Family law questions answered: dealing with non-disclosure in high value divorce disputes

In this series of articles, ‘Family law questions answered’, the family team at Penningtons Manches Cooper provides practical answers to some of the tricky family law issues facing individuals and families.

The preliminary step to any financial negotiation on divorce is the exchange of full and frank financial disclosure. In high value divorce cases, financial disclosure is often the most contentious issue. Where there are disputes over the assets, liabilities and income of the parties, and they cannot agree on the complete and accurate picture of their finances, the consequences can be severe. Where there is non-disclosure, the ‘what is there in the pot?’ stage of the discussions can become extremely drawn out, often feeling endless and leading to increased costs, unfair outcomes, prolonged litigation, and, in some cases, the reopening of settlements years later.

This article explores the legal position and sets out the key risks, practical steps, and lessons from recent cases addressing non-disclosure in high net worth divorce disputes.

What does the law require?

Whether the parties are in voluntary negotiations or financial remedy proceedings, both parties must provide full and frank disclosure of their financial circumstances. This duty is not a one off obligation, but one which continues throughout the proceedings, meaning any actual or foreseeable change in financial position must also be disclosed.

Parties seeking to reach an agreement, or achieve a resolution through court, in England and Wales must disclose:

• all sources of income (including unearned income, investment income, bonuses and deferred remuneration);
• all assets (property, savings, pensions, business interests, chattels, money owed to them);
• all liabilities (debts, loans, guarantees);
• interests in trusts, companies, or offshore structures.

When considering the outcome of a case, lawyers advise on the reasonable bracket of outcomes if the matter were put before the court. When considering financial claims upon divorce, the court must consider factors including the assets and resources available to each party, their respective needs in terms of housing, living costs etc., and the contributions they both made to the marriage, using those factors to achieve a fair outcome. This cannot be done without the first stage of full and frank financial disclosure being undertaken properly.

When parties have high value assets in this jurisdiction and worldwide it can be extremely difficult to trace and accurately value them, particularly if the holder of those assets is uncooperative. Often expert analysis of the disclosure provided is required.

However, if one party can show the other party’s non-disclosure, there are steps that can be taken.

What are the consequences of non disclosure?

• The court may draw adverse inferences and make assumptions about the assets really available. The court will consider any evidence available, the behaviour of the ‘fraudulent’ party, and the lifestyle during the marriage, and may award a greater share of the identifiable assets to the other party, on the basis that there is likely to be more available that simply cannot be quantified.
• Costs implications: the non-disclosure may increase costs and cause delays in the negotiations or court proceedings. This may result in adverse costs orders against the fraudulent party.
• Final orders or agreements can be set aside: if an agreement or court order has been reached on the basis of fraudulent non-disclosure which would have a material impact on the outcome, then it could result in the case being reopened long after the divorce has been finalised.

In high net worth divorces, non disclosure is often linked to complex financial arrangements such as private companies, trusts, offshore structures, inherited wealth, deferred compensation and carried interest, cryptocurrency and other digital assets.

What to do if you suspect non disclosure

The courts are increasingly willing to take a robust and proactive approach if there is non-disclosure, and there are tools available to pursue full disclosure. Questionnaires, applications for disclosure orders (including from third-parties), forensic investigations (often involving third party experts) and freezing injunctions are all options available through the court.

In summary, the duty of full and frank financial disclosure is ongoing and the court takes a robust approach to dishonesty, both in relation to pursuit of full disclosure and in terms of outcome if there is a finding of non-disclosure by one party.