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Divorce and dishonesty as to finance – a cunning plan or far from the best policy?

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On divorce, unless you decide to leave everything apart from the state of marriage unresolved, which family lawyers would tell you is taking a big risk in the long term, you need to come to an agreement about how you split any assets that either of you own.

In negotiations, people vary in their levels of integrity and honesty, so how does that affect financial settlements?

What happens to assets on divorce?

All assets must go somewhere and anything not specifically transferred or retained by default stays in the ownership of the person controlling it or in whose name it is.

Those assets include:

  • Property – such as houses or flats (called ‘real property’)
  • Savings – in accounts
  • Investments – such as policies, shares or other funds or shares in a business including family-run businesses
  • Chattels – valuable items – such as cars, jewellery, furniture, art or antiques and
  • Pensions

To do that fairly requires both parties to be open and honest in disclosing their resources which lawyers call ‘full and frank’ disclosure.

Not everybody wants to ‘play fair’ and disclose all their assets so as to get a better deal than they might otherwise be able to receive.

What is a ‘hidden’ asset?

Anything relevant of value that is not disclosed as part of a divorce is called a ‘hidden asset’ but ‘non-disclosure’ can include circumstances, not just existing assets .

What should be disclosed in divorce proceedings as part of full and frank disclosure?

Full and frank financial disclosure means you have to be open and honest about:

  • all assets that you own.
  • any significant transactions that are likely to happen, such as the sale of a business
  • an inheritance or gift that you have or expect to receive
  • all your pensions

Is there some kind of checklist for disclosure?

Indeed there is – it is called Form E and rather than being a Summary of Financial Circumstances such as needs to be submitted to the court when asking a judge to approve a deal, it sets out in detail what information and documents should be disclosed. The link to Form E is here.

When people do not want to start arguments about why it should not be a situation of broad equality, they often only complete the disclosure part of the Form and not the end narratives.  If the court is involved, then the full Form should be completed, but on a voluntary basis, sometimes only the disclosure questions are answered.

What assets are most commonly hidden?

The most likely assets for people to hide include:

  • cash whether held by them, in a deposit box or passed to friends/family
  • investments which have been obtained using another address
  • pensions – especially from jobs long ago or when working outside of the UK
  • property – especially bought when living in another country
  • inherited property – sometimes in the UK and left in the original owner’s name after death or outside the jurisdiction and simply not mentioned
  • Non-fungible tokens – crypto currency and suchlike
  • Offshore resources

In some cases and especially with close companies, employers may be asked to suppress wages and not give bonuses until after the divorce is concluded so as to make the person look to have a lower income.

Any of the above situations would be regarded as ‘material non-disclosure’: that is keeping something secret that would affect a fair outcome (thus material).

What might alert you to the risk of material non-disclosure?

Here are four warning signs to look out for that your spouse is hiding assets.

  1. They appear to change their mind about the divorce

It is not at all uncommon that once people understand the principles that would be considered to decide on a fair financial deal, they get nervous, angry or otherwise wish to manipulate the situation so that changes can be made which will improve the deal that they might get.

Whilst giving reasons such as it being ‘for the sake of the children’ a spouse may want to use the time to hide assets, manipulate an employment or work situation or in the hope that circumstances change.

It is less common for the person to go to counselling about their relationship as that would risk the family-dynamic expert flagging up issues that might suggest the ulterior purpose for ‘reconciliation’.

  1. They stop receiving as much mail

People who do not plan to be candid about their finances may have some of their post redirected to friends, family or work.   Somebody who has their own business might have the address of the business as their parents’ home so as to avoid any risk of the spouse coming across information which might cause concern as to the good faith of their business-owning spouse.

If HMRC stop sending brown envelopes to the home address, something might be untoward.

  1. Passwords and login details for jointly-managed/owned accounts no longer work

Reducing the amount of evidence available to a spouse by removing their access to information they previously enjoyed is often a sign that something is being done that should have been consulted upon.

