The impact of lack of disclosure in divorce

When parties feel that their marriage has “irretrievably broken down”, they can commence the divorce process.

It is often a common misconception that a married couple’s finances are dealt with within the divorce proceedings. This is not the case. While the finances are dealt with alongside the divorce process, separate proceedings, known as ‘Financial Remedy Proceedings’, must be initiated to obtain a Financial Order, by consent or through an order from the court.

A Financial Order determines how your finances are divided and confirms that neither of you can bring any financial claims against the other in the future. Without this, your former spouse is entitled to commence proceedings to obtain a share of any assets in your sole name.

As part of the financial remedy process, each party has a duty to provide full and frank financial disclosure. A party who tries to avoid this is at risk of not only having costs orders made against them, but also having any previous financial settlement set aside – i.e., undone. This could then leave you open to legal claims.

The case of EK v DK & Ors [2023] EWHC 1829 (Fam) serves as a cautionary note to individuals who attempt to avoid providing full and frank financial disclosure.

The case: EV v DK & Ors [2023]

The parties reached an agreement during the course of the final hearing before the court ordered a decision. The main reason the wife agreed to settle in the following terms was due to the husband’s purported liquidity issues.

The settlement agreed was that the wife was to receive:

• Property worth circa £4.75m which would be free of any charge within two years
• Proceeds of sale of the family home
• Lump sum of £1m in 2020, £875,000 in 2021 and a further balance in 2022
• Periodical payments, which were to taper downwards as the lump sum was paid
• A variation of the House Trust  but no variation of the business trust – known as LK (No 2 Settlement).

The settlement was approved by the court. However, it later transpired that, at the time of settlement, the husband had failed to disclose the following:

• That he was limited to withdrawing £1m from his director’s loan account, in fact, he had withdrawn £9.9m over a 22-month period
• That he had the option to borrow £3m from his brother
• That he had made an offer to purchase a property for £5m.

As a result of the husband’s serious non-disclosure, the previously agreed Financial Order was set aside. This meant that the wife was eligible to make a further claim. Importantly, this case reaffirmed the consequences of failing to provide full and frank financial disclosure.

Divorce can be a challenging process. Non-compliance with the duty to provide full and frank disclosure often exacerbates this. However, the process can be made easier by both parties adopting a collaborative approach and providing full and frank disclosure at the earliest juncture. If you would like to discuss any of these issues further, please speak to one of our expert Family Law solicitors.