Similar concerns make it difficult to adapt Git for use with opposing parties, since many of Git's features flow from the way it addresses its tamper-evidence design goal. The only notion of a commit with two ancestors in Git is a merge commit, which nonetheless preserves the complete history of both parents. So one side can't manage internal revisions with in-house commits (bearing author name, timing, exact content, etc.) and then issue a PR, while keeping the history of internal revisions secret. They have to edit history and make a squashed commit available for pull. At that point the incremental benefit of Git is just SSH or HTTP instead of e-mail. It's just managed patchfiles.
Squashing works to hide edit history from the opposing side, but it also pulls history out of your own history. You can create a branch at your local head before squashing to save those commits, but when you get an edit back, its new commit will reference your squashed commit. If you rebase onto the branch with your local changes, you can reconstruct "your history", but you'll have to be careful not to push commits from that branch to opposing next round, since it now contains your private edit history again.
Terrible state of affairs!
http://ethics.calbar.ca.gov/Portals/9/documents/Opinions/CAL...
The best practice is clearly to run the diff from your own last revision, but that may not be available to the attorney. Sometimes clients forward opposing markups of drafts that were prepared without an attorney, perhaps based on a form. Business people may tweak a draft between attorney revisions, as they closed on deal points. It might be worthwhile to go over and attribute each unrecognized change, but not always. Clients may vouch that all changes needing review are in Track Changes. Sometimes speed matters more. Between repeat-player attorneys, or when reputations for ethics and rigor otherwise precede each side, the risk of this kind of thing approaches zero, and everybody saves money.
I have seen things "slipped in", often inadvertently (turned Track Changes off, diffed the wrong files), but sometimes maliciously. I have also done very long days of nothing but verifying execution copies of documents as they were closed out in the run up to big-dollar closings and low-dollar slug-fests. When the transaction is large or important enough, attorneys will handle exchanging drafts across sides and enforce more rigorous change control.