance and this has not been recognized and addressed with the CBV it can sometimes lead to the perception that this individual has co-opted the CBV to view things through their lens and as a result, the other spouse may not view the CBV’s report as independent and free from bias.
On your next file where a CBV is required to complete a business valuation, income determination, or tracing analysis, consider whether both parties might be able to retain the CBV together. If the answer is no, ask what you can do to change this answer into a yes.
In Part 2 of this article we will explore how to turn a “No, this will not work into – Yes it will.”