In the Collaborative Process we must be flexible to the client’s needs and interests and respect each client’s self-determination.  Our goal is to help the clients achieve their goal even if it takes us, the professionals, out of our comfort zones.

I am currently involved in a matter in which the husband (age 64) and the wife (age 70) wish to reach a settlement that recognizes that the husband’s cost of living is higher than the wife’s.  He lives in New York and she in Florida.  They have over $7 million in assets and believe that a distribution in which the husband receives more than 50% of the assets to account for the lifestyle difference would be most equitable.  The husband is still employed, and the wife has both a pension and social security. They have no children. Their goal is for each to be self sufficient with their income and with the income generated from the assets they receive.

So how do we determine what is equitable?  The clients have relied on Monte Carlo simulations to help them make that determination.

Monte Carlo Simulation, or a multiple probability simulation, is a mathematical technique, which is used to estimate the possible outcomes of an uncertain event. Unlike a normal forecasting model, Monte Carlo Simulation predicts a set of outcomes based on an estimated range of values versus a set of fixed input values. In other words, a Monte Carlo Simulation builds a model of possible results by leveraging a probability distribution, such as a uniform or normal distribution, for any variable that has inherent uncertainty. It, then, recalculates the results over and over, each time using a different set of random numbers between the minimum and maximum values. 

What our clients have determined through these simulations is that if the wife receives $2.8 million of the assets, there is a 90% probability that her budget needs will be met through age 97 and still leave her with about a $1 million estate.  The husband’s budget was a bit aspirational but under this scenario the simulation suggests a 75% probability of success.  While the objective would normally be for the probabilities to be as close to equal as possible, the husband recognizes that certain of his aspirational hopes will rely on the success of his investment strategies.  They both are compromising in an effort to achieve their number one goal which is to maintain their close relationship.

This reliance on probability simulations has been uncomfortable for the professionals.  It is certainly “outside the box” of what we are used to in the settlement process.  But it works for the clients and therefore, we have had to adapt.  

After all, we must respect the client’s right to self-determination.