Excuses such as it being the fault of somebody else and not the actions of the account holder should be looked into as it is easy to create a smoke screen of things being a ‘coincidence’.

  1. Property or money is transferred away from the usual places

Usually some credible reason for an unusual financial transaction is given, but a relative needing financial help or suchlike should raise suspicions that your spouse is alienating assets to avoid them being shared.

If I have strong suspicions that my spouse is getting rid of or hiding assets, what should I do?

The first step should be to take legal advice about the situation and discuss what your options might be.   In some cases, the assets that might disappear are a small portion of the whole pool of resources and taking court action to prevent disposal might not be proportionate.

Understanding the complete picture and how vulnerable you are needs the skill and experience of a professional family lawyer, who can advise on a proportionate response.

Injunctions and court applications for orders to deal with assets can easily cost thousands of pounds and if there are assets that would be very difficult to alienate, then the overall risk of not seeking court orders is lower than if the main assets could be alienated.    A professional can help with a cost/risk/benefit analysis.

Can I stop my spouse spending money until we have agreed on a deal?

There is a difference between necessary expenditure and ‘dissipation’ or deliberate spending to reduce the assets or frustrate the court in dealing with what you have.

Life continues during a breakup and some expenditure is definitely necessary for normality to continue, so the issue is whether the person is behaving sensibly and/or in the usual habits of the household.   Even exceptional expenditure, such as replacing a vehicle is not necessarily improper and it depends on what the family usually do as to whether a planned expenditure might be seen as unreasonable.

The court can look to see what has been spent improperly and considered for being taken into account, perhaps by being added back in as something already taken from the pool, but case-law generally says that people are a complete package and if – for example – a spouse has created wealth by taking risks or it has been accepted that they waste money – even on morally questionable activities, that may be regarded as a characteristic of that person’s general behaviour and not sanctioned.   Cases about risky investments, expensive drug or sex-service habits or flamboyant lifestyle choices have each been considered on their individual merits and there is not a set list of things that are inherently so unreasonable that they should automatically be added back into the pot when fair division is considered.   Lawyers will have an independent opinion as to what may succeed, but each case would be considered on its own facts.

Can I use self-help to get and preserve information that suggests dishonest intent or hiding assets?

The answer to that is ‘not very often’ as the courts work within rules about evidence and some information is inherently confidential or affected by data protection laws.

Years ago, the family courts took a very flexible approach to how people found out what they knew as the truth was thought more important than the rules of evidence, but over recent years, the courts have very much tightened up what is admissible and indeed spouses can break the criminal law in getting evidence, even when their intent is to prevent material non-disclosure or fraud in family finance proceedings.   The saying that ‘two wrongs don’t make a right’ is more stringently applied than it was even 15 years ago.

The main issues causing problem include:

  • Intercepting/opening mail
  • Rifling through locked cabinets, cars or rooms – even in your own home
  • Copying information – scanning/photographing or downloading
  • Physically removing documents or storage media

It can also cause your lawyer professional difficulties and many solicitors stopped accepting unsorted piles or bags of correspondence which might contain some document which they are not allowed to lawfully possess.

The truth is out there…or is it?  Can’t we just let a judge decide after the event?

Many people remember Marco Pierre White’s divorce which was extremely ‘messy’ and extended to his attacking his wife’s lawyers in the courts for alleged wrongs relating to the handling of confidential documents.   In one judgement, lawyers were warned against being complicit in the unlawful handling of documents and people were told to use the court system to seek documents relating to potential non-disclosure of assets, which was of course far more difficult than ‘self-help’ but exposed nobody for sanction for improperly getting those documents.  It hardly compares to the harsh rules of evidence in criminal cases that can see murderers escape justice which feature in American cinema, but it feels pretty unfair for evidence of non-disclosure to be excluded for being inadmissible.   Knowing a document exists because it has been seen or referred to at one point and needing expensive applications to get it puts hurdles in front of the less wealthy spouse and if they do not have sufficient resources to go down the formal route, then that asset may be outside consideration.   The legal system finding a balance between ‘convenience’ and ‘principle’ is difficult, yet it is prudent to discuss possible information/evidence with a specialist lawyer rather than to take practical steps which may see that evidence excluded.

