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Financial dishonesty in divorce

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22/06/2015
Earlier this month, the UK Supreme Court heard two divorce cases with striking similarities. In both, a former wife claimed she had received an unfair financial settlement as a result of her ex-husband’s dishonesty during the divorce proceedings. What do they potentially mean for other divorcing couples? YourMoney.com spoke to leading family law practitioner Marilyn Stowe.

The law in respect of financial admission in divorce proceedings is unambiguous; both parties must provide a full, frank and honest disclosure of their holdings.

“This is meant to make it easier to reach a fair settlement – and there may well be criminal consequences if one party is proved to have committed perjury,” says Stowe.

“However, some people take their chances, trying to conceal the true extent of their wealth in order to maintain as much of it as possible after the divorce. The temptation to take such a risk can be strong when the split has been acrimonious and bitter.”

Their respective claims were based on allegations of non-disclosure in respect of assets. In short, plaintiffs Varsha Gohil and Alison Sharland argued their former husbands had not given an honest account of how much money they really had. As a result, their ex-partners were able to get away with a significant portion of their personal wealth intact after divorce was finalised.

Varsha suspected that her ex-husband had not been honest about his finances during their divorce, and further evidence of this came to light when he was later convicted of substantial levels of fraud and sent to prison.

Alison found herself in a similar position to Ms Sharland. Her former husband Charles Sharland was the founder of software company AppSense. The couple divorced in 2010 and agreed to split assets, with Alison accepting £10.35m in cash and property. Her settlement was calculated on the understanding that Mr. Sharland’s shares in AppSense were worth no more than £32m.

Within days of their divorce being finalised, Sharland moved to float AppSense on the stock market. While the initial public offering never took place, the company was valued at more than £460m – meaning his shares were actually worth around £132m after tax.

Sharland lodged a case with the Court of Appeal, but despite Sharland not disputing her claims that he misled his ex-wife, and a judge deeming his conduct ‘deliberate and dishonest’, the Court ruled that Mrs Sharland was bound by the divorce agreement and refused her appeal.

However, Lord Justice Briggs disagreed with the ruling, and issued a dissenting judgment, arguing that judgments based on fraudulent evidence should always be set aside, in the interests of justice.

Now, the Supreme Court must make a ruling. Stowe believes that these cases reaching the highest judicial authority in the UK clearly demonstrates the significance of the principles under examination.

“I sincerely believe that if fraud occurs during a divorce, the case should be started from scratch,” she states.

“Not only that, but the offending party should be liable for the legal costs of the additional hearings.”

Whatever the Supreme Court eventually decides, its judgments will likely have far-reaching legal implications for divorces all over the country. They could dramatically alter the way such cases are handled in this country for years to come.

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