Open Financial Statement vs Memorandum of Understanding: What’s the Difference?

If you are dealing with finances through family mediation following separation or divorce, there are two documents you are likely to hear your mediator refer to: an Open Financial Statement, often shortened to OFS, and a Memorandum of Understanding, or MOU.

The names are not particularly self-explanatory and, understandably, people sometimes assume they are simply two documents containing much the same information.

They aren't.

They are produced for different reasons and play very different roles within the financial mediation process.

In simple terms:

The Open Financial Statement records your financial position.

The Memorandum of Understanding records the outcome you have reached together through mediation.

First comes financial disclosure

Before you can have meaningful conversations about how finances might be dealt with following separation or divorce, you both need to understand what the financial position actually is.

This is why financial mediation usually begins with financial disclosure.

Each person provides information about their financial circumstances. Depending on your situation, this may include the family home and other property, mortgages, savings and investments, pensions, debts and liabilities, income and other relevant financial information.

Supporting evidence will usually also be required so that the figures being used within mediation can be verified.

This part of the process matters.

Any conversations about how your finances might work following separation need to take place with both of you having a sufficiently clear and accurate picture of the finances.

Put simply, it is very difficult to have a meaningful conversation about how something might be divided until you understand what is actually there.

What is an Open Financial Statement?

Once the relevant financial information has been disclosed, it can be brought together within an Open Financial Statement.

The OFS provides a summary of the financial information upon which your mediation discussions are based.

The word “open” is important.

The factual financial information provided during financial mediation is disclosed on an open basis. This means that it is not protected by the same confidentiality that generally applies to your negotiations and discussions within mediation.

The OFS therefore provides a record of the financial information that has been disclosed and can, if necessary, be referred to outside the mediation process.

The easiest way to think about the OFS is:

Where are we financially?

It establishes the financial picture from which your discussions can move forward.

What happens once the financial picture is clear?

Once you both understand the finances, mediation can move from information gathering into exploring your options.

This is where the conversations can begin around questions such as:

What happens to the family home?

Can either person afford to remain there?

If the property is sold, what might happen to the equity?

What are each person's future housing needs?

What mortgage borrowing might be available?

How should savings and investments be considered?

What happens with pensions?

Are there debts or other liabilities that need to be taken into account?

What will each person's income and expenditure look like following separation?

There may be several possible ways of approaching these questions.

Part of the mediator's role is to help you explore those possibilities and reality-test them.

A figure can look perfectly workable on a spreadsheet, for example, but what does it actually mean in real life?

Can both people rehouse?

Is the mortgage being considered realistically achievable?

What would each person's monthly income and expenditure look like?

Is the arrangement being discussed sustainable longer term?

Financial mediation isn't simply about dividing numbers on a spreadsheet.

It is about understanding what those numbers mean for both of your lives after separation.

So, what is a Memorandum of Understanding?

If, through those discussions, you are able to reach an outcome that you both wish to take forward, the mediator can record this within a Memorandum of Understanding.

The MOU records the outcome of your mediation discussions and what you have agreed between yourselves that you would like to happen.

It might include, for example, what you have agreed should happen to the family home, how other assets should be dealt with, arrangements concerning pensions or any ongoing financial arrangements you have discussed.

It provides a clear written record of where your mediation discussions have ended.

The easiest way to think about the difference between the two documents is:

OFS: Where are we financially?

MOU: What have we agreed we would like to do about it?

Let's use the family home as an example

Imagine you own a family home together.

The Open Financial Statement might record the value of the property, the outstanding mortgage and the resulting equity, alongside the rest of your financial information.

During mediation, you might then explore several different options.

Could one person remain in the property?

Could they afford to take over the mortgage?

Would the other person be able to rehouse?

What would happen if the property were sold?

How might the available equity be dealt with?

What mortgage borrowing is available to each person?

Those are the conversations and options that can be explored and reality-tested during mediation.

If you eventually reach an outcome that you both wish to take forward, this can then be recorded within the MOU.

So one document records the financial information.

The other records the outcome you have reached through your mediation discussions.

Is the MOU legally binding?

This is an important distinction.

The MOU records the outcome you have reached together through mediation, but the MOU itself is not legally binding.

The agreement recorded within it can, however, be made legally binding.

For divorcing couples dealing with financial arrangements, this will usually involve the agreement being drafted into a consent order, which is then submitted to the court for approval. Once approved by the court, the consent order becomes legally binding.

You do not need to have a solicitor involved throughout the mediation process in order to mediate your finances.

You can work through financial disclosure, explore your options and reach an outcome together within mediation.

You may choose to obtain independent legal advice at any point during or following mediation. Your mediator can provide helpful information, but because they are impartial, they cannot provide either of you with individual legal advice.

Once an outcome has been reached, the MOU provides a clear record of this and can be used to take the necessary next steps if you wish to make your financial agreement legally binding.

Does the mediator decide what goes into the MOU?

No.

The mediator does not decide how your finances should be divided or tell either of you what outcome you have to accept.

The mediator's role is to help you identify the issues that need to be addressed, ensure the relevant financial information is available, help you explore the options and support a structured conversation about what might be workable and sustainable for both of you.

That can also involve challenging and reality-testing the options being discussed.

For example, a particular division of the equity in the family home may initially sound workable. But will both people actually be able to find somewhere suitable to live?

An ongoing monthly payment may appear manageable, but what does it mean for each person's monthly budget?

A particular mortgage figure might solve the problem on paper, but is that borrowing actually available?

These are exactly the sorts of questions that can be explored through financial mediation.

The mediator helps you have the conversation.

The decisions remain yours.

What if we don't reach an outcome on everything?

Not every financial mediation ends with every issue resolved.

You might reach an outcome regarding the family home but still have further discussions to have around pensions.

You may narrow several possible options down to one remaining point of disagreement.

Or you may establish the full financial picture but ultimately find that there are some issues you cannot resolve through mediation.

That doesn't mean the mediation has achieved nothing.

Understanding the finances, identifying where you agree and narrowing the areas where you don't, can still be extremely useful.

Mediation isn't about reaching an agreement at any cost.

It is about giving both of you the opportunity to understand the financial picture, explore the options available and see whether you can find a way forward that works for you both.

Taking financial mediation one stage at a time

Financial separation can feel particularly daunting because there is so much unfamiliar terminology.

Disclosure. CETVs. Mortgage capacity. Liabilities. OFS. MOU. Consent orders.

But you don't need to arrive at your first financial mediation session understanding all of it, and you certainly don't need to have worked out the answer.

The process can be taken one stage at a time.

First, establishing what you have.

Then looking at what you each need.

Exploring what the options might be.

Reality-testing those options.

And, if you reach an outcome together, recording it clearly in the Memorandum of Understanding.

You don't need to arrive knowing what the final agreement will look like. That's what mediation is there to help you work through.

If you would like to discuss your circumstances or find out whether family mediation could help, get in touch with us.