Financial non-disclosure in divorce proceedings: risky business?

Oct262015

On 14 October 2015, the UK Supreme Court handed down two landmark decisions, Gohil and Sharland, overturning two wives’ financial settlement consent orders made in divorce proceedings due to their husbands’ deliberate non-disclosure of assets. The decisions serve as warnings to any divorcing spouse who is considering deliberately hiding the extent of their wealth.

Backgrounds of Gohil and Sharland

During her divorce proceedings in 2004, Mrs Gohil clearly informed the Court of her disbelief that her husband had fully and frankly disclosed his financial status, but had difficulty in proving her case.  To see an end to the matter, she agreed to a settlement of £270,000 and a car.  Six years later, Mr Gohil was imprisoned for having committed fraud and money laundering to hide his assets, the true worth of which amounted to approximately £25M.

Mrs Sharland accepted a lump sum of £10.3M as settlement in her divorce proceedings as she was led to believe that this was approximately 50% of her husband’s available assets.  It was not until shortly after the consent order was made that she discovered that he had been in active discussions to sell his interest in a company, which, were evaluated to be between £50M and £75M at the time of the initial hearing.  Mrs Sharland found out shortly after her agreement with Mr Sharland that his shareholding actually exceeded £600M.

Both Mrs Gohil and Mrs Sharland appealed to have their consent orders set aside because of their husbands’ deliberate non-disclosure, and in Mrs Gohil’s case, Mr Gohil’s fraud and misrepresentation as well. After the English Court of Appeal dismissed their appeals, they further appealed to the Supreme Court.

The Supreme Court unanimously set aside the consent orders and ordered re-trials in both cases.  The two decisions underscore the following principles:

1.    Both spouses must make full and frank disclosure to the Courts when dealing with financial claims in a divorce.  This obligation continues beyond the financial settlement agreement being reached, until the Court itself has made an order.

2.    The Court can set aside a consent order where there has been fraud, mistake or significant non-disclosure.

3.    For cases of innocent or negligent non-disclosure or misstatement, the Courts can set aside a consent order where it can be shown by the spouse seeking to set aside that:

(a)    the non-disclosure or misstatement vitiates the agreement or order (e.g. because it induced the other spouse to enter into the agreement, or it undermined the whole basis on which the order was made); and

(b)    had the non-disclosure or misstatement not occurred, the Court would have made a substantially different order;

4.    Cases of fraud are different.  It will be assumed that the test in (3a) & (3b) above is met and the victim will be entitled to have the consent order set aside unless the fraud-committing spouse can establish that, at the time the court made the consent order:

(a)    the fraud would not have influenced a reasonable person to agree to it; and

(b)    had it known then what it knows now, the Court would not have made a significantly different order, whether or not the parties had agreed to it.

5.    A divorcing couple must give valid consent when agreeing to a financial settlement.  If there are circumstances, e.g. fraud, which invalidate a spouse’s consent, then this would be a good reason for the Court to set aside a consent order.

6.    To set aside an order for non-disclosure, an application should be made back to the original judge who dealt with the case at the first hearing, instead of by way of an appeal.

These are significant rulings, as consent orders had rarely been set aside for non-disclosure by a spouse in previous cases. The judgments confirm the English Courts’ intolerance to spouses who are dishonest in their financial disclosure.

It is uncertain whether Hong Kong Courts will follow the Supreme Court’s approach.  But, they may well do in future in light of the significant influence English family law has in Hong Kong.  Regardless, the Supreme Court’s decisions may now lead to a number of ex-spouse’s seeking advice as to whether they have grounds to have their consent orders overturned.

In the event that your consent order is overturned for reasons of material non-disclosure, the whole matter will have to be reconsidered, the financial settlement will need to be changed to reflect the accurate financial status of both parties, and the offending party will be liable to pay the legal costs of both parties incurred as a result of the non-disclosure.

FAQs:

(1) I think my ex-spouse lied when he/she gave evidence. Can I have the consent order set aside?

Not necessarily. You must first prove the dishonesty, which is not always a straightforward task. Care must be given before making allegations of fraud or deliberate dishonesty.

You must also carefully consider whether your ex-spouse’s dishonesty made any significant difference to the outcome of the case. Even in cases of fraud, the Court will look at whether it is necessary or worthwhile to re-open the case as there are both serious time and cost implications in doing so.

(2) My consent order will soon be approved but I have lied about my financial status, should I keep it a secret?

No.  As demonstrated in the decisions in Gohil and Sharland you will be taking a significant risk in lying about your financial position. If your ex-spouse finds out about your dishonesty, you run the risk that the whole case will be re-opened and that the consent order will be set aside with the possibility of a punitive costs order being made against you.

(3) My consent order will soon be approved but I have just found an asset which is worth HK$ 10 million which I had honestly forgotten about, should I keep it a secret?

No.  Even if the non-disclosure is accidental, or is only minimal, your duty of full and frank disclosure is on-going until the final consent order is made.  You will need to inform your spouse of the asset and provide full disclosure.

(4) My consent order will soon be approved but I have just won the Mark Six, should I keep it a secret?

Again, no. As explained above, you have a positive obligation to disclose your full financial situation, inclusive of any unexpected windfalls, up until an order is made.

Joanne Brown

The above is not intended to be relied on as legal advice and specific legal advice should be sought at all times in relation to the above.

If you are considering a divorce, or wish to discuss the terms or fairness of a consent order, please contact:

Joanne Brown
Partner | Email

Disclaimer: This publication is general in nature and is not intended to constitute legal advice. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.