Joint Retainers – Part 3: Consolidating Issues
by Matthew Krofchick
In this last article on the series about joint retainers, we will be looking at how using a joint retainer can be used to narrow down issues to help resolve difficult financial situations.
A common misconception that is joint retainers can only be used by parties that are acting amicably. In fact, one of the benefits of a joint retainer is that it helps parties narrow their arguments down to fact-based scenarios.
Let’s take a look at a simple example where the parties’ respective fact scenarios lead to significant monetary differences:
A Little Background
- Jack and Diane were married in 1982 in a small town in the rural heartland.
- In 1991 Diane opened a widget business of which she is the sole owner.
- Although Jack was a football star in high school, life went on and throughout their marriage Jack stayed home and cared for their kids.
- In 2013 Jack and Diane separated.
- Diane received personal benefits from her ownership of the business in the amount of $30,000 per year
- All corporate profits should be attributed to Diane.
- All of these expenses are business-related and they and any associated income tax gross-up, should therefore not be included in her income for support purposes
- The corporate profits are needed for reinvestment into the business.
In this particular example since Jack was a stay-at-home father for so many years he has no income. Hence, each dollar added to Diane’s income significantly affects the support Jack is entitled to. By conducting a review of the disputed expenses, and any related receipts, invoices, and other pertinent information a valuator can often provide clarity on which expenses would qualify as legitimate business expenses and which should be included in Diane’s income for support purposes.
Valuators can also opine on the appropriate amount of corporate profits to be included in Diane’s income, taking into consideration what amounts the business would likely need to retain in order to meet their ongoing obligations. This could include reviewing historical bank statements, discussing any major capital purchases the business may need to make, reviewing debt covenants, and comparing the business’s operations to those of its peers to determine how much cash it would need to retain to sustain their current operations.
Where the parties continue to disagree on the facts, the valuator may be tasked with preparing multiple scenarios so that both sides have access to the conclusions they may be looking for. This provides them with the full scope of information and the impact of each of their respective fact scenarios before entering into negotiations.
In the normal course of litigation each party’s valuator would prepare their respective reports, each of which could be critiqued by the opposing valuator (perhaps numerous times) with each treating these disputed issues differently.
If, on the other hand, the parties had agreed to a joint retainer there would be no need for competing reports. When a single valuator is retained we eliminate any arguments about methodology and credibility; and as discussed in earlier articles in this series, the cost savings of doing so can be substantial as a result.
Consider, for example, what could happen when two parties choose to retain their own competing experts. They may each be provided with what appears to be two wildly different conclusions but it is often the case that appearances can be deceiving, because once taxes and equalization are considered the gap between their positions closes significantly. Moreover, once the cost of these competing reports and any potential litigation are factored in they may come out of the process having spent a small fortune with little or no benefit to show for it.
So, the question for your case becomes: is it worth each party retaining their own expert as opposed to a jointly retained one?
Although not every case can be done with a joint retainer, the notion should be explored before being written off as an unworkable solution since the potential benefits can be significant.