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14 October 2015

Ex-wives win the right to re-open their divorce settlements

Leading family lawyer Sue Andrews, from Buckinghamshire law firm B P Collins LLP, says the case of two ex-wives who were given permission by the Supreme Court to have their financial settlements reached upon their divorce looked at again by the High Court, gives a clear warning to spouses that they won’t get away with lying about their financial circumstances.

Alison Sharland and Varsha Gohil each claimed that in the financial proceedings their husbands were dishonest about their wealth and so they were each misled prior to reaching their financial settlements, both of which were approved by the court.

Prior to the decisions handed down on 14 October the possibility of these former wives being successful was widely reported as potentially "opening the floodgates" for dissatisfied former spouses to overturn their financial settlements.  Sue is not however convinced that this will be so, because she explains where a party has been dishonest, it has long been possible to seek to take steps to re-open matters.

“There is an absolute duty to provide complete, honest and unambiguous disclosure which we stress to clients at the outset, and the formal disclosure forms (Forms E) highlight that failure to do so may result in any order the court makes being set aside" explains Sue.

Today’s Supreme Court decisions however make it crystal clear that deliberate and intentional non-disclosure will not be tolerated. The decisions create a presumption that the non-disclosure will be considered material and that had the information not disclosed been known at the time, the outcome would have been different. 

This means that from now on an original agreement or order will be set aside, unless the non-disclosing party can prove that the court would not have made a different decision had the truth been known.

Sue explains that "until these decisions, a spouse seeking to set aside an order had to establish that the information not disclosed was material and that there would have been a different outcome.  These decisions have therefore shifted the onus of proof where there has been fraudulent non-disclosure."  

Where however the non-disclosure is either accidental or negligent (for instance, if a spouse inadvertently forgets that they had a bank account or bond) then the position remains that the other spouse who seeks to set aside the original agreement or order will need to establish that the new information will produce a different outcome.  In other words, will continue to have to satisfy the court that the non-disclosure was of something material.

Sue says that the Supreme Court really could not have come to any other decision because it had to spell out that there will be serious consequences where a spouse deliberately seeks to conceal assets and to mislead their former spouse and the court.  For that not to be could enable someone to benefit from their own dishonesty.

Sue goes on to explain that the provision of accurate information is crucial.  Until each spouse has provided disclosure, a solicitor cannot advise about the appropriate settlement and each spouse must be entitled to make decisions about their and their family's financial future on an informed basis and be comfortable that they have all relevant facts and figures. 

The disclosure/fact finding steps can very often be the most time consuming and acrimonious. Most of the delay and expense is in fact-finding. It can be so frustrating "like pulling teeth," says Sue.  She believes that the consequences of non-disclosure having been spelt out in this way should stop spouses seeking to hide assets in an attempt to distort a settlement. 

Sue explains that very few spouses "get away with this" anyway, because the disclosure process requires considerable documentation to be provided and, with diligent lawyers, incorrect disclosure tends to be spotted prior to a settlement.  "You can invariably tell from the manner in which disclosure is provided – perhaps the paucity of documents and the ways things are written – that disclosure is less than frank and that simply leads to lots of questions and usually to commencement of proceedings and substantively increases costs," says Sue.

When the Sharlands divorced in 2012, after 17 years of marriage, Mrs Sharland accepted a divorce settlement of £10 million and 30% of the net proceeds of Mr Sharland's 33.5% shareholding in a private company when realised.

Mr Sharland's evidence had been that there were no immediate plans to sell the business, and that a sale was unlikely for at least the next 3 and possibly not before 7 years at the earliest. On that basis, the separate experts instructed by each of Mr and Mrs Sharland valued the company in which Mr Sharland held shares at between £88.3m and £60m.

Prior to the agreement reached being approved by the court, there were reports in the papers that the company was being prepared for sale at between US$750m and US$1,000m.  Mr Sharland was ordered to file evidence, but although he produced documents which confirmed that steps had been taken in the same period as the original proceedings to prepare the company for sale, and that therefore his evidence had been false, the Judge approved the original agreement.  This he did on the basis that the matters about which Mr Sharland's non-disclosure related would not have led to a substantially different order, since the sale did not in fact proceed.

However the heart of Mrs Sharland's case was that Mr Sharland had been dishonest and fraudulent in not disclosing the plans, and so the order should be set aside.

The Supreme Court agreed with her.  Lady Hale stated in her judgment that the Court of Appeal had been wrong.  Mrs Sharland "was entitled to re-open her case, when she might seek to negotiate a new settlement or a re-hearing of her claims when all the relevant facts were known". 

The burden of establishing whether the fraud would or would not have made a difference to the outcome is on the perpetrator of the fraud, in the case of deliberate non-disclosure.

“This decision doesn’t mean that in all cases where there is fraud the order will be set aside, however it is the responsibility of the spouse who has concealed his or her assets to prove why the non-disclosure would not have produced a different outcome,” said Sue. 

In 2004, Mrs Gohil had reached a settlement with her former husband, giving her £270,000 and a car.  This agreement was made even though she believed her husband hadn’t made full and frank disclosure of his financial circumstances.

In 2007 she applied to have the order set aside on the ground that Mr Gohil had fraudulently failed to disclose his assets.  The hearing of her application was delayed when her former husband was charged and then convicted of money laundering offences, receiving a ten year jail sentence.

Mrs Gohil claimed that the fresh evidence demonstrated that there had been material non-disclosure of assets at the time of the divorce settlement.  The Supreme Court agreed and also set aside this financial order.

Although Mrs Gohil had acknowledged in the original order that she didn’t believe her husband’s disclosure at the time she agreed the financial agreement, Lord Wilson in his judgment made it clear that this acknowledgement had no legal effect.

Sue explains that just because Mrs Gohil recognised that her husband wasn’t telling the truth, didn't exonerate him from complying with his duty to make a full and frank disclosure to both his wife and the court.

Although these women have rightly been successful in their appeals, it does not mean their settlements will be different since this will depend upon what the assets are found to be when the cases are heard.

These decisions are a clear message that a spouse cannot benefit from a deliberate attempt to misrepresent their financial or other circumstances, however Sue explains that most divorcing couples want to resolve matters amicably and without the delay and cost of court proceedings. 

"To achieve that we advise our clients to provide clear and full disclosure, supported with all relevant documentation. This will preserve a good relationship, which is so important, especially where there are children involved and long term decisions have to be made about their future. 

"Providing information in this way is also respectful of the other, with whom you were once in love and fully committed to.  Remembering that will enable the right outcome to be achieved through constructive negotiations," concludes Sue.

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