This is our second article exploring disclosure within divorce and dissolution of civil partnership proceedings. The first article called “Divorce and financial disclosure” can be found by clicking here.
This article explores how courts deal with allegations of non-disclosure.
One or both parties are often convinced that income, assets or pensions have not been disclosed. Sometimes these concerns are accurate.
The challenge is how do you prove non-disclosure and, once non-disclosure has been proven, how will a court then deal with non-disclosed wealth?
Guidelines as to the correct approach
Every case is different and the approach to be adopted will depend upon the specific facts relevant to that case. Guidance can be found, however, from previously decided cases and judgments.
In one such judgment, found here, the judge provided a summary of principles to be followed. At paragraph 16 of the judgment he states:
“Pulling the threads together it seems to me that where the court is satisfied that the disclosure given by one party has been materially deficient then:
- The court is duty bound to consider by the process of drawing adverse inferences whether funds have been hidden
- But such inferences must be properly drawn and reasonable. It would be wrong to draw inferences that a party has assets which, on an assessment of the evidence, the court is satisfied he has not got
- If the court concludes that funds have been hidden then it should attempt a realistic and reasonable quantification of those funds, even in the broadest terms
- In making its judgment as to quantification, the court will first look to direct evidence such as documentation and observations made by the other party
- The court will then look to the scale of business activities and at lifestyle
- Vague evidence of reputation or the opinions or beliefs of third parties are inadmissible in the exercise
- The Al-Khatib v Masry technique of concluding that the non-discloser must have assets of at least twice what the claimant is seeking should not be used as the sole metric of quantification
- The court must be astute to ensure that a non-discloser should not be able to procure a result from his non-disclosure better than that which would be ordered if the truth were told. If the result is an order that is unfair to the non-discloser, it is better that than that the court should be drawn into making an order that is unfair to the claimant
The first hurdle - proving non-disclosure
Note the excerpt quoted above applies once the court “is satisfied that the disclosure given by one party has been materially deficient”.
This hurdle can be difficult to overcome. The judge’s comment was technically wrong.
It is not necessary to demonstrate where non-disclosed money is, or how much money is hidden. You do, however, need to do enough to satisfy the court that the other party’s disclosure is materially deficient.
This will be on the balance of probabilities – is it more likely than not that the disclosure is materially deficient?
Careful scrutiny of bank statements, company accounts and records, family trust documentation and the history of various transactions is required. Those observations are then put to the court and the judge has to decide whether she or he is satisfied that there has been non-disclosure.
The relevant test is therefore reduced from “Show me the money” to “Satisfy me that the disclosure is materially deficient”.
This still requires careful case management, scrutiny and, sometimes, specialised forensic professional expertise.
Be aware that arguing that just because the other party could be holding back information or could be misleading the court as to their wealth is not going to be enough.
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What does “materially deficient” mean?
Another trap that parties can fall into is the presumption that any non-disclosure is proof that there are hidden assets.
If the non-disclosed aspect is of a very low value or is not relevant to the proceedings, then the court might not take any specific action other than, perhaps, admonishing the non-disclosing party.
If the pursuit of information that was otherwise withheld has incurred legal fees, then the court could order such costs to be reimbursed by the non-disclosing party if it were reasonable to incur such costs.
This is important.
Low-value discrepancies in disclosure will be less important to the judge than to the non-owning party.
It is often said that the court deals with financial matters with a ‘broad brush’. This means that discrepancies of a few pounds or even several hundred or thousands of pounds, might not be a central consideration for a judge. Just how broad the brush is will, again, depend on the facts of each case.
Adverse inferences – the court’s remedy against non-disclosure
When the court is satisfied that there is material non-disclosure then it must decide what to do with the wealth that has not been disclosed. There is a fundamental problem here; if assets are not disclosed then they have not been valued.
The guidelines set out above state that the court can draw adverse inferences against the non-disclosing partner but that such inferences still have to be reasonable.
The irregularities in disclosure will often suggest that a specific amount of money has been hidden – total alleged losses on a gambling site, peculiar-looking investments or other financial arrangements.
If the non-disclosing party cannot adequately answer reasonable questions, then the court can infer that the money is available and will revert to him or her at some stage in the future after the court proceedings have concluded.
Where the value of assets is not clear, then the court can look to the “business activities and lifestyle” of the non-disclosing party and draw adverse inferences from those observations. High-stake investments, luxury cars, yachts and lavish holidays will indicate the wealth of a certain level – in broad terms – that the court may rely upon in place of the situation put forward by the non-disclosing partner.
What happens if the court overestimates the non-disclosed wealth?
There have been cases where a non-disclosing party has tried to appeal an order made against them using adverse inferences. The guidelines set out above provide a stark warning in these circumstances.
“If the result is an order that is unfair to the non-discloser, it is better that than that the court should be drawn into making an order that is unfair to the claimant.”
The court may be very slow to sympathise with a non-disclosing party who later complains that her or his wealth has been wrongly calculated by a court. In the words of the judge in a different case:
“Even if my assessment of the value of the assets I have attributed to Mr A is wrong, it is entirely his fault if I have been led into error and he rather than Mrs A must take the consequences”.