“Full and frank disclosure” is a phrase you might hear during your divorce. It may feel like a hoop you and your spouse have to jump through to get to the other side, but it is vitally important and, in fact, a legal requirement. Both parties have a duty to provide full financial disclosure to each other and to the court.
It is not unusual for couples to approach their lawyers with a list of terms they have already agreed, without first going through the disclosure process. Great for keeping the peace, but how can a couple make such important financial decisions that are ultimately going to affect their entire futures without knowing the full context or consequences of doing so? Additionally, without financial disclosure the parties cannot take advice on the intended agreement to understand whether this is ultimately fair.
The couple will usually understand the value of their home, if they own one, and how much is left to pay on their mortgage, so they should have a clear enough idea about the “equity” which is available to share between them. That is assuming the couple can come to an agreed upon value for the property, which is not always possible. In those situations, full disclosure might include obtaining a joint valuation from an expert surveyor.
It is relatively straightforward to produce details of other assets, such as bank and savings accounts and investments as well as their incomes. It is also necessary to disclose any changes to your finances which are either imminent, foreseeable or planned.
One area that can trip up separating couples is pensions, as even if the basic information is provided that does necessarily give the full picture. Pensions are a complex area on divorce. They are treated just like any other asset and are capable of being shared, but quite how that happens is not usually straightforward. Part of the financial disclosure process can involve obtaining an expert pension sharing report to address this, so the parties can fully understand how they intend for their assets to be shared and what the consequences will be.
The same can apply where there are business assets. It is sometimes not enough to produce business accounts, and an expert accountant’s report valuing the business may be required to complete disclosure of the business assets.
Perhaps more cynically, sometimes spouses can become protective of their information as they fear the other may be looking to “take everything”. Not making full disclosure however can have severe consequences and can, in some cases, result in an agreement which was based on incomplete disclosure later being set aside, effectively reopening financial claims.
In a recent case in the Supreme Court, a financial consent order (a binding agreement reached between the couple during their divorce) was set aside because the husband in that case had undervalued the family business, drew down ten times the £1m director’s loan account limit, not disclosed a £3m loan offer from his brother and did not declare an offer he made to buy a £5m property. The court found the husband’s “deliberate concealment” of these assets justified the agreement being set aside.
The importance of full and frank financial disclosure cannot be overstated. When considering how best to share your assets on divorce, it is vital that both parties fully understand what those assets are, both in terms of their immediate value and the income streams they might produce in the future, e.g., pensions and business interests.
To reach an agreement without full disclosure risks one or both parties not fully understanding what they are agreeing to and, even worse, can enable one party who is particularly defensive over their finances to conceal assets or income streams which could mean what has been agreed does not reflect a fair outcome.
How can Tozers help?
If you require any further advice on the divorce process or require assistance to proceed with a divorce, please do not hesitate to contact our specialist Divorce and Finances team.