The end of nil-valuations for high-rises?
The recent divorce cases of Sharland and Gohil, which were decided in the Supreme Court in London in October 2015, demonstrate the significant differences in financial disclosure powers between England and France.
Mrs Sharland and Mrs Gohil both won their appeals. They established that their husbands’ non-disclosing behaviour was so serious that their original divorce cases needed to be retried. Mr Sharland had misled the court about whether his software business was about to be floated on the stock market about the time of their divorce. This could have resulted in a business valuation twenty times higher than he alleged at the time - up to one billion US dollars. Mr Gohil had lied about the extent of his wealth (running to over £30 million). His fraud left his wife with only a small settlement to buy a modest house. In fact, he had offshore assets in multiple jurisdictions. He had also been convicted of money-laundering offences since the original divorce. The court said the frauds of both men unravelled everything and the cases should start all over again.
How the financial disclosure stakes differ in England and France
In England, the starting point for the judge is typically a 50:50 division of all assets to each party – irrespective of whose name the assets are in. So, the size of the cake really matters – each spouse needs to know what they are getting 50% of. Added to this, there is established case-law, which sets out where the judge may depart from 50% each.
In France, a matrimonial property regime governs how property assets are divided. It is usually established at the time of marriage. This applies to not just land assets, but all assets – including company shares, savings and investments. So, while it is still important to know the size of the cake, the French matrimonial regime decides the division and the judge has very limited discretion. Very often, it will be clear in advance what the settlement will look like. Added to this, maintenance awards are relatively small and usually decided as a lump sum once and for all.
In England, by contrast, battles often take place over disclosure of the full extent of assets since there is much to play for. The disputes in the cases we see are lengthiest where assets are significant. If the battles involve company valuations or offshore assets (both of which were features of the Sharland and Gohil cases), then these disputes often are the lengthiest of all.
Company valuations will rarely matter in France unless there are shares in the name of the spouse who is making a claim. Again, the property regime will always decide the split of assets, unless a special purpose structure has been set up between the parties (also called ‘société d’acquets’).
French asset splitting on divorce is done with the help of a notary, who will draw up accounts of the parties’ wealth according to the matrimonial property regime which the parties had established.
The Sharland case shows how time consuming and lengthy company valuations can be in England as it concerned the valuation of the husband’s software business. The divorce case started nearly five years ago and the valuation is still not decided. The Supreme Court has overturned the original fraudulent result and the case will now start again before a lower court, estimated to potentially take another 18 months.
How to get disclosure?
Generally, there are stronger English court powers to order disclosure against a reluctant party in a divorce and judges will resort to them readily. However, on some issues, French law has more pragmatic powers. For instance, in France it is possible to get a list from a central agency “FICOBAR” of all bank accounts held in France in the name of that person. No such register exists in England.
In English court proceedings, unlike the French, each party is required to answer a detailed financial form running to over 30 pages and supporting documents are needed. The parties can then ask detailed further questions of each other. These questionnaires can be very lengthy and courts will enforce them.
It is a source of frustration to many French practitioners, that generally speaking, the disclosure environment is weaker in France. However, it does not mean that disclosure is always perfect in England and Wales. As seen in the cases of Sharland and Gohil, determined spouses can and frequently do hide assets.
Also, obtaining true disclosure may be one thing, but enforcing the final order a spouse receives is another. So, cost becomes a real factor. A determined serial ‘non-discloser’ can try and grind the other party down in a battle of legal costs.
The recent case of Prest v Petrodel Resources Limited and others  exemplifies that. In this case, which also went to the Supreme Court, a large number of central London houses were held by a Nigerian husband through Isle of Man company structures. The husband claimed they were not his. The Supreme Court said the companies in reality held them on trust for the husband. Even after that decision, the wife was doomed to return to court many further times to seek further enforcement measures.
So, while disclosure orders are easier to obtain in England and judges are likely to further penalise non-disclosing spouses following the successful appeals in Sharland and Gohil, neither England nor France provides a perfect scenario for divorcing parties. A failure to disclose significant assets, at least in England at any rate, in a prenuptial agreement or later on a divorce renders the final decision of the court liable to be swept away. Full disclosure has never been more important to protect against that risk.
Should you have any questions about the issues covered in this blog, please contact a member of our family team.
You may also be interested in reading our previous blog on the subject of financial disclosure in divorce proceedings - The principles of honesty and transparency prevail in divorce proceedings in England and Wales.
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