Impact of financial non-disclosure on divorce settlements

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On 14th October 2015, Alison Sharland and Varsha Gohil were successful in their conjoined appeals to the Supreme Court; which has allowed them to re-open their respective financial claims based on their husband’s fraudulent non disclosure.

The judgment provides us with important clarification on the impact of fraudulent non-disclosure on a financial settlement agreed between a husband and wife on divorce.

The facts

Sharland v Sharland

Mr and Mrs Sharland had a marriage of 17 years during which they had three children, one of whom has lifelong special needs. The parties reached a settlement mid-way through financial proceedings under which Mrs Sharland received approximately £10million plus 30% of the proceeds of any future flotation of her husband’s company. This sum was thought to be equivalent to roughly half of the marital assets.

It transpired that Mr Sharland, a multi-millionaire software developer, had failed to disclose that he was actively pursuing a flotation of his company at the time of trial. This omission resulted in shares that would have been valued at £600million being valued at £47million.Mrs Sharland became aware of her husband’s plans prior to the sealing of the parties’ approved order. Subsequently, she argued that the agreement made between the parties should be set aside and the trial should resume. Whilst recognising Mr Sharland’s dishonesty, this argument was ultimately rejected by the original trial judge and the Court of Appeal. Mrs Sharland pursued her case to the Supreme Court.

Gohil v Gohil

Varsha Gohil initiated financial proceedings against her husband in 2002, following the breakdown of their twelve year marriage. The parties have three children together. Throughout proceedings Mrs Gohil asserted that her husband, a solicitor, had provided false disclosure. However, in an attempt to achieve finality, in 2004 Mrs Gohil agreed a settlement under which she received £270,000 and the family car.

In 2007, Mrs Gohil applied to have the consent order overturned as it had become clear that Mr Gohil had fraudulently represented that all of his apparent wealth was assets held on behalf of clients. This application was postponed due to Mr Gohil’s prosecution and eventual conviction for money laundering in the region of £37million. Further evidence of Mr Gohil’s non disclosure during his matrimonial proceedings arose in the course of his criminal trial in 2010. In 2012, the High Court found that the settlement reached between the parties should be set aside on the basis of Mr Gohil’s dishonesty. Mr Gohil then appealed to the Court of Appeal. He successfully argued that the information revealed in his open criminal trial was not admissible in matrimonial proceedings. Without this evidence, Mr Gohil’s false disclosure could not be proven. Mrs Gohil appealed this finding and was given permission to have her case heard by the Supreme Court alongside that of Alison Sharland.

The Judgment

The Supreme Court, allowing the appeals, held that both wives were entitled to have their financial orders set aside and their relevant proceedings re-opened. Their cases will now return to the family courts, who will decide what a fair and reasonable financial settlement is taking in to account all the circumstances of the case.

Important guidance was also given to clarify the impact of fraudulent disclosure on financial proceedings. Prior to this judgment, where an order was granted on the basis of incomplete disclosure, the order would only be set aside if the applicant could show that the non-disclosure was material to the making of the original order and the court would have made a substantially different order had the non disclosure not occurred. The Supreme Court set out a different position where fraudulent disclosure has taken place. Where such dishonesty has occurred, a settlement can be set aside unless the non-disclosing party can prove that (1) if they had known all the facts, the court would not have made a substantially different order to the one it made at the time and (2) the fraud did not cause the other party to enter in to the agreement.

Conversely to civil matters, in family proceedings a Consent Order derives its authority from the court rather than the agreement of the parties, as is the case for a contract.The Supreme Court felt that it would be extraordinary if the victim of a fraudulent misrepresentation in a matrimonial case was in a worse position than the victim of a fraudulent misrepresentation in an ordinary contract case.

It is also important to note that the setting aside of a Consent Order does not necessarily mean that renewed financial proceedings must start from scratch. Issues relating to the non-disclosure can be dealt with in isolation.

What does this mean for you?

It has not been decided how much Mrs Sharland or Mrs Gohil will receive going forward. The basis of the Supreme Court judgment is that the agreements reached between the parties were unfair as the value of the matrimonial wealth, on which the agreements were based, was falsely represented.

Essentially, if divorce proceedings are to be final, then absolute honesty between parties is vital. The duty of full and frank disclosure remains critical.

The threshold for courts to set aside financial orders where there has been fraudulent non-disclosure has certainly been lowered by this Supreme Court judgment.However, it must be highlighted that the dishonesty must still be proven. Whilst in these big money cases the husbands’ fraudulent disclosure was well evidenced, this may not be as easy to prove on a smaller scale.

Ultimately this judgment bears a strong warning to individuals deliberately withholding information during financial settlement negotiations. Such individuals run the risk of having proceedings re-opened and the associated legal costs that accompany this. Furthermore, there is a real likelihood of an unattractive costs order being made against the non-disclosing party by the court.

If you need advice or assistance regarding a Family Law matter then please contact our Partner and Head of Divorce and Family Law, Tracey Dargan.

Please note the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances.