To enable parties to reach an informed agreement as to how the assets of the marriage are to be divided between them, the matrimonial ‘pot’ must first be ascertained and valued. For an agreement reached to be binding it needs to be recorded in an order. In order for there to be a legitimate consent order:-
- both parties need to provide valid consent; and
- valid approval of the order is required by the court
A consent order is undermined if there has not been full and frank disclosure which is an ongoing duty that both parties have to the court. Parties who believe that they can get away with inaccurate disclosure, whether by not fully declaring assets, or being inaccurate as to the values of those assets for example, should take heed from the two recent cases of Sharland v Sharland and Gohil v Gohil which both dealt with husbands being fraudulent in their disclosure and resulted in the consent orders being set aside.
In Sharland the principle point of dispute concerned the husband's substantive shareholding in a software business. Both parties obtained valuations of the shareholding on the basis that there were no plans for an Initial Public Offer (IPO) of the company. The husband gave evidence that "there was no IPO on the cards today".
The wife agreed to a settlement on the basis of these valuations however subsequently became aware that contrary to the husband’s evidence, the company was in fact being actively prepared for an IPO which was expected to produce a value for the company that would far exceed those upon which agreement had been reached.
The Supreme court upheld the decision that "fraud unravels all" and a consent order based on fraud should accordingly be set aside, it was clear that the judge would not have made the order he did, when he did, if the husband's disclosure had not been fraudulent.
In Gohil the husband was a solicitor and claimed that his wealth was made up of assets that he was holding on behalf of his clients. The wife settled her financial claims, despite it being her belief that the husband had failed to provided full and frank disclosure. She reached agreement anyway in order to reach finality, thereby potentially compromising her claims.
New information came to light and the wife later applied to have the order set aside on the grounds that the husband had fraudulently failed to disclose his assets. The court's original decision to set aside the order was upheld on the basis that;-
a) there had been material non-disclosure at the time the order was made and, had full disclosure been made, the outcome would have been different; and
b) the wife's evidence in support of her application satisfied the criteria for when fresh evidence may be brought forward in support on appeal.
In cases where there has not been full and frank disclosure the issues are :-
- what are the consequences of that non-disclosure
- who has the burden of proving the non-disclosure is important
Much will depend on whether the disclosure was fraudulent and/or deliberate OR accidental and/or negligent
If fraudulent and/or deliberate:-
the consent order can be set aside and fraud creates the presumption that the non-disclosure was material - i.e. would have resulted in a different order. In this case the burden would fall on then party who had not made full disclosure that it would not have made a difference to the order made.
If accidental and/or negligent, again the consent order could be set aside however the burden would fall upon the party seeking to challenge the order.
When considering whether non-disclosure is material, the relevant time is the time at which the order was made.
The consent order should be the concluding part in the financial settlement process and should provide both parties with finality and security that what they have agreed will be upheld in the event of future dispute. Financial disclosure is therefore a vitally important part of the process and dealt with correctly will limit any chance of the need to revisit your agreement.
For further information and assistance with dealing with financial issues arising from a separation and divorce contact David Emmerson or Sarah Stace on 0203 440 8000.