Financial disclosure FAQ
The obligation on both parties is to make full and frank disclosure including documents. Hiding assets or income is a dangerous tactic with significant potential penalties where discovered. Full disclosure includes all property, income, bank accounts, savings, shares, companies, pensions and policies.
There are certain classes of assets which tend to be more susceptible to being hidden or which are not easy to ascertain.
Typical examples include cash, bonds, mutual funds, insurance policies, shares or and annuities. Assets can also be bought in other people’s names or placed into corporate structures.
Another tactic may be to convert assets into items such as expensive jewellery, watches or cars Assets may also be transferred to offshore accounts. Bonus payments can also be delayed in an attempt to minimise earnings.
With limited companies owned by a spouse, there can be attempts to manipulate the true value of the business. This can include exaggerating business outgoings, diverting company monies to linked people or entities to minimise profits.
If a spouse owns a business they might try to ‘cook their books’ by making payments to non-existing individuals, use their corporate identity to hide assets and even under report their income for the year on tax returns and financial statements.
The best course of action where a spouse suspects or has good reasons to believe there may be undisclosed assets is to have good and experienced solicitors who work in conjunction with specialist forensic accountants.
Businesses are notoriously difficult to value. There are a number of factors that come into play. With a family owned business for example, much of the value in the business is linked to the owner.
Another common issue with small businesses is that there may be other shareholders or business partners. The value of a share in such a business may be significantly different if the business cannot be sold.
Aside from these factors there are many others such as the type of business.
There have been a number of court cases where the issue of how to value a business for divorce purposes has been considered. Recent high profile cases have included judgments where the Judges have questioned the benefits of significant sums being incurred by the parties in complex business valuations.
In other words, the courts may take a more broad brush approach but each case is different.
Do bank statements disclosed include strange transaction patterns or payments to people or organisations that do not seem obviously relevant to the business?
Are there unusual or larger than normal patterns of cash withdrawals in the period leading up to the issue of divorce proceedings or since issue of proceedings?
Are there any signs from the bank statements or company accounts which suggest high value purchases?
Are there payments which appear to have been made for unusual items which do not seem relevant to the business such as antiques or payments going abroad?
Where incomplete disclosure is suspected or known, the starting point is to carefully consider the right tactics to seek additional information and disclosure.
This usually means a skilfully drafted letter to the other party’s lawyers seeking confirmation or denial relating to certain assets. Depending on the response to this, an application may then be made for further disclosure.
Getting such an application, including evidence, right is essential because if the court decides that the application is based on mere suspicion only, it may be considered a “fishing expedition” and fail.
On the other hand, a party seeking to hide assets should also clearly understand that if the court does find an attempt to fail to disclose has happened, there are serious consequences including a potential finding of contempt of Court which is a criminal offence,
However tempting, a spouse should never seek to snoop on the other spouse and breach privacy by seeking for example to access private documents such as emails, bank accounts or files and documents. These are legally confidential and private, even between a husband and wife and even if they are found in an open space without a password or lock.
A very high risk approach where it is essential to have compelling evidence when applying is to seek a court ordered search order. This allows you or your representative to enter your spouse’s premises, search for and seize documents, which may then be presented to the court.
On divorce if a spouse has a beneficial interest in a trust, they need to disclose that interest as part of divorce disclosure. More detailed information in the form of trust documents can be ordered by the court and this can include requesting information from the trustees.
Trustees may not always fully co-operate. Consequently, the Family Courts can subsequently set aside an order or agreement based on lack of full disclosure or possible fraud.
The starting point under English law is that all assets owned by a married couple, individually or jointly, are included in the assessment of needs. This is not to say that in many cases arguments are put forward that some assets are non-matrimonial. A typical example of what could be classed as non-matrimonial property would be inherited assets or trusts. The use of pre-nuptial agreements to record pre-owned or non-matrimonial assets is a way of trying to influence the financial outcome on later divorce. Pre-nuptial agreements are considered by the English Courts but do not bind the court. So, in summary arguments about whether assets are matrimonial or non-matrimonial assets usually apply where there are significant assets so that the court will be looking at aspects over and above the needs of the parties.
• The focused starting point for assessing needs is on housing and present and future income.
• Future income will also take into consideration income in retirement.
After assessing needs the court will turn to the question of whether needs are best met from capital or income provision. Factors that are commonly taken into account are :-
• With limited resources, needs of children come first.
• the standard of living is taken into account together with the length of the relationship.
• The courts will consider the expectation of ultimate financial independence of a divorced couple and that may mean the parties must expect a reduction in their previous standard of living having regard to the overall objective of a transition to independence.
• To measure need, and the ability to meet it, both parties will be expected to present appropriately detailed budgets to the court.
• Needs may be met from non-matrimonial resources.
• Where possible, the court will look at the possibility of providing a home for children with each parent.
• The court will take into consideration the burden that will be placed where one party is compelled to remain liable for a mortgage on the other party’s home for an indefinite period.
• If the needs of the children mean that capital outcomes strongly favour the primary care giver, a Mesher order is a potential option.
The legal approach is to balance the need, where a maintenance order is considered appropriate, between giving the sufficient time to start a new independent life with the need to be fair to the paying party such that the person receiving maintenance has a duty to user best endeavours to strive for independence financially. The court will not place that person in a position of undue hardship.
If an extendable term order is made, the recipient must still apply to the court to before the initial term has ended, to extend the maintenance order.
No, the rules state that after statements of financial information (Form E) have been exchanged each party can submit a questionnaire to the other party. If the necessity or relevance of questions in such questionnaire are contested, it will be up to the court to decide which questions must be answered.