Non-disclosers beware! The Supreme Court hands down judgment in favour of two ex-wives who say they were deceived by their husbands into accepting “unfair” divorce payouts and should have their settlements set aside
Most divorce cases do not make it to the newspapers. Those that do tend to involve celebrity couples in the process of ‘conscious uncoupling’ or wrangling over their beloved pet Chihuahua. Every so often, there is a landmark ruling which has potential far-reaching consequences for divorcees up and down the country.
Alison Sharland from Wilmslow, Cheshire and Varsha Gohil from North London have done just that, having persuaded the Supreme Court that their ex-husbands concealed their true worth. Their original divorce settlements have now been set aside and they have been given permission to pursue new financial claims.
So why have these cases hit the headlines?
The answer is the Supreme Court has redefined the law to make it clear that dishonesty in divorce proceedings will not be tolerated. It is a warning to those who fail to disclose all of their assets and attempt to undermine the integrity of the family law courts. The decision is an important case for the general public. It could potentially open the way to thousands more challenges by disgruntled exes over their original divorce settlements
Both Mrs Sharland and Gohil pointed to the wider ramifications for other divorcing couples when speaking to the press outside Court.
Mrs Sharland said:-
"I hope that their decision sends out a message to everyone going through a divorce. My legal battle has never been about the money, it has always been a matter of principle. I entered into an agreement with my estranged husband thinking that it was a fair one."
And Ms Gohil said:-
“All spouses subject to deceit and deliberate financial skullduggery owe a huge debt of gratitude to the legal team here today.”
What are the facts of these cases?
In the first case, Mrs Sharland sought an equal division of the family wealth after a long marriage of 17 years during which the parties had 3 children together. She accepted more than £10 million in cash and properties from her former husband plus a proportion of a future sharesale based on what she believed to be a fair share of the overall assets. She later discovered that Mr Sharland misled her about the true value of his IT business and plans for a future floatation reported in the financial press to be at £1 billion. The Court of Appeal agreed that Mr Sharland’s non-disclosure had been deliberate, but decided not to overturn the original settlement.
In the second case, Mrs Gohil accepted a lump sum settlement of £270,000 and modest maintenance order for herself. Her former husband declared that he had limited resources and the additional wealth (which Mrs Gohil claimed was theirs) belonged to family members or third parties. It later became clear that the extravagant standard of living Mr Gohil continued to enjoy could not be supported by the assets and income he disclosed to the Court. He was eventually jailed for multi-million pound money laundering offences, but the Court of Appeal could not prove he was dishonest in the divorce proceedings, principally because the evidence Mrs Gohill relied upon from his criminal trial was deemed to be inadmissible.
In a unanimous ruling, the Supreme Court have allowed the cases to be listed for a fresh hearing to determine the ex-wives’ financial claims.
Baroness Hale said of Mrs Sharland’s case, “By the Husband’s fraud and the Judge’s Order, she had been deprived of her right to a full and fair hearing of her claims”, returning the case to the High Court for a new hearing.
Lord Wilson said that Mr Gohil had a “duty to make full disclosure”, restoring the High Court’s order to set aside part of the original financial order to enable Mrs Gohil to make a claim on the assets her husband had hidden from her.
What does the ruling mean for divorcing couples?
Family lawyers will tell you that non-disclosure is a factor in a surprising number of divorces. There will always be those who attempt to hide or conceal assets during a divorce. This is because the Court can only award a financial settlement based on the assets that can be found. If the punishment for lying to the Courts is trivial, many will take the gamble hoping they don’t get caught.
In most divorce cases, it is normal practice for both parties to complete a financial statement known as a “Form E”. The Form E makes it clear that the parties have “a duty to the Court to give full, frank and clear disclosure of all their financial and other relevant circumstances”. This duty is a continuing one throughout the duration of the proceedings until the Final Order is made.
Given the headlines, many people may be surprised to hear that it has always been possible to challenge an Order if there has been a material misrepresentation inducing the agreement or influencing the Judge.
The 1985 House of Lords decision in Livesey v Jenkins is authority that an Order made without full and frank disclosure can be set aside in cases where it is “substantially different” from an Order which it would have made had proper disclosure been given. This is a case in which the matrimonial home was transferred to the wife, but she became engaged to a new partner before the Order was made and remarried two days after. Her failure to disclose this fact was said to undermine the basis of the Order and it was therefore set aside.
It matters not whether the non-disclosure is innocent, negligent or deliberate. The critical factor is whether the non-disclosure would have made a “material” difference to the Order and the onus is on the party alleging the non-disclosure to prove their case. However, it is widely accepted by family lawyers that the uncertainty around the Court’s readiness to entertain applications to set aside divorce settlements has prevented many spouses from bringing matters back to Court.
The Supreme Court has gone a step further with their decision
- The procedure for family lawyers to set aside financial orders is now to be clarified by an amendment to the Family Procedure Rules.
- Divorce settlements made by agreement between the parties (known as “Consent Orders”) are to be treated no differently to Final Orders imposed by the Judges. The fact that a Consent Order was reached between the parties, does not eliminate the duty of both parties to make full and frank disclosure to the Court.
- Any attempt by the non-disclosing party to dismiss future applications by their former spouse is unlikely to have legal effect. The issue of whether there has been a non-disclosure must require a Trial of the facts.
- The Court is entitled to make adverse inferences against a spouse if they are uncommunicative or obstructive in relation to the duty of disclosure.
- If a spouse has intentionally failed to disclose assets, it will be presumed that full and frank disclosure would have led to a different outcome, unless the non-discloser proves otherwise.
- If a spouse has accidently or negligently failed to disclose assets, it is still for the complainant to persuade the Court that it would have made a difference to the Order.
Is the ruling likely to lead to many other divorce cases being reheard?
The answer to this question is yes, although it remains to be seen how many of those applications will be successful.
The Supreme Court has sent out a clear message to divorcees that compromising the credibility of the family judicial process is unacceptable by allowing their cases to be reheard. Divorcees who have not been entirely honest may therefore be at risk of a future application if their former spouse can find enough evidence of a non-disclosure. Furthermore, there is no time limit on claims being re-opened.
However, the Judges will continue to strike a balance between cases where the non-disclosure makes a “material” difference. This should avoid opening the floodgates to every single dissatisfied spouse wishing to re-open their case and renegotiate their divorce settlement over something petty. To do so would descent into chaos, clogging up the Family Courts and placing enormous pressure on the already over-stretched resources.
Divorcees must also be mindful of costs. Media focus is often on cases where significant matrimonial assets worth millions are at issue, but the vast majority of cases do not involve amounts of this magnitude.
It is imperative that people who are concerned about a non-disclosure or who are contemplating an application to set aside a financial order seek specialist legal advice. Matthew Miles, Associate, in the Family Department of Lupton Fawcett, has expertise in dealing with this complex and discretionary area of family law.
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