Financial disclosure is a fundamental part of most divorce cases. Divorce financial disclosure must be “full and frank”. The duty is serious and if breached can have disastrous and far reaching consequences for the non-disclosing party.
Divorce financial disclosure obligations
Full and frank divorce financial disclosure means that the parties must disclose to each other, and the court, all information which is material to the resolution of the case. Some married couples each have a full oversight and understanding of their financial position but often this is not the case. The divorce financial disclosure duty extends to negotiations and disclosures made on a voluntary basis, i.e. without the court’s involvement, as well as during the course of any court proceedings.
The majority of divorce financial proceedings occur in private, meaning that members of the public are not permitted to attend. Members of the press are able to attend also but they are likely to be subject to reporting restrictions. This tendency to hear cases privately is in part to encourage parties to be full and frank in their divorce financial disclosure.
Form E Divorce
In the vast majority of cases, the parties will be required to complete a form E. The form E is a court form which the parties are required to complete as part of any divorce financial application to the court and sets out their full financial position in terms of capital, income and pensions. It also requires each party to set out what they believe they need in terms of capital and income. The parties are required to provide supporting documentation such as:
– Mortgage statements
– 12 months of bank statements
– Recent statements for any investments
– Life insurance polices
– Loan documentation
– Business accounts
– Pension statements
– P60s
– Payslips
– Tax Returns
The form E specifies what documentation must accompany it. It may be prudent to produce more documentation than only that which is expressly required as, if it is not produced in the first instance with the form E, it is likely to be requested after the exchange of the divorce financial disclosure, potentially slowing matters down.
Although the form E is a court form it is often used by parties negotiating outside of the court process as the template for their divorce financial disclosure, although its completion is not strictly necessary in the same way. It might be the case that the parties can agree a schedule of assets be prepared with supporting documentation instead of full forms E in some cases. Even if the parties are satisfied that they have a full understanding of the assets, some form of financial disclosure exercise can still be useful, even if more limited than form E.
The front of the form E warns:
You have a duty to the court to give a full, frank and clear disclosure of all your financial and other relevant circumstances. A failure to give full and accurate disclosure may result in any order the court makes being set aside. If you are found to have been deliberately untruthful, criminal proceedings may be brought against you for fraud under the Fraud Act 2006. The information given in this form must be confirmed by a statement of truth. Proceedings for contempt of court may be brought against a person who makes or causes to be made, a false statement in a document verified by a statement of truth.
Having completed their respective forms E, the parties are required to sign a statement of truth at the end of the document confirming that the facts in the document are true and the information is a full, frank, clear and accurate disclosure of their financial and other relevant circumstances. The statement carries the following warning:
Having completed their respective forms E, the parties are required to sign a statement of truth at the end of the document confirming that the facts in the document are true and the information is a full, frank, clear and accurate disclosure of their financial and other relevant circumstances. The statement carries the following warning:
Proceedings for contempt of court may be brought against a person who makes or causes to be made, a false statement in a document verified by a statement of truth.
The warnings are there to make clear to the parties that if they omit anything that they should include as part of their divorce financial disclosure, they are likely to face repercussions, either in terms of a less favourable outcome, having to pay the other side’s costs or, in the most serious of cases, contempt of court proceedings, which can be punishable by imprisonment.
Questions
Often the form E is only the starting point of the divorce financial disclosure process. It is normal that the forms E alone do not give the parties sufficient information and documentation to be sure that there are no other assets. Therefore, questionnaires, which raise any queries arising from the other parties’ form E, are prepared and served.
The questions within the questionnaires put to the other party must be proportionate and relevant. Questions often focus on bank account transactions which are unclear, information which appears to have been omitted from the Form E and assets which appear to have been disposed of. Provided the questions are reasonable the court will generally permit them to be asked and replied to.
The replies to the questionnaire must also be accompanied by a statement of truth confirming that the responses are accurate and truthful. Dishonest replies can also lead to adverse orders such as unfavourable outcome, costs or contempt of court proceedings. Refusal to produce replies can also lead to parties being committed to prison as was the case in Young v Young [2013] EWHC 34 (Fam).
