If you are in the throes of separating or getting divorced, you will usually, at some point early in the process, hear the term “financial disclosure”. But do all couples disclose their financial situation, and if not, are there consequences for not doing so? In this article, we answer these questions and more.
If you are in the throes of separating or getting divorced, you will usually, at some point early in the process, hear the term “financial disclosure”. But do all couples disclose their financial situation, and if not, are there consequences for not doing so? In this article, we answer these questions and more.
If you have a family law issue and you require legal advice to understand your options, contact specialist family law solicitor Liza Gatrell. Vicki is a trusted and highly capable family lawyer and divorce solicitor and a Partner at the specialist family law firm, Stowe Family Law.
What is financial disclosure?
Firstly, it is important to give a quick overview about financial disclosure and what it entails. Financial disclosure is the process where the separating or divorcing couple reveals their finances to one another. This can be done on either a voluntary basis or via an application to the court.
All financial assets and liabilities should be disclosed, such as all sources of income, budgets, and future expenditure, needs and requirements, and both matrimonial and non-matrimonial assets. Supporting documentation will also need to be supplied, for example, bank statements, wage slips, business accounts and pension details.
Can I refuse financial disclosure?
There is a duty on both parties throughout the divorce process to provide full and frank disclosure. Refusal may lead to significant delays and rising costs, and inaccurate reporting or non-disclosure could cause an existing agreement having to be discarded, and sometimes a criminal conviction.
Why is financial disclosure important?
Financial disclosure is essential if a divorce is to be considered fair. If disclosure does not take place, neither party will ever be certain that their financial settlement is reasonable. There is also the risk of future legal challenges based on “non-disclosure”, or financial claims, many years later. With full and frank disclosure, you will achieve complete closure knowing the divorce settlement is based on fact.
What can happen if you fail to disclose your finances on divorce?
It is possible to get divorced without revealing your financial situation to your ex, but you will be unable to obtain a financial consent order. This is a legally binding document, so if you have not provided complete financial disclosure when signing a “Statement of Truth” and it is later shown in court that you did not reveal your assets, there is a significant legal risk. You may have to look at the whole disclosure process again, and in severe cases, could even be fined or imprisoned by the court.
Penalties for non-disclosure of assets in divorce include:
- Costs order where one party is made to pay their partner’s costs
- Adverse inference – this is where an individual’s reluctance to be transparent about their finances could lead to the court deciding they have more assets to draw upon than is being disclosed
- Previous non-disclosure of assets could result in an existing order being overturned
- A penal notice can be added to an order ordering disclosure, which, if ignored, an application can be made for the refusing party to be imprisoned for a period of time.
What are the risks of not getting a financial order in divorce?
Without providing financial disclosure, you will not be able to get a financial order, whether this is by consent or court application. Even if you and your ex don’t have any assets to divide, it is still sensible to get a financial order because without a legally binding order, either party may in the future be able to make a financial claim against the other. Sometimes many years later when the other’s situation has changed for the better. In circumstances where there are limited or no assets, a “Clean Break Order” may be appropriate as it provides both parties with peace of mind that their ex is prevented from making any financial claims, whatever the circumstances.
Disclosure is a continuing obligation
Financial disclosure is often treated as a snapshot taken when Form E is exchanged, yet the obligation continues while the financial proceedings remain live. A spouse whose circumstances fundamentally change should not wait to be asked about it; for example, a large bonus, inheritance, business sale, property purchase, redundancy payment, or significant new debt may all affect the negotiations.
The same applies when figures supplied earlier become misleading because they are outdated or have changed in some way. A business valuation may have been reasonable when prepared, but a proposed investment or sale can quickly make it outdated; pension values fluctuate, property transactions complete, and tax liabilities become clearer. Updating disclosure is not an admission that the original information was dishonest; rather, it is how the process is kept reliable as events move on.
Sharland v Sharland and a business poised for sale
Sharland v Sharland [2015] UKSC 60 is one of the clearest illustrations of how dishonest disclosure can undo a settlement. The principal asset was the husband’s shareholding in a software company. Expert valuations were prepared on the basis that there were no plans for an initial public offering, and during the High Court hearing in 2012, the husband gave evidence which supported that assumption. The parties therefore reached an agreement under which the wife would receive a percentage of the eventual net sale proceeds together with other assets.
