Pre-nups and divorce - disclosing too much or too little?

As family solicitors, we invest time in carefully explaining to our clients the importance of clear, full and frank disclosure. But what we typically have in mind are those people who think they can hide from the Court’s (or, more precisely, their spouse’s) prying eyes in divorce proceedings that secret bank balance saved for a rainy day, an offshore fund they think will be impossible to track, or the beneficial ownership of a company hidden behind a corporate structure.

Full and frank disclosure is not just essential when it comes to financial proceedings on divorce. It is important in the preparation of a pre-nuptial agreement too. It is in both parties’ interests to disclose their position properly – for the financially stronger party to try and maximise what is their ‘separate property’ and therefore protected by the agreement, and for the financially weaker party to demonstrate their vulnerability and, potentially, the unfairness of the agreement, should they wish to try and challenge the application of the pre-nup in the future.

It was therefore surprising to see the recent case of WW v HW [2015] EWHC 1844 (Fam) in which the financially weaker party substantially exaggerated their financial resources before the marriage. The facts of the case were as follows:

• Husband and wife met in the summer of 2000 and married two years later on. The wife had come into a significant inheritance at a very young age following the death of her father. Her assets were virtually all inherited, held in trust and valued at approximately £27m.
• Prior to marriage, they both took independent legal advice and entered into a pre-nuptial agreement some three weeks before their wedding. The primary purpose was to protect the wife’s inherited property from a sharing claim. The agreement made no provision for the parties’ respective needs.
• For the purpose of the agreement, the husband disclosed an income from royalties from his film production company of £80,000 per annum plus additional income which, whilst being £60,000 in 2002, he asserted had been £200,000 in each of the two preceding years.
• By the time of the Final Hearing in January 2015, it had become clear that the husband’s disclosure had been a “substantial exaggeration”, presumably designed to comfort his future wife that his motivations for their marriage were not financial. His income from royalties was in fact only £8,000 per annum, and a paltry £6,000 in 2002. In his defence, he said that he might just have missed the odd zero, but the judge was not convinced!
• The husband had therefore held himself out as someone with his own resources and, most importantly, an ability to meet his own needs, rendering the pre-nuptial agreement readily capable of implementation. That was simply not the truth.
• Unfortunately, the parties’ marriage broke down and the wife subsequently sought to rely on the pre-nuptial agreement whereas the husband challenged it.

The judge had no difficulty in finding that it would be fair to hold the husband to the parties’ agreement (albeit he had to make sure his needs were met). Those needs were, however, not interpreted generously. One of the judge’s reasons for this was that the pre-nuptial agreement had not provided for needs, presumably at least in part because the husband’s disclosure had shown him to be self-sufficient and able to “stand on his own financial feet”. The judge concluded that the husband had to accept responsibility for the disclosure he chose to give, true or otherwise.

The Court has long penalised non-disclosers and tellers of half-truths by drawing adverse inferences against them and, for example, making findings that their assets are greater than stated. It is interesting that, while coming from a very different angle, the family Court has once again emphasised the importance of upfront, honest disclosure and has penalised the party who failed to do this. This is perhaps not surprising given that the overarching goal of achieving ‘fairness’ can only properly be attained when the Court knows what it’s dealing with.

Further information

Should you have any questions about the issues raised in this blog, please contact Hannah Mabbutt or a member of the family team.