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17 September 2015

Dishonesty in divorce under the spotlight

In the next few weeks, the Supreme Court is due to rule on two cases involving wives Alison Sharland and Varsha Gohil who, claiming that their husbands were dishonest about their financial resources during divorce proceedings, are seeking to have earlier financial orders set aside.

In both cases the orders were at first set aside by the High Court, but these decisions were subsequently reversed by the Court of Appeal.  Sue Andrews, family law partner, explains more.

Ms Sharland accepted a £10 million settlement from her former husband when they divorced after 17 years of marriage in 2012. This took into account the value of his company, said to be between £31m and £47m. Ms Sharland later discovered that her former husband had concealed negotiations about the possible flotation of his company, which put its value at over £650m. She sought to set aside the order because of his fraudulent non-disclosure.

The flotation did not proceed and Mr Sharland has dismissed the £650m figure as "pure conjecture". The Court of Appeal decided that the financial order should not be set aside because, although the non-disclosure was material, the new information would not lead the court to make a “significantly different” order.

Sue believes if the flotation had happened the High Court's decision would have stood, because a sale at the higher figure would "very probably" have changed the original outcome.

In 2004, Ms Gohil agreed a settlement with her former husband, which gave her £270,000 and a car. This she accepted, despite her stated belief that Mr Gohil held funds in a Swiss bank; owned a number of properties both here and in India; had company and trust interests, all of which he denied.

Their agreement records that Ms Gohil believed her husband had not provided full and frank disclosure of his financial circumstances, but that she was nevertheless prepared to compromise her financial claims.

In 2006, Ms Gohil applied to have the order set aside, saying her former husband's lifestyle was much higher than would be possible from the income and assets disclosed. Numerous hearings followed, but before a decision could be made, Mr Gohil was convicted of money laundering and received a 10 year jail sentence. His alleged funds, subject to confiscation proceedings, were estimated at around £35m.

The issue

“A key question is whether, if a party has knowingly provided incomplete or inaccurate disclosure, an agreement or order based on that information should automatically be set aside,” said Sue.

“Many of us might think the answer is an obvious yes, bearing in mind there is a strict obligation or duty on both parties in a divorce to provide full, clear and unambiguous disclosure.

“However, there are two equally important but conflicting principles: the overriding objective to achieve fairness; and the need for finality of proceedings.”

Although both husbands had provided incorrect disclosure, she says the facts not disclosed were unlikely to change the original settlement. Ms Gohil accepts that monies confiscated by the Crown could not form part of the resources to be determined by the family court; while in Ms Sharland's case the flotation didn’t happen.

Sue would therefore be surprised if the Supreme Court finds in their favour, but says it must send a clear message that dishonest spouses will face sanctions.

“This may not be the answer that my moral compass says is right, but I suspect it will be the pragmatic outcome," she said.

“There are already remedies where someone is in contempt and these should be used more robustly. For example, the court could impose larger fines and jail sentences, or a spouse could be ordered to pay their former partner's costs.”

The debate

So, where does that leave a spouse who wants to conclude financial negotiations but believes their former husband or wife is lying? 

“Any agreement should clearly record that it was reached on the basis of the disclosure provided to that date and, should that disclosure prove to be incorrect, that the order should automatically be set aside,” advises Sue.

“This would shift the onus from the ‘innocent spouse’ having to take steps to set aside an order where they have done nothing wrong. That said, the ‘innocent spouse’ could opt to stand by the original agreement, rather than incur the stress and hassle of further negotiations.”

To speak with Sue about financial matters during divorce, call 01753 279046 or email familylaw@bpcollins.co.uk.

Stay in touch

Phone: +44 (0) 1753 889995

Email: enquiries@bpcollins.co.uk

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