Before the draft consent order was sealed, the wife discovered that the company had in fact been actively preparing for a possible flotation at a valuation far above the figures used in the case. The judge found that the husband’s evidence had been dishonest, although the proposed flotation had fallen away by the time the matter returned to court.
The practical lesson here is that disclosure includes information capable of changing the significance of an asset, not just the asset’s name and a historic figure placed beside it. A spouse may list their shares and still fail to give proper disclosure if they conceal negotiations, forecasts, or an imminent transaction which materially affects value. The case also establishes a powerful presumption where an order has been procured by fraud, and is for the dishonest party to show that the fraud made no difference.
Gohil v Gohil and the danger of settling despite suspicions
In Gohil v Gohil [2015] UKSC 61, the husband, a former solicitor, maintained that wealth appearing to be his was held for clients. The parties settled in 2004, and the order recorded that the wife believed he had not given full and frank disclosure but was compromising her claims to achieve finality. She later applied to set the order aside, alleging fraudulent non-disclosure. Evidence emerging through criminal proceedings, in which the husband was convicted of money laundering offences, formed part of the complicated history of the case.
The Supreme Court reinstated the decision setting aside the 2004 order. Of particular importance to negotiations, it held that the recital recording the wife’s suspicions did not release the husband from his duty. A party cannot contract out of the obligation to disclose, and the other spouse cannot give permission for the court to decide the case on a knowingly incomplete account of the resources.
This does not mean that every vague concern will justify reopening an order. The missing information must be material, and a challenge needs evidence rather than regret about the bargain. Nevertheless, Gohil is a warning against treating a settlement as safe simply because the more cautious spouse has written ‘disclosure disputed’ into the document.
Prest v Petrodel and assets held through companies
Disclosure problems become particularly difficult where wealth is held through companies rather than in a spouse’s own name. Prest v Petrodel Resources Ltd [2013] UKSC 34 concerned seven UK properties legally owned by companies controlled by the husband. The Supreme Court did not give the family court a general power to ignore a company’s separate legal personality whenever fairness appeared to require it. Instead, it examined the ownership evidence and concluded that the companies held the properties on a resulting trust for the husband. The properties could therefore be transferred as part of the financial award.
The husband’s failure to comply with disclosure orders was important. With no reliable evidence explaining why the companies owned the properties beneficially, the court was entitled to draw inferences from the known facts and the lack of cooperation.
For a divorcing spouse, the case explains why company accounts alone may not tell the whole story. Relevant material may include completion statements, loan accounts, board records, funding documents, trust arrangements, and evidence showing who supplied the purchase money.
Moher v Moher and reasonable adverse inferences
Moher v Moher [2019] EWCA Civ 1482 shows how the court can still reach a decision when one party has made the task unnecessarily difficult. Here, the husband had failed comprehensively to disclose his financial resources and had not complied properly with orders. The first-instance judge found his Form E misleading and incomplete, regarded his evidence as unreliable, and concluded that assets probably remained undisclosed. The wife was awarded a lump sum of £1.4 million, together with other provision, and the husband appealed.
The Court of Appeal rejected the suggestion that a judge must always attach a precise figure or even a narrow bracket to hidden wealth before making an award. The court must evaluate the available resources and explain its reasoning, but the correct approach depends on the nature of the case and the disclosure failure. In a needs-based case, it may be enough to conclude on proper evidence that sufficient resources exist to meet the order, even though the non-disclosing party has made exact valuation impossible.
That said, an adverse inference is not a licence to invent wealth or impose a punishment disguised as a financial award. The conclusion must be reasonable, rooted in evidence, and directed towards achieving a fair outcome.
Private documents and the limits of self help
Suspecting hidden assets can tempt someone to search a former partner’s email, download files from a private computer, or remove papers from an office. That course carries serious risks. In Imerman v Tchenguiz [2010] EWCA Civ 908, confidential financial material was taken from computer systems and passed to the wife and her legal team. The Court of Appeal rejected the idea that family proceedings create a special right to obtain confidential information by unlawful means.
A person who already has lawful access to a joint statement or a document addressed to them may retain and disclose it to their solicitor. That differs greatly from guessing a password, bypassing security, entering a restricted account, or taking original documents that belong to the other spouse. Improperly obtained material may have to be returned, and its use can create satellite arguments about confidentiality, privacy, injunctions, and legal costs.
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