Obtaining a divorce is not simply a matter of altering marital status. Spouses have wide-reaching financial claims against one another in respect of all forms of asset (namely capital, pensions and income); these claims are typically dealt with alongside the divorce process.
It is not uncommon for family lawyers to be asked whether or not it is possible to hide assets in a divorce context - either by wealthy individuals who are keen to preserve their assets, or by financially weaker parties who are fearful that their spouse may be misrepresenting their financial position in order to defeat their claims.
Whilst it is not unheard of for parties to attempt to hide their assets, the reality is that actually successfully doing so is very difficult; non-disclosure is an issue which can be pursued via the court and can ultimately result in imprisonment. It is important to be aware that lawyers ultimately have a duty to the court, to bring and defend cases honestly – and so good quality legal advice will always be that full and frank financial disclosure must be made.
When spouses first separate the starting point is often that they will agree to exchange disclosure voluntarily – either via solicitors’ correspondence or in mediation. If one party is clearly resistant to providing disclosure voluntarily, the other can compel them to produce financial disclosure by issue court proceedings at any stage.
When court proceedings are issued, the process of providing disclosure becomes a legal obligation. Initially, both parties will be ordered to provide full and frank financial disclosure by way of a comprehensive Form E which is shared with both the other party and the court. The Form E is a legal document which is signed by a sworn statement of truth.
The Form E requires spouses to provide a fairly significant volume of financial disclosure, including 12 months’ bank statements for any account held in their sole or joint names, statements in respect of any liabilities and investments, valuations of any chattels and 2 years’ worth of P60’s / tax returns / company accounts.
The information that the Form E demands essentially creates a paper trail which does usually assist with the identification of any assets which are not actually disclosed within the Form E itself. For example, bank statements may show funds being transferred to another undisclosed account, or show monies received from the disposal of a matrimonial asset.
When Form’s E are exchanged, the parties and their legal representatives can carefully examine the disclosure provided and will have the opportunity to raise questionnaires in respect of any issues arising from the documents supplied. The questionnaires filed within financial remedy proceedings are not designed to act as a “fishing expedition”; their purpose is to seek and missing and genuinely relevant information.
The parties will attend a preliminary hearing, at which their draft questionnaires will be considered and either amended (to remove any unnecessary questions) or approved by the judge. A date will then be set for replies to questionnaires to be filed.
If one party fails to respond properly to a questionnaire, the other party can then prepare a “schedule of deficiencies” – which is essentially a further copy of the questionnaire, amended to highlight all of the areas in which the replies provided are unsatisfactory; replies must then be given to the schedule.
Form’s E, replies to questionnaire and replies to any schedule of deficiencies are all formal documents which will be filed at court throughout the proceedings. The court will therefore be aware if one party is having to pursue the other constantly for basic disclosure which should have been provided at the outset of proceedings.
If one party is persistent in their failure to provide disclosure, the other party can make an application for a penal notice – whereby a specific order is made confirming that, if their spouse does not provide the outstanding disclosure imminently, they will be held in contempt of court (in which case they can be fined, ordered to carry out community service or even committed to prison). If one party is successful in applying for a penal notice, they are usually able to recover the costs incurred in making that application from the other party.
Thankfully it is not particularly common for family lawyers to need to apply for penal notices within proceedings; and when it is necessary, the penal notice is usually a successful in terms of finally prompting disclosure from the non-compliant party – so whilst of course contempt of court is a serious offence, penal notices in family proceedings are usually largely a deterrent as opposed to a mechanism for imposing punishment. However, if non-disclosure is a persistent problem following the making of a penal notice, the court will imprison the offending party if necessary.
Indeed, there have been high profile divorce cases in which prison sentences have been handed down for one party’s failure to provide disclosure, perhaps most famously in the divorce of Scot and Michelle Young. The former spouses attracted media attention following a lengthy and acrimonious court battle - Scot was a billionaire property entrepreneur who doggedly refused to provide disclosure or comply with the court process. He was sentenced to 6 months imprisonment as a result.
A party who does not provide full and frank financial disclosure is opening themselves up to punishment, potentially in the form of costs orders or the enforcement of a penal notice. If one party is penalised in proceedings for not having been transparent, their credibility will inevitably be harmed – which may have a knock-on effect in terms of the final settlement. From a judge’s perspective, it is possible to draw adverse inferences from a repeat lack of disclosure; because if one party is persistently hiding assets, the presumption can reasonably be that they are doing so for their own benefit.
Ultimately a failure to provide transparent disclosure can result in proceedings becoming far more acrimonious and costly than is otherwise necessary. It is far better to provide honest financial information, and to focus on legitimately reducing the quantum of the asset base (for example, by ensuring that tax liabilities are accurately calculated and factored into the asset pot).
