“Hiding in Plain Sight” – Hidden assets in financial remedy proceedings

We continue our series of hot topics in family law. Manders Law Managing Partner, Mary-Ann Wright speaks once again to Barrister Charlotte Jewell from The 36 Group, on the contentious issue of hidden assets when the financial matters arising on divorce come to be dealt with. If you are currently engaged in proceedings or are contemplating proceedings and believe that your spouse has hidden or may hide assets, the information and practical guidance below will be of relevance to you.

About the Interviewee

Charlotte has been practising solely in family law since 1999. She specialises in financial remedy matters and has significant experience at first and appellate court level. She is thoroughly adept at cases involving complexities such as foreign elements, seemingly intractable disputes, third party interests, asset tracing, expert witness evidence, complex income structures and interlinked company structures. Charlotte is a member of both the Family law Bar Association and Resolution.

Question

A significant number of clients assert that their spouse has hidden or is likely to hide assets with a view to ensuring that they fall out of account, when the finances come to be considered on divorce. To ensure that this fear is not the first step on the road to ruinous and costly litigation what should be borne in mind?

It is vital to advise clients who raise this concern that there a checks and balances in the process aimed at eliciting what the true financial picture is. This starts with the duty of disclosure:

• Either in financial proceedings/ voluntary proceedings/ mediation- both parties are under a duty to the Court and to one another to give full, frank, and clear disclosure of their financial circumstances and other circumstances such as changes of employment, cohabitation, or remarriage changes.

• This allows court/ parties/ lawyers/ mediator to take everything into consideration when making their decisions.

• Spouses are not always honest however and often want to hide assets away from the likelihood of sharing them or having them taken into consideration.

• The duty of disclosure is continuous one. It is good practice to disclose changes in financial or other circumstances at the time of them happening, not just at formal disclosure points or just before court hearings.

• Some spouses hide monies immediately on the breakdown of the marriage or during proceedings, which may then be obvious from the disclosure process, requiring as it does 12 months of bank statements prior to formal disclosure exchange dates. However, one cannot overlook the fact that spouses may have been hiding monies over a protracted period of time leading up to separation.

• One spouse may be less financially astute than the other, or one may have taken more financial control than the other during the marriage. There may also have been financial control issues during the marriage, so that one spouse has not been ‘allowed’ to deal with finances themselves.

Question

What are the court’s powers against non-disclosing spouses?

This is a non-exhaustive list, so it is important to take legal advice first.

• If an asset is not found, but the court believes it exists having heard the evidence, then the court can treat the asset as still belonging to the spouse, thereby giving them less from the remaining assets that are disclosed than they would otherwise be awarded.

• If the asset is not found or disclosed, but it is believed it exists and the non-disclosing spouse is deliberately evading disclosure, then punitive costs orders and suspended orders for imprisonment and/or financial penalties can be made pending proper disclosure.

• If those orders are not complied with then financial penalties and even imprisonment may  be ordered.

• If an asset is found but has been given/sold to a third party- the court can, in certain circumstances, join the third party and order that the asset is transferred back to the spouse. It can also treat the asset as still belonging to the spouse as above and distribute the remaining assets accordingly to take this purposeful loss to the other spouse into account.

• The Court may make a maintenance (monthly payments) order that is higher than it would otherwise be, to account for the asset that has been transferred or hidden.

• The Court is likely to make punitive costs orders against the non-disclosing spouse in addition to the adjustment orders as set out above.

Question

What should clients look for and what should be asked if it is suspected that assets are hidden or have been transferred out of the spouse’s name?

Again, the list below is not exhaustive, so always take legal advice, but it is a great place to start.

• Check bank statements for regular spending at places that do not make sense or have not been habitually used during the marriage.

• Check for regular cash withdrawals and compare with any known patterns of cash withdrawals in the marriage.

• Ensure you have a full run of statements- spouses can deliberately omit a certain passage of time from their disclosure and whilst the two disclosed balances may not seem to have changed that much, the devil is in the detail as to what occurred during the omitted time frame.

• Check the nature of the bank account- often spouses say accounts are just for converting cash from one currency to another, but some of these converting accounts can also hold monies, so ask for full statements.

• If someone says a bank account has been closed ask for a closing bank statement and evidence of where the closing balance was transferred to.