Divorce financial disclosure: third party disclosure
Sometimes, a party to proceedings cannot obtain documentation relating to assets which they might have an interest in, or that they are denying that they have an interest in. In such circumstances, a third party disclosure order might be required. As the name suggests, a third party disclosure order is an order against a person or company which is not a party to the proceedings.
Such applications might be made against a bank requiring them to confirm all of the accounts which the party has with them. They are also sometimes used when one party has an interest in a trust in order to obtain information about this directly from a trustee, as a beneficiary doesn’t necessarily have the right to access all of the relevant trust documentation.
These applications often come with risk for the applicant as if they are unsuccessful they might be required to pay the third party’s costs. Careful consideration should be given before issuing an application for third party disclosure.
Solicitors’ obligations
Solicitors have strict duties to their client. However, they also have duties to the court which they cannot mislead. Where a solicitor is aware that a client has an asset or assets which they have not included within their divorce financial disclosure they are only able to continue to represent them provided the client remedies their non-disclosure by telling the other side. If they are not prepared to do so, then the solicitor is obliged to cease acting for that party.
Non-disclosure
As set out above, the consequences of not having made full and frank divorce financial disclosure if discovered during the course of the proceedings is likely to lead to an adverse overall outcome and/or a costs order requiring the non-disclosing party to pay the other party’s costs.
However, it can be the case that non-disclosure in divorce proceedings does not come to light until months or even years after the conclusion of the proceedings. The leading case on such circumstances is Sharland v Sharland which came before the Supreme Court in 2015.
Sharland established that the non-disclosure should be categorised by the court as innocent/negligent (i.e. unintentional) or fraudulent (i.e. intentional).
In the case of innocent or negligent non-disclosure, the court has the power to set aside a final financial order where the party alleging non-disclosure can show that the innocent non-disclosure is a vitiating factor (e.g. it undermines the basis upon which the order was made) and if there had been proper disclosure, the court would have made a material different order than it did.
Where it can be demonstrated that one party practised deception with a view to a particular end, they cannot be allowed to deny its materiality i.e. the applicant does not need to demonstrate that the court would have made a materially different order. However, if the non-disclosing party can show that at the time when the order was made, the fraud would not have influenced a reasonable person to agree to it, or, had the court known of the non-disclosure, it would not have made a significantly different order, the court is not obliged to set aside the order.
Essentially, where there is innocent non-disclosure, the applicant needs to demonstrate that the court would have made a materially different order had the information been known, but in fraudulent non-disclosure, it is for the respondent to demonstrate that the court would not have done so.
Tim Evans •evanstj@gmail.com•(601)606-5177
The outcome of Sharland was that the original order was set aside due to the husband’s failure to comply with his divorce financial disclosure obligations and a retrial was ordered to look at the position afresh, resulting in substantial costs for the husband and a significantly worse outcome arising from his fraudulent non-disclosure.
Separate guidance on the likely consequences of non-disclosure were helpfully set out by Mr Justice Mostyn in the case of NG v SG (Appeal: Non-Disclosure) [2011] EWHC 3270 (Fam). This predates Sharland but remains useful:
i) The court must consider by the process of drawing adverse inferences based on the facts before it whether funds have been hidden.
ii) Any such inferences must be properly drawn and reasonable. It would be wrong to draw inferences that a party has assets which, on an assessment of the evidence, the court is satisfied he has not got.
iii) If the court concludes that funds have been hidden then it should attempt a realistic and reasonable quantification of those funds, even in the broadest terms (which is of course not always easy when dealing with hidden funds).
iv) In making its judgment as to quantification the court will first look to direct evidence such as documentation and observations made by the other party.
v) The court should then look to the scale of business activities and at lifestyle.
vi) Vague evidence of reputation or the opinions or beliefs of third parties is inadmissible in the exercise.
vii) The technique of concluding that the non-discloser must have assets of at least twice what the Claimant is seeking should not be used as the sole metric of quantification.
viii) The court must be astute to ensure that a non-discloser should not be able to procure a result from his non-disclosure better than that which would be ordered if the truth were told. If the result is an order that is unfair to the non-discloser it is better that than that the court should be drawn into making an order that is unfair to the party who is the victim of the non-disclosure.
As can be seen from the above, the court takes parties’ divorce financial disclosure obligations extremely seriously and, in order to ensure that the majority of litigants properly comply with them, will take a hard line with those who do not.