Deliberate attempts to mislead a spouse in financial claims that are made on divorce are thankfully rare. Yet they can happen, creating an acrimonious and challenging environment in which to reach a settlement.
In what is often an emotionally charged time in individuals’ lives, spotting the red flags that may indicate hidden or undervalued assets is not always easy or obvious, says Philip Rutter.
Divorce proceedings require both parties to make full financial disclosure. It is the starting point to determine how those assets will be divided.
Whether financial disclosure is being provided voluntarily or following a court application, each party is required to set out all property they own, the value of any investments, bank and building society accounts, personal belongings, pensions, business interests, earned and investment income, alongside any liabilities. Supporting documents, such as bank statements, need to be provided.
In many divorces there will be a financially stronger party with a greater understanding of the family wealth. The financial disclosure process recognises that and allows questions to be put and further documents requested following the initial disclosure.
Claims of misrepresentation or fraud whilst easy to make are often hard to substantiate. There must be evidence to support that claim before it can be pursued, with any ‘fishing’ claims quickly dismissed. Accusations of ‘I thought we had more than that’ are simply not enough, and it is a fact of life that some couples live beyond what their income can provide and find it difficult to accept those facts when set out in black and white.
Twenty or 30 years ago it was perhaps a little easier to deliberately hide assets in divorce proceedings – cash is easier to disguise than property or other physical assets. The nature of today’s finances makes it much harder to hide or disguise family wealth. Even crypto-assets leave a traceable footprint. It is, put simply, difficult to hide wealth.
But that does not mean it does not happen. Often it is in cases where wealth has not been declared to the UK tax authorities. Threats of ‘shopping’ a partner to the HMRC may often quickly evaporate when the individual realises that potential pot for division on divorce might be considerably smaller if they do!
Company valuations often provide one of the sticking points in reaching a settlement.
Where one party has a significant interest in a business, an independent forensic accountant will usually be jointly appointed by both parties to value that business. That valuation will consider not only the value of the business, but also the ability of the business to support a divorce settlement.
In cases where it is suspected that the value of the business may be downplayed, it may be prudent to instruct your own shadow expert to review the independent report and help with any questions if the jointly instructed expert’s report needs to be challenged.
Economic conditions will of course impact a company’s valuation, and in a period of high inflation and low growth, a company may be worth less than when the economy is buoyant. In challenging times, there may well be a strong argument for holding cash back in the business.
Court cases have allowed divorce settlements to be set aside where a party has deliberately misled the other over the value of a business, typically where a sale was imminent, but not disclosed.
Here are some of the potential red flags that may indicate money or assets are being made harder to find:
- Secretive behaviour. Is your partner being more secretive towards finances where once they were a little more open?
- Controlling behaviour. Are you finding access to finances restricted or your partner refusing to explain certain financial transactions?
- Being asked to sign documents. Do not sign any documents you do not understand.
- Unusually high degree of financial transactions. That might indicate money being moved around to make it harder to trace.
- Unusual or out of character spending. Have your partner’s spending habits changed?
It should be noted that there may well be nothing untoward if you suspect your partner is attempting to hide assets, but you should alert your solicitor who can then advise on the right course of action.
What happens if there has been fraud or misrepresentation?
If fraud or misrepresentation comes to light during divorce proceedings, the courts will take action. Costs will be award against the party attempting to withhold information forcing them to pay the additional legal fees incurred to investigate and deal with that non-disclosure.
If you are found to have lied or misrepresented the extent of your wealth, then the entirety of your case is going to be tainted with your lies.
Fraud or misrepresentation is much more difficult to uncover once a final order has been made as that is usually an end to the proceedings. There will need to be strong evidence to reopen a settlement or final order, but in cases where a case is reopened and it is found that there was misrepresentation or fraud, the court will set aside the original order.
Contact our Family and Divorce Team
The Family and Divorce Team at Bishop & Sewell have a breadth of experience in dealing with claims for financial provision on divorce.
For initial advice or to arrange a meeting with one of our team, please email email@example.com or contact 020 7631 4141 and ask to speak to our Family team.
The above is accurate as at 29 July 2022.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.