A major divorce case ruling this week in London, concerning the vexed issue of dishonesty around the disclosure of asset values, has triggered a rush of commentary. Here is a guest analysis by law firm Kingsley Napley.

This week the Supreme Court unanimously allowed two separate appeals by wives who had argued that their divorce financial orders should be overturned due to their husbands’ dishonest disclosure at the time they agreed their financial settlements. A number of law firms have already reacted to the decision (see here) and in this item, law firm Kingsley Napley explores some of the specific details arising from the case. The article is written by Charlotte Bradley, head of family law. The views of the author are not necessarily shared by the editors of this publication but they are most grateful for this contribution to debate. Readers are most welcome to respond. 

The decisions of Mrs Sharland and Mrs Gohil's cases will have a significant effect on the divorce landscape from now on with lessons both for those who are already divorced and spouses currently embarking on that path, as well as their advisors. 

The facts
The differences between the wealth of each wife are stark. In Mrs Sharland’s case, she had accepted a financial settlement comprising of £10 million ($15.4 million) cash and property, and in the future (if the husband’s company sold) 30 per cent of the net sale proceeds of his shares. Prior to the settlement, both parties had had the company and the shares valued. The husband’s valuers said the company was worth £60 million with his shares between £6.6 million and £8 million whereas Mrs Sharland’s accountants valued the shares between £22 million and £32 million. But crucially both valuers were working on the basis that there was no planned company sale. 

Shortly after the judge approved the final financial agreement, reports appeared in the press that the company was actively being prepared for an IPO with an expected value for the company of $750 million - $1.0 billion. Subsequent litigation showed that, prior to and during the negotiations, the husband had been in discussions with investment bankers and had been actively preparing to launch the company on the stock market. In this subsequent litigation he was found to have misled the company valuers and given dishonest evidence to the court.

In Mrs Gohil’s case, back in 2004 she had accepted a settlement of £270,000 plus a car (as well as maintenance) following claims by the husband, a solicitor, that all his apparent wealth was held on behalf of others. She subsequently applied to set aside that order for non-disclosure shortly before the husband was charged with serious money laundering offences (which resulted in Mr Gohil receiving in 2011 a prison sentence of ten years). 

Both wives argued that their divorce settlements should not be upheld as they were unfair, and were fraudulently obtained because their husbands had not provided full and frank financial disclosure. They argued that, had they known the true picture of their husbands’ finances, they would not have entered into the agreements they did.  

The decisions prior to the Supreme Court
In Sharland, while it was accepted that the husband had not given full disclosure, the judge dismissed Mrs Sharland’s appeal against the financial settlement being made into a final order on the basis that the IPO had not actually taken place (and on the husband’s case was no longer being contemplated) and her award therefore would not have been substantially different than actually agreed. The Court of Appeal confirmed the judge’s decision.

As to Gohil, while the first judge accepted Mrs Gohill’s appeal against the original settlement, the Court of Appeal did not agree, saying the original settlement should stand on the basis that the court could not use inadmissible evidence (evidence from the criminal trial proving that the husband was being dishonest) in the financial proceedings.  

This week's Supreme Court judgments 
The Gohil judgment addresses issues of evidence and court procedure but it is the Sharland judgment which is of more interest to non-lawyers. 

The main points of Sharland can be summarised as follows:

- Enshrined in English divorce law is the duty of husbands and wives to give full and frank financial disclosure of all relevant information to their spouse; 

- The important role of the court in approving agreements between a husband and wife – while agreements are to be encouraged, this does not prevent the court making its own independent assessment and enquiries. In family law cases (as against civil cases) the binding effect of a settlement contained in a court consent order derives from the court order and not the parties’ agreement; 

- The court cannot make a consent order without the valid consent of the parties and, if such consent is not valid (because full and proper disclosure has not been provided intentionally, i.e. is fraudulent), then that agreement can be set aside. This needs to be looked through the goggles of what the wife would have done if she’d had the disclosure at that stage. In allowing Mrs Sharland’s appeal, the Supreme Court accepted that she would not have reached the agreement she did at that time if she had known that an IPO was being negotiated. It was not right for the initial judge to disallow the appeal on the basis the IPO did not in fact take place (which the husband could have influenced);

- If intentional material non-disclosure exists the burden should be on the perpetrator of the fraud (i.e. Mr Sharland) rather than the victim (i.e. Mrs Sharland) to show that the court would have made the same order as had been made had that information been known then. 

Implications for the future
Both judgments underline the importance in English family law of spouses giving a full and transparent picture of their finances on divorce and those who fail to do so risk the wrath of the court, even years after the divorce has been concluded. 

With the principle of equality of assets being enshrined since the landmark judgment of White in 2000, the family lawyers’ focus is to ascertain the true picture of the family’s wealth and resources. This increasingly means working with other professionals (e.g. forensic accountants) to value companies, and trace assets; but even then there are some cases where, despite extensive litigation, with considerable documentary evidence and third party disclosure orders, wives have been unable to track down assets. The highly publicised case of Michelle and Scot Young is yet one example. The Supreme Court judgment has reinforced that the courts will not hesitate to set aside agreements if material non-disclosure emerges at any stage after the original order, although whether Mrs Gohil can track down any of her former husband’s assets remains to be seen.

While many wives reading the press reports of Sharland and Gohil may feel that they’ve had the wool pulled over their eyes in the original divorce, and that their ex-husband was dishonest, only if new evidence about his assets comes to light will they have any chance of overturning the original consent order or agreement.  

And, for any client entering into an agreement, be it a prenuptial, separation or divorce agreement (or for any advisor advising them), it is crucial that they understand the importance of being transparent about their financial affairs if they wish to have any chance of enforcing the agreement in the future.

Lastly the Supreme Court has reinforced London's reputation for being the divorce capital of the world. It has reaffirmed the English court system’s fairness to the financially weaker spouse, not just in terms of the large financial settlements that can be obtained under the principle of equality and the court’s generous approach on maintenance, but also with regard to the court’s powers to enforce financial disclosure against individuals and, if necessary, against third parties.

These powers are stronger in England and Wales than in many other countries around the world. This is something for parties and their advisors to think about before they decide where a family might reside, or indeed where the parties might divorce.