Full and frank financial disclosure is as essential as when we first wrote this article. Non or partial disclosure may delay proceedings, but as a recent case shows, it's not a way of avoiding paying in the long run. LGFL Director Anne Leiper explains more.
Full and frank disclosure
“Full and frank disclosure” is not just a nicety, it’s a legal requirement. However, in a divorce where emotions run high and future financial stability uncertain, spouses can become defensive and protective of their information to stop the other half “taking it all”. They can be tempted not to reveal certain details, but not declaring everything from the outset can have serious consequences. What's more, as two recent cases have shown, such non-disclosure can come back to bite the hand that hid them many years later.
In one Supreme Court case, the judge Mr Justice Francis set aside a 2018 consent order on the grounds that the husband had:
- Significantly undervalued the family business
- Drew down £9.9m from the Director's Loan Account instead of the £1m 'limit' declared
- Made an undeclared offer to buy a £5m property
- Not disclosed a £3m loan offer from his brother.
Despite the husband arguing that his wife knew he was an ‘experienced wheeler and dealer’, the judge said that
"The deliberate concealment of the purchase of a new property during the Final Hearing alone was enough to justify a set aside."
Interestingly the judge also noted that changes in global circumstances could affect the result, saying there was:
"No certainty that the “winner” in the set-aside application will succeed in securing a higher award ... Even if I were to set aside the consent order, it would not automatically result in a higher award for the wife, particularly in circumstances where, as here, the world has undergone such colossal, unprecedented and unexpected changes that have been brought about by the global pandemic and the war in Ukraine."
In another case in California, a wife won a $1.3m lottery prize just days before getting divorced in 1996, and decided not to tell her husband - or the divorce court about it. Her husband only found out years later, and took her to court for a share. Due to breaking disclosure rules, the wife was ordered to pay him the entire award. Her lawyer said that
"If she had simply told them (the court) about the windfall, she could have kept it."
Financial disclosure legal advice
If you’re considering separating or filing for divorce, and are concerned over financial disclosure, do seek legal advice early. Contact us for a one-hour fixed fee consultation that gives you time to explore issues with one of our Directors, and receive advice that is tailored to your unique situation. Call us, email us, or request an appointment online.
What is “full and frank disclosure”?
When you get divorced, you have a duty of “full and frank disclosure” both to your spouse and to the court. You must declare all your financial interests, including;
- Your income
- Any property you own
- Your capital assets
- Your pensions
And, most importantly in this case:
- Any changes to these finances you can foresee or plan
Cards up on the table
When making your financial disclosure, you need to “lay your cards on the table”, that is, make everything available and transparent. If it later transpires that you did not lay all your cards on the table, any Order or Agreement made by the court can be set aside. This means a new Order is required, which is likely to be most costly for the spouse who didn’t disclose.
“O, what a tangled web we weave when first we practice to deceive!”º
The recent case is not the first time a husband misrepresented his finances, resulting in not one but two Orders being set aside.
In 2010, Mr and Mrs Goddard-Watts divorced, and her husband, a highly successful businessman, moved to Switzerland. They agreed a financial remedy order, in which the wife was awarded the matrimonial home and a not-inconsiderable lump sum of £4million.
In 2015, that first Order was set aside because the husband had deliberately misrepresented trust assets as being for the benefit of the children, when they were not. A new Order was made which took into consideration just these undisclosed assets and apportioned them between the ex-husband and wife. As a result, the wife received a further £6.42m, calculated as half the value of the undisclosed trusts plus monies for the delay in the wife receiving that money.
Complications with a company valuation
However, in 2016 this Order was in turn set aside based on evidence relating to the valuation of the husband’s company. It came to light that the husband had made an offer to sell the company for a much higher price (£100m) that that given during the trial (£30m). This offer was made in between the handing down of the draft judgment, and its formal handing down (the final judgment).
However, the duty of full and frank disclosure goes on throughout the whole financial proceedings, including right up until the final judgment is given. The husband should have therefore disclosed this sale price at the time the offer was made, and when the sale later took place.
As a result, the court found that had the husband disclosed the information at the time, the judge would have rewritten parts of his judgment and would have made a significantly different order.
Fraud or not?
The court also addressed the issue of innocent or fraudulent non-disclosure. In the Goddard-Watts case, the husband was an adult of full capacity who deliberately withheld information and documents not only from the court but also his own legal team. He knew he should disclose, so was dishonest and in relation to non-disclosure, therefore fraudulent.
This issue of fraud is important because it changes the action the court would take:
- The court would set aside an order for non-fraudulent disclosure if the court would have made a substantially different Order had the full facts been disclosed.
- In the light of deliberate fraud, if the court was satisfied that the Judge would NOT have made a different order in the light of the new facts, then the existing order would be set aside and a rehearing ordered.
This changes the previous emphasis from the exception being at the time when the order was made, the fraud would not have influenced a reasonable person to agree it.
In a nutshell…
This case emphasises the importance of going to court with clean hands on disclosure in financial proceedings. If not,
- Heavy penalties can be paid.
- Orders will be unraveled and new orders imposed.
- Costs will be ordered against the party who has not been full and frank in disclosure.
- Non-disclosure will cause delay and stress to both parties.
Real world financial agreements
At LGFL, we will always fight your corner, but also often advise a pragmatic approach to financial agreements. We know the fine line between what is right, just and realistic, and what is excessive or fantastical.
This approach, combined with full and frank disclosure throughout your divorce, ensures that together we can achieve agreements that are workable, reasonable and affordable without the need for revisions or reviews.
Call us to explore your situation in one of our fixed fee 60 minute consultations (T&Cs apply).
#####º Sir Walter Scott