How can I legitimately search for hidden assets?

One way to get evidence is to have a person’s finance looked at by an accountant.   In particular if there is a business or a complex set of assets, a specialist ‘forensic accountant’ might be engaged.

What is a forensic accountant?

A forensic accountant is looking for clues like a ‘forensic’ scientist would when investigating a crime and giving neutral expert evidence to be evaluated.  The word ‘forensic’ means that they are investigating in such a way that their findings can be used as evidence in a court of law.   If they study financial records and find anomalies, that can be followed up by the legal team and further investigation undertaken under the authority of a judge.

The forensic exercise is much more expensive than making enquiries of the person’s normal accountant and so it is prudent to consider what might be obtained without appointing a fresh pair of eyes to look at the figures: often a lot can be established by simply asking the right questions without the considerable expense of a specialist combing through records.

What happens if we establish there are hidden assets and a false financial picture has been presented to the court?

If the false information is established before a final order is made – whether by agreement or on a judge’s ruling, then the court can sanction the person who has created expense through a costs order and will sometimes make an order which the wrongdoer can only escape by proving their position.     That can apply to wilful refusal to disclose as well as where false information has been provided.

The court can make an ‘unless’ order which is based on assumptions probably worse than the reality and then the person must prove that those assumptions are wrong by providing cogent proof of what their circumstances really are.    For example, a judge might say, ‘Assuming that £200,000 has been moved offshore, I propose making a lump sum order against that person for £100,000 UNLESS by [date] they provide evidence to contradict my assumptions by providing…[whatever evidence the judge thinks necessary].

An ‘unless order’ provides a strong incentive for compliance and the judge would also be expected to order a very significant contribution against the non-discloser.

We didn’t have court proceedings, but sent in a draft consent order for approval, so what if the figures on the financial summary form (D81) were untrue?

If the material non-disclosure is discovered after a final order has been made – for example where the D81 gives a substantially false representation of the assets and those figures taken on trust, then the court can set aside that settlement and either the court re-evaluate the Order or negotiation starts afresh.

Sometimes things change in value, but if for example a business was about to be sold for a lot more than the value put in the forms, then the material non-disclosure would be about the true value of the business.  There would have been discussions about the sale and they should have been disclosed.

Things didn’t work out as I expected, can I ask to change the order?

If there is a final order on a clean-break basis, the person wanting to change the terms will usually be expected to accept a different outcome as something they accepted as a risk of the settlement.

Where an asset turns out to be worth more or less than expected, that may be seen as a risk that was accepted as part of that package/settlement.

The courts say that after a settlement on a clean-break basis, neither party should ‘underwrite’ the other by being exposed to the deal being reviewed in the absence of fault or certain other established principles about certainty.

Some assets carry more risk than others and if a business were not for sale and somebody approached the owner afterwards with a good price, or a massive unexpected rise in profitability ensued or a house got a higher price because it turned out to be exactly what a buyer was looking for, then each of those is a question of either reward for risk or potentially innocent mistake as to vales.   A lawyer or the court needs to consider whether the deal was fair at the time and something subsequently changed or whether the situation ought to be re-opened.   The issue of mistake or changes in value are technical ones to be looked at in particular circumstances and it should not be assumed that every situation should be re-opened because the outcome was not exactly as expected.

People can only be sure that a deal will be upheld if they are honest in their disclosure and also need  to understand the nature of risk as to values of assets when deciding on what is acceptable.  If the information before the court is honest and the situation properly considered, then the opportunities for the deal to be revisited are much reduced.

In the long term, if there has been dishonesty by material non-disclosure, then there really is not real ‘closure’.   There really is little point in having assets that can never be used/accessed because that reveals that hidden resource.  Better to disclose and negotiate than to never be sure that the deceived person will not hold you to account, perhaps many years later.

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