‘De-risking’ and financial exclusion
There has been much attention this week on the Supreme Court decisions involving the cases of Mrs Sharland and Mrs Gohil. Both were allowed to challenge their original divorce orders having each proved that their ex-husbands were dishonest at the time they agreed their financial settlements and despite the Court of Appeal ruling that the original agreements should stand.
The decisions will have a significant effect on the divorce landscape from now on with lessons both for those who are already divorced and spouses currently embarking on that path, as well as their advisers.
While Mrs Sharland's and Mrs Gohil's goals before the Supreme Court were the same, the differences between their financial settlements and circumstances are stark. Mrs Sharland had agreed a financial settlement comprising of £10 million in cash and property and, in the future (if the husband's company were sold) 30 per cent of the net proceeds of his shares. Mrs Gohil had accepted a settlement of £270,000 plus a car (as well as maintenance).
The common features of their cases were that after their settlements were agreed, evidence emerged in both cases of material non-disclosure. In Mrs Sharland's case, it transpired that, prior to and during the negotiations, her husband was actively preparing to launch the company on the stock market contrary to what he told the court at the time.
Mrs Gohil, meanwhile, was able to show that third parties held assets on behalf of her former husband who had also received a prison sentence for serious money laundering offences since their divorce.
Both wives argued that their divorce settlements were unfair, and were fraudulently obtained because their husbands had not provided full and frank financial disclosure. They argued that, had they known the true picture of their husbands' finances, they would not have entered into the agreements they did.
The Supreme Court has given teeth to the duty of full and frank financial disclosure, which is a cornerstone of English family law. In simple terms, if a couple has reached an agreement, it can be challenged if either spouse has failed to give full disclosure of their financial circumstances.
Should it be done intentionally (ie fraudulently), the burden should be on the perpetrator of the fraud, rather than the victim, to show that the court would have made the same order as had been agreed or made originally had that information been known at the time.
Furthermore those who fail to be transparent about their financial affairs risk the wrath of the court, even years after the divorce has been concluded. The judgment has reinforced the message that the courts will not hesitate to set aside agreements if material non-disclosure emerges at any stage after the original order.
So will this open the floodgates to ex-wives (or husbands) seeking to challenge their divorce agreements? While many may feel that their spouses hoodwinked them financially during their divorce, the challenge will be finding new evidence of non-disclosure. Only if new information about an ex-spouse's assets has come to light will they have any chance of overturning the original consent order or agreement. This can be tricky as we saw from the recent high-profile case of Michelle and Scot Young.
Will this encourage full and frank disclosure in the future? I think so, yes. For any client now entering into an agreement, be it a prenuptial, separation or divorce agreement, it is crucial that they understand the importance of being transparent about their financial affairs if they wish to have any chance of enforcing the agreement in the future.
Finally, the Supreme Court has reinforced London's reputation for being divorce capital of the world. It has reaffirmed the English court system's fairness to the weaker financial party, not just in terms of the large financial settlements that can be obtained under the principle of equality and the court's generous approach on maintenance, but also with regard to the court's powers to enforce financial disclosure against individuals and, if necessary, against third parties.
These powers are stronger in England and Wales than in many other countries around the world and something for parties to think about before they decide whether to and where they divorce.
First published in Spear's on 15 October 2015.
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