Preservation Agreements As Part of Informal Discovery

Informal Discovery Many divorcing couples in Northern Virginia abhor the concept of litigation, some of them for good reason. The primary benefits of litigating a divorce are: (a) to require the controlling, unreasonable or self-interested party to subject himself or herself to the rule of law, instead of the rule of the household; (b) to obtain discovery responses under oath, especially in cases of distrust or when the spouse knows more than one’s client about certain or all of the assets. The primary general detriments to a litigated divorce are that litigation can be (a) expensive and (b) corrosive to the harmony that preserves the family during and after divorce.

One of the key features of a divorce is the attempt to ascertain the assets of the spouse for proper division.

When this is done by using court processes, it is called discovery (or formal discovery). When it is done out of court, it is termed informal discovery.

Whether to pursue litigation and formal discovery is a judgment call of counsel, reached after thorough consideration of the reasonable preferences of the client. The primary considerations are cost of the discovery method, trust in the honesty of the other spouse, and knowledge of the client about the assets of the spouse.

Formal discovery is recommended in cases involving a stark gap in knowledge of the assets of the parties, fears of deception, and comfort with the costs of a litigated divorce.

Informal discovery is recommended in cases involving more modest gaps in knowledge, lesser fears of deception, or discomfort with cost. The purpose of this article is not to examine when one should or should not undertake informal discovery; rather, the purpose is to illustrate, for those clients who abhor litigation, how one may do informal discovery and minimize the risk of the client being deceived by the spouse (note, however, that to minimize is not to avoid).

Some clients may wish to not file litigation due to economics or other reasons, but desire and would benefit from the use of formal discovery. In such cases, counsel can implement informal discovery methods that nearly replicate the scope and breadth of formal discovery. Traditionally, however, informal discovery is not under oath, and the client takes on a greater risk of being deceived by the spouse with impunity. The risk of informal discovery is that the spouse will hide from view valuable assets. All experienced divorce lawyers have had cases where hundreds of thousands or millions of dollars were “forgotten”, e.g. in company retirement accounts, safe deposit boxes, and in undisclosed investment accounts.

Any kind of discovery, formal or informal, is therefore not without risk.

The best informal discovery approach is to require of the spouse out-of-court documents and answers similar to those required in court, along with an Affidavit, a statement of the spouse under oath, setting forth in writing that he or she has identified each asset, marital or separate, joint, sole, or in which he has an interest, greater than $500 in value.

The paragraphs that follow are an exemplar of how to approach the opposing party (I have called him Mr. Smith), from a position of strength, with twin demands of broad informal discovery and preservation of the estate of the parties. The letter or email of counsel for the client should contain paragraphs such as the following:

Dear (Counsel for Mr. Smith):

Pursuant to the July 1, 2016 version of Virginia Code Section 20-103, we request that all marital assets and income of Mr. Smith or the parties (including belatedly-received 2016 and Q1 2017 income) be saved in a joint account and not spent from now on; Mr. Smith will pay the expenses, legal fees, and, if applicable, expert fees of himself and Mrs. Smith, which (other than the legal and expert) shall not exceed the historical level of spend (by historical, I mean customary and not an unrepresentative year or so, of unusually high or low spending a party might have created); that is, the parties shall use only Mr. Smith’s post-separation separate income to pay attorneys, experts and both parties’ normal and customary bills and living expenses (Mr. Smith will keep any unspent, post-separation savings of separate property as his sole and separate property). If the above conditions are not agreed to forthwith, I will have to file a divorce case and get a temporary order to this effect, so as to stave off a diminution of the marital estate and the malpractice risk it entails for me.
Mr. Smith will answer our informal discovery requests, attached, and, separately, will do a comprehensive one-page spreadsheet summarizing the marital and separate net worth he/she/they have, and, separately, will execute an Affidavit, under the penalty of perjury, warranting his/her/their net worth and financial interests/benefits are fully and accurately stated in the Spreadsheet and the Financial Summary, and that he has no financial interest or benefit worth over $1000, except as stated in the Spreadsheet.
Mr. Smith will provide the last five years of tax returns and, separately, he will identify each bank, safe deposit, retirement, real estate, investment account or any other account that has held any financial benefit for him in the last five years, through today, and he will provide the last three years of statements (yes, all 12-36 statements, depending on whether statements are quarterly or monthly) for each such account or asset.
Mr. Smith will provide all his checking account, savings account and, cash management, and credit card statements since January 1, 2014, and, separately, identify how much of his money has gone to a girlfriend or romantic liaison in the last decade, directly or indirectly. This tally will include all hotel rooms, gifts, meals, travel, etc. incurred by him, her, or them related to their relationship, interaction or time together.
Mr. Smith will show a tracing of all his income since January 1, 2014 into savings, investments, taxes and spending. Why? I need to show Mrs. Smith that this sample period of income has translated into a reasonable amount of savings, and that the savings and spending are otherwise adequately accounted for.
Mr. Smith will provide, subject to a reasonable NDA [Non-disclosure agreement], all documents relating to his interest at the company, and will let me interview him, in your presence, relating to same, and as to any questions I may have about 1-6.

I look forward to working with you, and to helping the Smiths arrive at a prompt and fair resolution.

Such a letter may have the intended result of gaining information with warranty of disclosure without the costs of formal discovery in litigation. If, however, Mr. Smith declines to participate in informal discovery in good faith, Mrs. Smith ought strongly to consider litigation. Whether or not the letter compels the discovery sought, the client will know, and the spouse will recall, that every reasonable effort was undertaken to resolve the matter outside of court, at modest cost, prior to litigation being undertaken.