As a general rule both parties must make full disclosure of their assets before a divorce settlement can be finalised.
But what happens if one party fails to make full disclosure?
In this article we will examine the rules on disclosure, how the court can force disclosure, and what it can do if one party still fails to disclose their assets.
Do I have to disclose my finances on divorce?
A divorce settlement is obviously based upon the value of the assets available to the parties at the time of the divorce. Accordingly, both parties will have to make full disclosure of their assets, so that the terms of the settlement can be decided.
The law therefore imposes a duty upon both parties to make full disclosure of their means. This duty applies whether the parties are trying to resolve the matter by agreement, they have applied to the court for a financial remedies order, and even where an agreement has been reached.
If a financial remedies application has been made then both parties will have to make full disclosure (subject to one exception mentioned below), and this will be done in a Form E Financial Statement. The Form E is a comprehensive financial statement in which each party must disclose details relating to every aspect of their finances including:
- Any real property (i.e. land and buildings) and personal assets that they own, including bank accounts, investments, and personal belongings individually worth more than £500;
- Their labilities, such as mortgages, loans, etc., and Capital Gains Tax;
- Their business assets and directorships;
- Their pensions;
- Their earned income from employment;
- Their self-employment income; and
- Their income from investments.
At the end of the Form E there is a Statement of Truth that must be signed, confirming that the information given in the Form E is a full, frank, clear and accurate disclosure of that party’s financial and other relevant circumstances. The Form E makes clear that proceedings for contempt of court may be brought against a person who makes or causes to be made, a false statement in a document verified by a Statement of Truth.
What if everything is agreed?
If a divorce settlement is agreed it will have to be made into a court order, known as a ‘Consent Order’, to ensure that the agreement is both final and enforceable.
But the court is not obliged to make the order just because the terms of the settlement have been agreed. Accordingly, before the court makes the order it will require the parties to give details of their means, so that the court can decide whether the order it is being asked to make is broadly reasonable.
And if it subsequently transpires that one party has failed to make full disclosure of their assets then that could invalidate the entire agreement.
The ‘millionaire’s defence’
There is one situation in which a party to financial remedy proceedings on divorce can seek to be excused from the duty to make full disclosure of their assets: the so-called ‘millionaire’s defence’.
A party raising the millionaire’s defence is essentially saying that they are so wealthy that they can afford any reasonable award that the court might make in favour of the other party, and so there is no need for them to make full disclosure.
The court may accept the defence, but it should be noted that it is only likely to do so in cases involving extreme wealth.
How assets may be hidden
Sadly, it is not unusual for a party to fail to make full disclosure of their assets, and this will often involve that party taking steps to hide the undisclosed assets. After all, if the other party is aware of the existence of the assets then there is little point in not disclosing them.
There are various ways in which undisclosed assets may be hidden, including:
- Secret bank accounts – Money may simply be siphoned off into a secret bank account, the existence of which is not known to the other party.
- Transferring assets to third parties – The non-disclosing party may temporarily transfer assets to third parties, in an attempt to make it look like the assets no longer belong to them.
- Putting assets offshore – Another common way to try to hide assets. Obviously, offshore assets can be considerably more difficult to trace.
- Undervaluing assets – Another form of non-disclosure is providing an undervaluation of an asset, making it appear to be worth considerably less than it actually is.
What to do if you suspect assets have been hidden
If you suspect that your spouse may be hiding assets then there are a number of steps that you may take to find out whether assets have indeed been hidden, and to prevent assets from being hidden. These include:
- Seek expert legal advice – The first thing you should do is obtain legal advice from a specialist family lawyer, who will be able to advise you upon your options. They will also advise you what not to do, for example you should not attempt to find hidden assets by accessing your spouse’s private documents. Further, they will advise you if the value of the assets is such that they will make no material difference to the outcome of the case, thereby potentially saving you the cost of expensive action to have find the assets.
- Third-Party Disclosure Orders – One of the options is to seek a third-party disclosure order from the court, requiring a third party, such as a bank, to provide relevant information and documents to the court. Obviously, this can be very useful if you have reason to believe that the third party is holding assets or money belonging to your spouse.
- Consider instructing forensic accountants – In more difficult situations you may consider instructing expert forensic accountants who may, for example, be able to help where your spouse has entered into complex business arrangements, or has put assets offshore.
- Avoidance of Disposition Orders – If your spouse is attempting to transfer assets to a third party, or has already made such a transfer, you can ask the court to make an avoidance of disposition order, preventing the transfer, or setting it aside if it has already been made.
- Freezing orders – Lastly, if you have reason to believe that your spouse may be intending to sell or otherwise dispose of assets then you can ask the court to make a freezing order, preventing them from doing so.
What steps can the court take to force my spouse to disclose their assets?
If the court is made aware that a party has undisclosed assets then it will order them to make disclosure.
And if the non-disclosing party fails to obey the order then this is a contempt of court, which could ultimately be punished by a term of imprisonment.
Further to this, a failure to make full disclosure is likely to result in the other party incurring substantial additional legal costs, and the court can order the non-disclosing party to pay those costs.
What happens if my spouse still refuses to disclose their assets?
There will be some situations where the efforts of the court to force disclosure fail, for example because the non-disclosing party is living abroad, out of the reach of the court.
But this will not mean that the court cannot proceed with the case.
What can happen in such a situation is that the judge can make ‘adverse inferences’ about the non-disclosing party’s assets, using what information it has available.
This can obviously result in the court drawing an inference that the non-disclosing party has assets that are worth more than they actually are.
Of course, the court will not be able to award the other party a share of the undisclosed assets, but it can award them a greater share of the disclosed assets, on the basis that the non-disclosing party possesses the assets that have been inferred.
What if undisclosed assets are discovered after the divorce settlement?
It is of course quite possible that a party’s failure to disclose assets may go unnoticed, both by the other party and the court, so that a final settlement is agreed or ordered by the court without full disclosure having taken place.
In this situation if the other party subsequently finds out about the undisclosed assets they can, if they believe the assets would have made a material difference to the settlement, ask the court to set aside the settlement and adjudicate the case afresh, taking into account the undisclosed assets. Obviously, this could result in a significantly less favourable settlement for the non-disclosing party.
If the court hearing such a set aside application finds that the non-disclosure was fraudulent it is highly likely that the settlement will be set aside.
On the other hand, if the court finds that the non-disclosure was innocent and would not have made a significant difference to the outcome of the case then it is likely to refuse to set aside the settlement.
Obtaining expert advice
Disclosure of assets is critical to the process of obtaining a financial settlement on divorce. Whether you believe your spouse may have failed to make full disclosure of their assets or you are the one who has not made full disclosure then it is essential that you seek expert legal advice. Our team of specialist divorce and family lawyers can provide you with the advice that you need. To speak to one of them simply fill in the form, here.
