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News 11.9.15

The Times: Signal that failure to disclose divorce assets will be punished; 10 September 2015

News 11.09.2015

After the Sharland and Gohil cases, there is a need to show that compromising the integrity of the family law courts in unacceptable.

“It is a truth universally acknowledged that a party to a divorce in possession of a good fortune will seek to undervalue or hide assets.” If Pride and Prejudice were to be set in a modern family law court these might well be the opening lines.

In an environment where planning your divorce is acknowledged to be as important as retirement and tax planning, courts are increasing asked to address allegations of incomplete or misleading financial disclosure. The decision of the Supreme Court in the cases of Ms Sharland and Ms Gohil is anticipated with great interest and provides an opportunity to send a clear message that deliberate non-disclosure will be punished.  The two former wives went to the Supreme Court to challenge deliberate deception by their former husbands over the true extent of their finances as their divorces were being heard. The landmark case will test for the first time whether spouses who are dishonest or try to conceal their assets to reduce what they pay out on divorce should be allowed to get away with it. Prevention is always better than cure and it is widely accepted that financial disclosure via Form E needs to be revisited to address significant “blindspots”, eg. disclosure of all correspondence linked to tax planning and an extension to the disclosure of bank, credit and other statements from the current 12 months to two years.  However, there is now a requirement to send a clear message that compromising the integrity of your justice system in the family law arena is unacceptable. The difficulty arises in determining what form punishment might take.  In Sharland it was decided by a lower court that even if full disclosure had been made the resulting order for financial settlement would not have been substantially different.  But this approach does not provide any disincentive to undermining the legal process – a party will just be rolling the dice and hoping that they don’t get caught, or taking “theoretical” advice about how much would need to be discovered before a settlement might be revised. The reality is that a prescriptive approach when determining a tariff for dishonesty will not work.  The focus of most commentators is on cases where significant matrimonial assets worth millions are at issue but the vast majority of matters do not involve amounts of this magnitude.  Accordingly a set percentage-based enhancement of any award or a fixed penalty sum is not a viable deterrent. Instead, the court should be provided with flexibility and latitude when determining how to punish an individual who has sought to deliberately mislead the court and potentially cheat their former partner.  Depending on the financial circumstances of each case, consideration might be given to reallocation of costs, the realisation or forgoing of particular assets/pursuits enjoyed by one party with the proceeds/cost savings going to the other party or even the complete transfer of hidden assets or their value to the other party. There is a concern that any financial variation determined by the Supreme Court will result in an avalanche of cases seeking to revisit previously agreed financial settlements but this is a process that the judiciary are not entirely unfamiliar with in the light of recent changes to pension legislation. The overriding consideration must be the maintenance of the integrity and credibility of our judicial processes. Paul Smethurst is a forensic and corporate investigation specialist at CBW