Upon the breakdown of a marriage there is a common fear that one’s spouse will not be honest about their financial situation and may actively conceal assets.
Before reaching a financial settlement upon divorce it is essential that each spouse provide full and frank disclosure of all of their capital assets (including pensions), liabilities and income. The court will not make a financial court order upon divorce, whether with the spouses’ consent or otherwise, unless disclosure has been provided. At the bare minimum the court requires a completed Statement of Information form from each spouse which gives a summary of their financial circumstances. A more comprehensive financial statement form, called a Form E, is however commonly used instead/as well and this form requires both spouses to provide documentary evidence in support; e.g their last 12 months bank statements for all accounts, valuations of assets such as property, shares and pensions and evidence of income. With both types of disclosure forms spouses have sign a Statement of Truth which means that, if the financial disclosure is found to be untrue, then the dishonest spouse could be found to be in contempt of court which is punishable by way of fine or a term of imprisonment.
There is a considerable benefit in having legal representation and advice when it comes to examining your spouse’s disclosure. An experienced eye can help uncover anomalies or hidden assets and can ensure that assets are properly valued. Sometimes there is a genuine oversight by one spouse to disclose an asset but occasionally it is a deliberate attempt to hide or undervalue assets. A thorough examination of financial disclosure can make it very difficult for one spouse to avoid their obligation of full and frank financial disclosure. Equally essential is that your solicitor can help you make cost effective decisions; whilst it may be tempting to chase down every possibility of non disclosure, or to go on ‘fishing expeditions’ in the hope of uncovering more assets, a solicitor can help you make an objective decision. It is particularly important to weigh up the potential benefit of pursuing an issue against considering whether it will actually make a difference in terms of an overall settlement and how much it will increase costs by.
So, once you have finished the disclosure process, reached an agreement and had it made legally binding by way of a financial court order, what happens if you later find out that your spouse did fail to disclose something or deliberately lied? On Friday 5 September 2014 we learnt that the highest court in the United Kingdom, the Supreme Court, will be considering this very issue. It has been announced that in June 2015 the Supreme Court will consider the Wife’s appeal in the case of Sharland v Sharland. In July 2012 the High Court was due to decide how to divide assets upon Mr and Mrs Sharland’s divorce. This was a ‘big money’ case where the liquid capital assets were valued at approximately £16 million and where the Husband’s shares in his company had been valued in the divorce proceedings at between £31.5 million and £47.25 million. Part of the hearing had focused on how much these shares were worth and this depended in part on when and how he would be able to sell them. One option was an initial public offering (IPO). During his oral evidence the husband said that it was most unlikely that there would be an IPO, or any other method of disposing of his shares, in less than 3 years time and probably not until 5-7 years time. Part way through the final hearing, and after hearing this evidence from the Husband, the couple actually reached a settlement which was approved by the court. The settlement provided for the Wife to receive approximately 65% of the liquid capital and that when the company shares were sold by the Husband he would receive a larger proportion of the profit than she would. The agreement was put into the form of a court order but before it was sealed, and thus made legally binding, it transpired that the Husband had lied and that he had actually been having discussions with investment bankers as early as 2012 as part of active preparations for an IPO. Press reports speculated that the company may be worth as much as $1 billion (£600 million).
Upon receiving applications from both sides, the High Court judge had to decide whether the agreement should be set aside in light of this new information. The judge applied a principle from the leading non-disclosure divorce case Livesey v Jenkins which states that the court will only set aside an order if it can be shown that there has been a material non-disclosure by one spouse which has resulted in an order being made which is substantially different from the order which it would have made if such disclosure had taken place. In Sharland the judge decided that the Husband had indeed given misleading and dishonest evidence to the court but that the outcome to this particular case would not have been substantially different if he had told the truth. Therefore the court order was legally binding.
This principle is no doubt hard to swallow for the spouse that has been deceived; the dishonesty in itself is not a reason to undo a financial order one has to go a step further and show that the outcome would have been substantially different had full and frank disclosure been provided.
Mrs Sharland then appealed to the Court of Appeal where three judges considered the appeal. By a majority of two to one the Court of Appeal judges agreed with the High Court judge’s decision that the financial order should remain in place. The dissenting judge made various points including thatthe general principle that “fraud unravels all” should be no less applicable to judgments and orders of the court than to contracts. He emphasised that the Husband’s fraudulent misstatement meant the financial order had been obtained by way of a serious abuse of process. He considered that the judge should have side aside the financial order and required a re-hearing.
The Wife applied for permission to appeal to the Supreme Court and permission has just been granted; the court considers that the case raises a point of law of general public importance and it will hear her appeal against the Court of Appeal’s decision. So we have to wait until June 2015 to find out if or how this question of law will be decided.
It is of course worthwhile considering not just the legal implications of a court order being made against the background of non-disclosure, but the financial and emotional cost too. For the average separating couple, who do not have unlimited financial resources to fund litigation, the cost of one (or both) spouses failing to provide full and frank disclosure can increase both side’s legal costs to an entirely disproportionate level. Ultimately these costs come out of the pot of assets which need to be divided to meet the needs of both spouses and, if applicable, their children. Further the long term emotional cost of attempting (and on the rare occasion succeeding) in hiding assets from ones’ spouse can be devastating particularly if there are children involved. Such behaviour will naturally engender bitterness and resentment which some parents find it hard to shelter their children from. The spouse that is considering acting dishonestly in relation to financial disclosure needs to carefully weigh up the benefit of doing so versus the risk of destroying any chance of a positive co-parenting relationship post separation. The benefits of dealing with matters in an open and honest way cannot be recommended strongly enough to ensure that an outcome is not only fair but so that the separated couple can move forward in their lives financially and emotionally better off.
Please visit our Family Relationship & Divorce page to find out more or call us today on 020 7631 4141 to speak to a member of our team.