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Dishonest Disclosure: The Implications of Sharland and Gohil for Divorcees

Posted on 23 October 2015

Dishonest Disclosure: The Implications of Sharland and Gohil for Divorcees

Much has been made of last week's Supreme Court judgments in the conjoined appeals of Sharland v Sharland [2015] UKSC 60 and Gohil v Gohil [2015] UKSC 61, with headlines ranging from 'scorned wives win ruling on divorce settlements built on fraud' (The Telegraph) to 'have these two ex-wives put the final nail in the coffin of marriage?' (Mail Online).

The question for family law practitioners and divorcees alike, however, should be a more practical one; namely, what are the likely effects of these rulings on the validity of financial settlements made where a party failed to provide full and frank disclosure?

The background

Although concerning unconnected marriages in separate cities, both cases involved husbands who deliberately failed to disclose elements of their finances prior to agreeing financial settlements on divorce.

In Sharland, the husband, a multi-millionaire software developer in Manchester, failed to disclose the fact that he was actively pursuing a flotation of his company at the time of trial, which would have impacted on the value attributed to its shares on settlement.

In Gohil, the husband was a solicitor who fraudulently represented that all of his apparent wealth was in fact assets held on behalf of clients.

In both cases, the wives settled without information that the husbands were obliged to provide. Upon discovering this information, they both applied to court to have their settlements overturned and financial proceedings re-opened.

The judgments

The Supreme Court, allowing the appeals, held that both wives were entitled to have their financial orders set aside and the relevant proceedings re-opened. Importantly, the judgments clarify the law in respect of fraudulent failure to disclose in financial proceedings.

Previously, it was widely understood that where an order was granted on the basis of disclosure that was later discovered not to have been full and frank - whether accidental or deliberate - the order would only be overturned if two facts could be proved by the applicant: that the non-disclosure was material to the making of the original order and that, had it not occurred, the court would have made a substantially different order to the one it made at the time.

For cases concerning fraudulent non-disclosure however, the Supreme Court's view is that this approach is wrong. In such instances it should now be presumed that the above test is met and the order be set aside unless the non-disclosing party can demonstrate sufficiently that, at the time of the order:

  • the fraud would not have influenced a reasonable person to agree to the order; and
  • had the court known the fraudulently non-disclosed information, it would have made a significantly different order.

The implications of these cases

Is it now open season for deceived divorcees? Not exactly - whilst the new test arguably makes it easier for courts to set aside financial orders where there has been fraudulent non-disclosure, the biggest hurdle for victims in these circumstances is proving that the other party was lying at the time the order was made.

Additionally, the defence remains for the perpetrator of the non-disclosure to show that this would not have led to a substantially different order being made. In any case, the courts will also have to consider whether it would be proportionate to re-open proceedings, bearing in mind the overall value of the parties' assets.

Accordingly, the practical reality of this remaining a difficult case to argue is likely to temper the supposed 'flood' of re-opened financial proceedings predicted by the media.

What the judgments do demonstrate, however, is that those individuals deliberately withholding information during financial settlement negotiations run the real risk of having proceedings re-opened years down the line, with all the associated legal fees to be paid again and the likelihood of an extremely unpleasant costs order being made against them by the court. In other words, a lifetime of sleepless nights awaits.