Why is Full Financial Disclosure Crucial in Divorce Proceedings?

Reaching a financial settlement on a divorce is an important part of the divorce process. Giving full and frank disclosure of each other’s assets and debts is essential to reaching a suitable agreement.

Penalties for not making full disclosure on divorce

Trying to avoid making full disclosure can have significant legal consequences. In the recent case of Cummings v Fawn [2023] EWHC 830 (Fam), a failure to disclose led to the court finding that the husband had committed fraud and consequently a previous court order detailing a settlement between the parties was set aside. The husband had failed to disclose that he had received an inheritance.

Any failure to be open and honest can lead to an existing financial settlement order or agreement being overturned, potentially with legal costs penalties. Even if there is no outright fraud, where assets are hidden or not disclosed, thus will almost certainly be a factor taken into account by the court.

Financial disclosure process

Disclosure is generally made using what is known as Form E.

Voluntary disclosure of assets by completing and exchanging Form Es, also known as financial statements, is the court approved method. Follow up questions or requests for further information or documents are common before the parties then consider possible settlement negotiations.

If an agreement on finances is reached, the parties, alongside a Consent Order which confirms the agreement, also complete a document called a D81 or Statement of Information. That document sets out in very brief form the parties’ assets, income, and liabilities both before the agreement is approved and what they will be after the agreement is reached. Each party then signs a Statement of Truth to confirm that the information given is correct.

Ex refuses to complete Form E

If legal proceedings have not been issued and the other party refuses to complete or sign the Form E, mediation is an alternative route to resolve matters, where parties attend before an independent mediator with a view to hopefully reaching agreement.

Once divorce proceedings have started, the consequences of not completing a financial statement when due, can be serious, as the court has the ability to make an order that the non-compliant party pays the other party’s costs and can infer that the party refusing to comply is being dishonest and award the other party a greater share of the assets.

What are the consequences of lying about finances on divorces?

The consequences of lying about finances can be serious. Both parties have to complete a Statement of Truth confirming that the information is correct. If either party has lied it can lead to a case being re-opened and possible costs consequences.

What if there is a suspicion of hidden assets but no proof?

We find that in many cases, often with justification, clients are suspicious that their spouse has deliberately hidden or moved assets or has assets they are not aware of. However, making an application to court seeking an order for further disclosure is risky without solid evidence. The court will not support a “fishing expedition” where an application is made based on a suspicion only.

You also need to be very careful about looking for potentially hidden assets. Accessing your spouse’s computer or phone without consent is very risky legally.

If you believe that your spouse is not being honest or making full disclosure, we can advise you on the best available options.

Does inheritance need to be disclosed?

One aspect of financial disclosure that can be confusing and disputed, is inheritance. Any inheritance received at the time of the divorce should be included in assets. However, simply being named in a will is not an asset that needs to be disclosed as this is not a guaranteed asset, as wills can be changed.

What about assets in a family trust?

The existence of a trust and its terms will need to be disclosed as part of financial disclosure on divorce. If your husband or wife is a beneficiary of a trust fund, the position on whether this will be included in assets (and should be disclosed) is quite complicated. Generally speaking :

• It will depend on when the trust was set up – before or after you were married? It is better for you if it was after.

• It will depend on the type of trust and how it works.

In other words, what kind of entitlement does your spouse have, has he or she received any benefit during the marriage, is it purely discretionary or not? The court will want to assess the likelihood your spouse will benefit, possibly over what period and how much.

If you require more information or advice on divorce finances, disclosure issues or divorce generally, please contact us.