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Financial disclosure is an important stage when exploring with your spouse or civil partner what you are each entitled to upon a divorce or separation. Having a full and detailed understanding of the financial landscape is crucial in ensuring that you can make informed decisions in your approach to settlement negotiations.
The duty of disclosure within financial remedy proceedings relates to both parties and their lawyers. There is an obligation to provide full, frank, clear and accurate disclosure of all material facts, documents and information relevant to the case. The duty to provide disclosure is applicable to non-court dispute resolution processes (for example, family mediation or collaborative law) as much as it is to court proceedings.
Your legal advisor should advise you on the consequences of non-disclosure at the outset and ensure you are aware of their own duty to disclose any relevant information or documentation that is shared with them. Your duty to provide full and frank disclosure is ongoing throughout negotiations until such time as a financial order is made by the court.
An ideal starting point is for you and your partner to each complete a comprehensive financial disclosure exercise through the exchange of a detailed form called ‘Form E’.
Form E is the method used by the court in providing disclosure of financial assets and, in turn, the use of Form E is adopted by many solicitors and mediators when exploring non-court based dispute resolution methods. Form E sets out disclosure of all assets, together with supporting documents such as bank statements, credit card statements, tax liabilities, mortgage/loan documents, income information such as tax returns and/or P60s and any other relevant financial documents; the Form E is an extensive document and the above list is not exhaustive.
Once your family lawyer has received your partner’s Form E, they will work through it with you and consider whether it is necessary to respond with a questionnaire, requesting further disclosure of missing information or additional documents. Generally, at Family Law Partners, it is our practice to ensure that any questions raised are proportionate to the matters in issue and whether raising them will assist in advancing your case.
Where there are significant gaps in disclosure or we feel that there may be assets missing from Form E, if necessary, we can consider instructing a forensic accountant to review personal and business finances, investigate financial discrepancies and hidden assets. A forensic accountant can also review the draft questionnaire to ensure we have identified all areas in respect of which we require further information. Careful consideration should be given as to whether the instruction of a forensic account is a proportionate step.
Following receipt of your partner’s replies to the questionnaire, if it is considered information remains missing, we can consider raising a schedule of deficiencies and further questions. This allows us to highlight missed information or any continuing discrepancies, to repeat any unanswered questions and/or raise new ones.
The duty to disclose extends beyond those assets which are certain to any income, earning capacity, property and other financial resources which you and your partner has or is likely to have in the foreseeable future. For example, in the case of Bokor-Ingram v Bokor-Ingram, a husband’s failure to disclose the fact that he was involved in negotiating a new contract of employment, which, if finalised, would have resulted in a significantly increased salary and substantial bonuses, was held to be a breach of the duty to provide full and frank disclosure.
However, it should be noted that unless it is likely to be received in the near future, any potential inheritance is unlikely to be a disclosable asset as it is generally considered that individuals may choose to change their wills and/or may utilise their assets within their own lifetime, for example on care home fees. As a result, future inheritances cannot be guaranteed as an asset which is available to the potential beneficiary.
As we have explored above, when investigating financial matters, whether inside or outside of court, you are each under a duty to provide “full, frank, clear and accurate” disclosure to the other. You will each sign a statement of truth confirming you have done so when signing your Form E. This duty should not be taken lightly and non-disclosure can result in serious, and in some cases punitive, consequences. We are often faced with clients who are concerned that their partner is failing to disclose their true asset position. We can discuss and carefully consider your concerns and decide whether any further steps need to be taken.
The duty of disclosure does not just apply to you and your partner. As lawyers, we must not mislead or attempt to mislead the court, by our own acts or omissions but also by being complicit in the acts of omissions of others (including our clients). All solicitors, including those who are instructed by your partner, will be fully aware of this overriding duty to the court. If your partner was to disclose information to their solicitor that was relevant to the financial proceedings, but forbade them from passing that information on, their legal representative would be bound to terminate their retainer.
If your partner fails to disclose assets, and we became aware of this, they may be required to pay the costs of any additional enquiries necessary as a result of this failure to disclose an asset. In the case of J v J (Disclosure: Offshore Corporations) the husband had distanced himself from assets being held in offshore corporations, which were designed and intended to be impenetrable. He had claimed his financial resources were much more limited than that claimed by his wife and, following the discovery of undisclosed audited off-shore accounts, a costs order of £700,000 was made. Please be aware however, that costs orders of this magnitude are extremely rare.
The key point to take away is that the court made it clear that they were very familiar with sophisticated offshore structures and they did not “impress, intimidate or fool anyone.” If clients use such structures to avoid disclosing their true wealth, they should “not expect much sympathy when it came to the question of paying the costs of the enquiry which inevitably [follows]”.
If there has been material non-disclosure by a party within financial proceedings, the court have been known to draw adverse inferences. The standard of proof for drawing these inferences is on the balance of probabilities. If the court concludes that your partner has hidden funds during the proceedings, as per NG v SG (Appeal: Non-Disclosure) the court should attempt “a realistic and reasonable quantification of those funds, even in the broadest terms” they will consider any evidence or observations that we could provide and then look to the “scale of business activities and lifestyle” when making judgments.
Our focus at Family Law Partners in the first instance will be to ensure that your partner has provided full and frank financial disclosure using the mechanisms referred to above but if they fail to do so, then court proceedings may become necessary and it is possible to invite the court to make adverse inferences based on what you know of your partner’s finances and the evidence that we are able to gather.
If evidence comes to light that your partner has failed to provide full and frank disclosure, this misconduct will likely impact their credibility in court. This can be an important tool in agreeing a settlement, either in, or outside of court or in asking the court to make orders in your favour at a final hearing.
Failure to disclose a material fact or document can lead to a final financial order being set aside (i.e. cancelled). Whether or not this occurs will depend on whether the information not disclosed would have made a fundamental difference to the order that was made. In Goddard-Watts v Goddard-Watts, the ‘huge difference’ between an earlier valuation of £30m and a subsequent figure of £100m meant that it was impossible for the court to be satisfied that the judge at first instance would have taken the same approach had “he known the likely true scale of the case.” Where an order is set aside, the matter will be reheard, and new orders made which is the ultimate penalty for a non-discloser (i.e. if they are found to have hidden assets they no longer can benefit from the certainty of a final order).
In more extreme cases of non-disclosure, the defaulting party may be held to be in contempt of court, for example, in Young v Young, the court imposed a sentence of six months imprisonment for contempt of court where the husband had failed, in certain very important aspects, to comply with an order requiring him to provide further information in respect of his financial situation.
The above is a summary of potential steps and avenues that can be taken if non-disclosure becomes an issue in your case. However, the good news is that material non-disclosure is a rare circumstance.
We ensure that our clients are aware of all the options available to them in resolving the financial aspects of divorce and separation. In many cases, we advise a voluntary exchange of Forms E before considering whether mediation is an appropriate non-court method to resolve matters. If issues of non-disclosure arise following an exchange of Form E, we can work closely with you to consider whether a questionnaire requesting further information is necessary. If your partner is not engaging in providing their disclosure, we can consider whether it is necessary to involve the court to make an order regarding financial disclosure. court proceedings should not be taken lightly due to the delays, stress and costs involved, however in some cases they are necessary. To avoid delays, many couples agree to engage in arbitration which can assist in speeding up the standard court process but within a private and bespoke forum.
If you would like to discuss any of the above, please do not hesitate to contact our team for a confidential discussion about your personal circumstances.
Grace Savage is a Paralegal in our Horsham team,