A top UK court is to consider appeals on divorce cases where important financial settlements were not disclosed. This article ponders some of the questions that arise.

Divorce cases remain important events for wealth managers in considering issues around transfer and protection of assets. In this article, Emma Collins, who is partner at national law firm Weightmans in the UK, considers a forthcoming high-profile case in the Supreme Court. As always, this publication is grateful for such expertise but does not necessarily endorse all the opinions in such articles and invites readers to respond. They can contact the editor at tom.burroughes@wealthbriefing.com

On 8 and 9 June this year, the Supreme Court will consider appeals on two divorce cases both dealing with the implications of non-disclosure when reaching financial settlements. This is the first time the Supreme Court has considered this issue and although the money involved in both cases is far beyond the normal experience of most divorcing couples, the court’s decision will be significant and have ramifications which will apply to all those going through divorce, particularly business owners, entrepreneurs and those with venture capital start-up businesses.

It is a long-standing principle of matrimonial law that both parties have a duty of full and frank disclosure to each other and to the court. This duty lasts throughout the process until a final order is made. It is an equally well established principle that final orders should be final, with both parties being able to move on with their personal and financial lives secure in the knowledge that, at least so far as capital claims are concerned, there is no prospect of having to make any unexpected payment to the other spouse.

These two principles are inextricably linked when it comes to making final orders either by agreement or having them imposed by a judge. Clients are advised that so long as they have disclosed all material documents and information up until the order is made, then there should be no prospect of that order being overturned in the future.

But how far exactly does that obligation of disclosure extend and what is “material”, particularly in the context of potential flotations, takeovers and other highly commercially sensitive company activities? Should a spouse be entitled to re-open their case in the event that their former husband or wife failed to disclose significant business activity where the anticipated event does not ultimately come to pass or make any significant difference to the value of the matrimonial assets or outcome of the case? These are amongst the issues that the Supreme Court will have to grapple with in early June when it hears the cases of Mr and Mrs Sharland and Mr and Mrs Gohil.

Mr and Mrs Sharland agreed on settlement terms during the course of a five-day final hearing in 2012. This included a compromise as to her entitlement to share in his business interests, if and when realised, at 30 per cent. Those interests were valued at between £31.5 million and £47.25 million. A week later, Mrs Sharland discovered that Mr Sharland was in talks in New York about a potential flotation of the business, a fact that he had completely misled both the court and Mrs Sharland's lawyers about when giving evidence.

The matter came to the Court of Appeal for a decision on whether the wife should be able to reopen her claims against the husband due to his serious non-disclosure. The Court of Appeal, whilst acknowledging the fact that Mr Sharland had deliberately misled the court, decided that this did not significantly affect the outcome for Mrs Sharland, particularly as she was to receive a percentage of any benefit gained upon sale of his business interests.

In Mr and Mrs Gohil’s case, the factual background is far more complex, the litigation extending over a period of more than 10 years and including a criminal prosecution and imprisonment of Mr Gohil for money laundering on a vast scale. Nonetheless, the point to be decided by the Supreme Court is the same, namely, where does the balance lie between the competing public interests, the necessity to ensure that the duty of full and frank disclosure is complied with so that courts and parties reach decisions based on accurate information, and the importance in family cases of achieving finality with final orders.

Should unscrupulous business-owning spouses hiding behind confidentiality agreements and commercial sensitivity be able to avoid providing full information about potential transactions and have that behaviour endorsed and arguably encouraged by a decision in which pragmatism prevails?

Can it be right that regardless of their intent or the extent of their deception, so long as the non-disclosure didn’t materially affect the settlement, it should be ignored to preserve the general principle that a final order is final? Does the necessity of preventing the opening of the floodgates to disgruntled spouses seeking to overturn final orders on the flimsiest instances of non-disclosure justify a few truth causalities along the way?

Or should the Supreme Court draw a line in the sand, making clear that lying is completely unacceptable and will always have consequences, whether it makes a difference or not to the final settlement? If the court favours preserving the certainty of final orders then are there other ways in which the wayward party should be punished? The danger is that if it is perceived that such behaviour can take place without consequences then no doubt this will send a message to those who are of a mind that this can be exploited.

In practice, whichever way the decision goes, it is unlikely to herald a massive number of new cases seeking to reopen old orders being brought. Unlike the Sharland and Gohil cases where the financial stakes are high enough to make litigation worth pursuing, for most people the costs and risks of bringing proceedings to overturn an order because of information subsequently uncovered are likely to outweigh any potential benefit. Save in the most extreme cases, the differences are likely to be marginal. But the influence the decision will have on day-to-day practice with regard to disclosure and the advice given to clients could resonate for some time to come.