Incorporating Alternative Dispute Resolution Procedures in Separation Agreements

Parties to a matrimonial settlement agreement often want to incorporate alternative dispute resolution (“ADR”) procedures in their agreements, stipulations and divorce judgments. These procedures may include mediation and arbitration. Attorneys who draft ADR clauses must be aware of the limitations on the effectiveness of such clauses.

In general, the courts favor resolution of disputes by arbitration or mediation [Smith Barney Shearson Inc. v. Sucharow, 666 NYS2d 990, 91 NY2d 39 689 N.E. 2d 884 (1997)], except that in the family law area, certain issues cannot be resolved without a court determination or thorough review. While an ADR determination of a commercial dispute will generally be enforced by the courts (subject to several exceptions not relevant here), family law issues which are arbitrated receive scrutiny. See Avitzur v. Avitzur, 459 NYS2d 572, 58 NY2d 108, 446 NE 2d 136 (1983), cert. den. 104 S. Ct. 76, 464 U.S. 817.

Courts in New York have held that custody and visitation issues may not be arbitrated at all. See Lipsius v. Lipsius, 673 NYS2d 458, 250 A.D.2d 820, (2^nd Dept, 1998). Even an agreement reached after the parties have mediated, will be reviewed by the court if either party makes any showing that the best interests of a child are affected and that the mediated agreement should be changed.

ADR in matrimonial litigation has been mandated in the courts in several counties in New York State. However, the ADR in matrimonial litigation is limited to “neutral evaluation”, which is decidedly not mediation. A similar program, including settlement conferencing, has long been the practice in New Jersey. New York’s “neutral evaluation” can easily evolve into settlement negotiations, and if the attorneys and parties agree, can also become a mediation. The Family Courts in several New York counties have instituted mediation programs to deal with custody and visitation disputes.

In several New York counties, many matrimonial cases are referred to a judicial hearing officer (“JHO”) to hear evidence and conduct a trial of all aspects of the divorce case. If the parties agree by stipulation, the JHO can be directed by the judge to “hear and determine” all or some of the issues. The alternative is a direction to “hear and report”. In either case, if a party disagrees with the JHO’s “determination” or “report”, the aggrieved party may seek review by the judge assigned to the case. In practice, judges seem to write more thorough opinions when presented with a “report” than with a “determination”, but this experience may not be uniform.

Courts have held that certain financial aspects of a matrimonial dispute can be arbitrated outside of court, but the arbitration decision must state clearly all factors involved in the decision and must comply with the state’s child support standards. One result of these holdings is that when child support is involved, parties may avoid court proceedings only in a limited way. If attorneys want to include an arbitration provision covering child support in any settlement agreement, the provision should include a direction that the arbitration award comply with the appropriate child support standards legislation; set forth each fact upon which the arbitrators relied; and explain any findings in such detail that the award may be reviewed by any court without the need for additional hearings. See Hampton v. Hampton, 688 NYS2d 186, ____ A.D.2d____, slip opin. 03858 (2^nd Dept., May 7, 1999) (not officially reported when this note was written).

Issues such as valuations of businesses or other assets can be arbitrated, and it appears, at this point, that the arbitrators’ determination will likely be enforced by the courts to the same extent that a commercial arbitration award would be enforced. See generally Validity and construction of provisions for arbitration of disputes as to alimony or support payments or child visitation or custody matters, 38 A.L.R.5th 69 (1996) for a general presentation and national overview.

Attorneys can include a provision that requires mediation before legal proceedings are brought. The effect of this provision is difficult to measure. Courts have recently been very receptive to mediation and often direct the parties to mediation. However, waiting for a voluntary mediation to fail before going to court can prejudice a party, because the court will generally only grant monetary relief retroactive to the date of the party’s petition to the court. Accordingly, the attorney should consider drafting a clause which provides that, if voluntary mediation of an issue fails and court proceedings are necessary, all parties consent that the court may grant relief retroactive to the request for mediation, and such a provision may be sufficient to avoid prejudice to a party who seeks mediation before running to the courthouse.

As in all areas involving public policy, courts are likely, at the every least, to scrutinize the arbitrator’s determination regarding equitable distribution and spousal maintenance, on the merits. This does not mean that arbitration is a waste of time. Rather, if the arbitrator conducts a thorough hearing and writes a detailed decision, a court may adopt it and thus avoid the need for a far more costly trial, with the attendant waits in the hallway, delays and interruptions that are typical of more complex divorce cases. A competent ADR professional can serve the same function as a court-appointed JHO, and his/her arbitration award may be accorded the same weight as a “hear and determine” or “hear and report” reference to a JHO.

In summary, it may be useful to incorporate ADR clauses in matrimonial agreements if the clauses direct the ADR professionals to render detailed opinions and make specific findings. The territory is becoming charted a little at a time.