The Supreme Court’s judgments in the cases of Sharland v Sharland and Gohil v Gohil in October have been the subject of considerable media attention. This is unsurprising, as the rulings represent a fundamental change to the treatment of divorce settlements in cases of non-disclosure.
The cases were brought by wives who had been misled by their ex-husbands’ deliberate non-disclosure into accepting financial settlements far below what they were entitled to.
Mrs Sharland discovered shortly after agreeing to a financial settlement and lodging the order at court that her husband had failed, in the midst of settlement negotiations, to disclose the imminent prospect of an IPO flotation of his business, AppSense Ltd. The value of AppSense, according to the financial press when reporting on the IPO, was not the £31m to £47m alleged during the divorce proceedings, but rather US$1bn (£648m).
Mrs Gohil, in contrast, came back to court some years after her financial settlement, upon discovery of her ex-husband’s fraudulent behaviour. Evidence of his international non-disclosure had emerged in separate criminal proceedings brought against him for alleged fraud.
The result of these rulings is that both wives may now revisit their original settlements due to their respective husbands’ misrepresentations at the time of their divorces and – if the new information warrants it – seek new, larger settlements.
The implication of these cases will extend to many people who reached settlements, or indeed had orders imposed on them by the court, on the basis of incorrect or misleading financial information. This will inevitably mean a reopening of the floodgates for those who felt they were duped by their spouses at the time of their divorce and who later come into receipt of evidence of this.
While Mrs Sharland and Mrs Gohil were, in the end, victorious, the process was laborious and expensive; requiring multiple court hearings and thousands of pounds in legal fees. For many, lacking either the time or resources, this may not be a viable course of action. So what should you do now, in light of this new ruling, if your client believes their spouse is deliberately hiding assets from them in order to force them into accepting a lower financial settlement on divorce, or, if court proceedings commence, deceiving the court as to the level of his/her wealth?
Conventionally, parties to financial remedy proceedings on divorce are under an ongoing duty to the court to provide full disclosure of their assets, liabilities and income. This includes estimated income going forward and the potential to receive assets in the future (for example, inheritance prospects). This duty lasts until the conclusion of the case and both parties remain obliged to keep the court and the other party updated as to any change in their circumstances. This may include being made redundant, accepting a higher paid job and any change to the value of assets, for example company mergers or buyouts.
Various options have long been available to a party to divorce proceedings who suspects that his/her spouse is withholding information from the court. Forensic methods such as an in-depth analysis of bank statements may often uncover suspicious transactions indicating, for example, the existence of undisclosed accounts or assets. Alternatively, the court can make orders to assist full disclosure such as search-and-seize orders and freezing orders (the latter used to ‘freeze’ bank accounts within the jurisdiction of the court until the proceedings have been resolved). Alternatively, if it is suspected that a spouse is employing the assistance of third parties such as business partners or family members, third party orders may be made against them or their accountants to force disclosure of relevant information. The court may also draw adverse inferences against a party by reason of his/her failure to disclose assets to make a harsh decision against that person.
Some spouses may be tempted to resort to illicit methods to obtain information they suspect is being withheld. However, the courts have taken the view that they cannot encourage divorcing spouses to take matters into their own hands and obtain documents from one another without consent. Thus, opening another’s post, hacking into email accounts and raiding filing cabinets is strictly off-limits. Privacy laws must be respected and as such the use of an enquiry agent may be frowned upon and often limited, for example to ascertaining whether a spouse is cohabiting with a new partner (a fact that may have a large impact on housing and income needs). However, it is unlawful for one spouse, either personally or through an investigator, to log into an email account or copy documents belonging to the other without permission; irrespective of the fact that they are married. Reams of recent cases have demonstrated the way in which courts will punish the investigative spouse rather than the suspected non-discloser, for example by making costs orders. Civil and even criminal sanctions may also be imposed. The whole exercise will therefore have been fruitless, whatever issues have been disclosed by way of ‘self-help’.
Step forward Mrs Sharland and Mrs Gohil. This Supreme Court ruling provides welcome clarification of the circumstances in which a financial order can be revisited on the basis of either party’s failure to disclose the full extent of their assets. In the case of Mrs Sharland, the information was discovered when the prospect of an IPO entered the public domain through the financial press. Mrs Gohil discovered her husband’s fraudulent non-disclosure following his involvement in criminal proceedings.
These cases have provided much-needed clarification of the circumstances in which the court has the power to set aside an order on the basis of non-disclosure. As the court stated in this case, “fraud unravels all”.
Furthermore, the court has clarified that parties cannot avoid or contract out of their duty to make full disclosure to the court so that a spouse will not forfeit his/her right to challenge a divorce settlement in due course by having agreed to that settlement in the knowledge that the other party might not be telling the truth. It will always be open to them to revisit the original settlement in the years to come if fraud has been discovered.
Following the publication of these judgments, family lawyers have already seen a rise in new instructions to challenge divorce settlements, in some cases made years before, on the basis that insufficient or misleading disclosure was provided and new information has since been discovered that proves it.
Fundamentally, this judgment serves as a warning to those who are or have deliberately tried to deceive the court and conceal assets. The victims of such deceit may sit back and wait for the concealment to become apparent, as it often does. As soon as evidence has been obtained that a fraud was committed, irrespective of how long ago, an application to re-open the terms of the financial order can be guaranteed. Finality in financial proceedings can only be achieved where both parties have been absolutely upfront with the court.
Harriet Errington is a solicitor at City law firm Boodle Hatfield
Boxout
Disclosure on divorce
1. Be upfront about all of your assets; failure to provide full details may result in the financial settlement being overturned in the future.
2. Do not steal documents from your spouse to prove their dishonesty as the court will punish you for it.
3. Be careful about using private investigators; make sure they operate within the remit of the law.
4. The court may set aside financial settlements where there has been non-disclosure.
5. If in doubt speak to a solicitor specialising in this area of law; it may save you money in the future.
Key Points
1. In the Supreme Court’s judgments in the cases of Sharland v Sharland and Gohil v Gohil in October, while Mrs Sharland and Mrs Gohil were victorious, the process was laborious and expensive
2. Some spouses may be tempted to resort to illicit methods to obtain information they suspect is being withheld
