Tom Cruise & Katie Holmes Divorce: Inside Their Negotiations

"They both love their daughter," a source tells PEOPLE as the couple tries to reach an agreement

Photo: John Sciulli/Getty

For much of the past few days, lawyers for Tom Cruise and Katie Holmes have been working behind closed doors to iron out an agreement between the two stars that would avoid a long, public divorce fight.

Cruise “doesn’t want his family dragged through the mud,” says one source. “They both love their daughter.”

One crucial issue: where Suri, 6, will live and who will raise her.

Holmes, 33, who filed for sole legal custody, would like to bring up her daughter in New York City. Cruise, 50, lives primarily in Los Angeles, although he owns properties in Manhattan.

PHOTOS: The Holmes-Cruise Family in Happier Times

Sources around Cruise and Holmes are optimistic that the couple and their legal teams could reach a deal as discussions continue.

For the second day in a row, Holmes was spotted at her lawyers Allan Mayefsky and Michael Mosberg’s offices on Saturday.

As for Holmes’s bid for custody, Cruise may be open to Suri living primarily with Holmes, according to a source. But any agreement would have to include generous visitation for Cruise: “There’s no world where Tom won’t be seeing Suri.”

“I’m sure Tom Cruise’s attorneys are doing all they can behind the scenes to negotiate with Katie’s side to calm the situation,” says L.A. family law attorney Steve Mindel, who’s not involved with the case. “Ultimately, neither side would want a messy public case to avoid bringing emotional harm to their daughter. Don’t be surprised if Katie quietly retracts her divorce filing and they eventually agree to an amicable divorce and settlement.”

• Reporting by KEN LEE

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