• If you believe that a spouse has more than ‘x’ accounts with one bank you can ask for a letter of authority from that spouse to write to that bank seeking a list of accounts held in a spouse’s name.

• Check for money being transferred to family members/friends/business associates- if such sums are purported to be a loan, then you must ascertain if is this a genuine loan to that family member? How it is to be repaid?

• If you doubt the veracity of the explanation then consider joining that third party, although having three parties to an action rather than two is clearly more expensive, so this needs to be considered properly.

• If you doubt the veracity of a value given to a certain asset by your spouse, do some investigating. If the asset appears to be undervalued, or the value has come from a non-independent source then this may be reason to acquire a ‘single joint expert’ valuation where neither party has more control than the other over selecting a suitable expert and the expert will be asked to value the asset concerned to establish the true picture.

• Businesses- check inter-business transactions. If in doubt, get expert accountancy evidence. Check Directors Loan Account, drawdowns etc. Check the accounts carefully for inter-company related dealings. Check for abnormally increased expenses, cash in bank changes etc.

• Transfers of shareholdings in businesses- ask for explanations. Check articles of association.

• Remember small regular transfers that on the face if it may seem innocuous could lead to significant amounts being diverted from the matrimonial pot.

• If disclosure seems to be sporadic or raises serious enough issues for concern, consider requesting a full Experian or Noddle credit check report which will show which financial products the spouse is linked with, or has been historically linked with.

• You can also request/obtain a PN1 search from a spouse, to search for any land registry property in their name (or other names they may use).

• You can also request authority to apply to the Pension Tracing Service. Clearly, a refusal to assist in giving such authority may be sufficient evidence to raise suspicion before a Court.

• There are also search orders (for example of business premises) available to the Court, and third party disclosure orders (for example against a spouse’s accountant) but to apply for these certain conditions would need to be met, they cannot be used as a ‘fishing’ exercise.

Question

What should you do if you suspect that assets are about to be transferred or sold from the spouse’s ownership?

If there is a strong possibility that your spouse is likely to sell their business, or  valuable asset and/or remove it from the jurisdiction, the court has the power to freeze its sale or transfer. The Court also has the power to freeze bank accounts and the distributions of matured financial products.

This does of course require disclosure of the asset in the first place, however, if you have a strong suspicion of something such as this existing, you should discuss whether a freezing injunction is appropriate with your solicitor. This is a costly step and the evidential threshold is high, so it is not a step to be taken lightly!

Question

What is the most important thing for clients to bear in mind?

Be careful of crossing the line!

The Courts have made it clear; you cannot pry into your spouse’s private affairs and it follows therefore that they are entitled to retain their confidentiality and privacy.

Any attempt to remove documents or information without your spouse’s permission is likely to be considered a breach of confidence which risks the imposition of civil or criminal sanctions.

However, this is a complex area of law and whether something is considered private or not is often a nuanced and fact-based argument. Legal advice is imperative before any action is taken.

Question

I am sure you and your colleagues have come across some shocking cases of serious non-disclosure over the years. Do you have any you can share?

I certainly do!

One colleague recalled having a very “pleasant” client a couple of years ago. His wife kept asking about whether he had a particular account in another jurisdiction (in Questionnaires, a Schedule of Deficiencies, and some correspondence) and he kept saying that he hadn’t. Then, eventually, he disclosed to his instructing solicitors that he did indeed have that account. It contained sum a little over £½m, a sum which, in the context of the case, was significant. Even worse, he had transferred money from it a few weeks previously, so he couldn’t do the old “Whoops, I seem to have forgotten about this account” routine. Of course, the District Judge made a swinging order for costs against him of about £40,000. When my colleague asked the client why he had hidden the account he said, with disarming frankness, “I didn’t want her to have it”!”

Another colleague told me that she once had a case where the husband (whose job involved giving expert evidence in legal proceedings) hid capital by making deliberate overpayments to HMRC for tax he didn’t owe! Once a tax expert to looked at it became clear that the husband had hidden £200k.

For an initial FREE consultation on any aspect of family law, call Manders Law on 01245 895 105 or email us here.

Note: this blog is intended to give an overview (rather than comprehensive guidance and advice) on your legal or financial position and is provided for information only. It is not an endorsement of any product or service provider.