Gohil v Gohil UKSC 2014/0200; Sharland v Sharland UKSC 2014/0074: The impact of the Supreme Court’s decision on Financial Orders: “crime no longer pays”!

The law relating to financial orders

Either party to a divorce can apply to the family court for assistance (by financial orders) to divide the marital assets on exit from the marriage by application (Form A).

The court procedure is designed to assist the parties to agree how to divide their assets, so as to preserve their relations, if possible, and to ensure minimum legal costs.

In the event the parties cannot reach agreement on the division of their marital assets the court will make the decision (following a trial of the evidence). In either instance, whether agreement is reached or else the court determines the issue, the result is that the parties’ marital assets will ultimately be divided by court order. In instances where the parties reach agreement they must seek the court’s endorsement of their agreement: the court will not act as a rubber stamp to agreements reached and, unlike in contract law for instance, the court will require the parties to satisfy the judge that any agreement is fair. The family court will not allow a party to a divorce to “give away” their rightful fair share of marital assets on exit from marriage. So in every financial application in a divorce the court acts as a check that the husband and wife exit their marriage with a fair share of the marital assets.

A fair share?

The question then arises of course “what is a fair share”. Truth is that there is no hard and fast figure, sum or order. Fairness is in truth dependent upon judicial discretion, and what is deemed “reasonable” in each case.  A judge relies upon the parties providing disclosure of their assets and income in prescribed Forms (Form E) together with the disclosure of other evidence that has been sought/ provided in the case.

So put simply the concept of what is fair, fairness, is dependent upon the parties’ disclosing their wealth.

Applications to set aside or Appeal a Final Financial Order (Non-Disclosure)

Once a final Financial Order has been made by the court dividing the marital assets the final order can be re-opened by an application to set aside or appeal the final order. One reason to challenge the details of the final Financial Order is on the basis that one party believes that there has been non-disclosure by the other party.  Prior to the recent Supreme Court decision this type of application (set aside or appeal of a final Financial Order) was difficult to establish and often failed.

“The Livesey Test”

The law relating to these types of applications (set aside or appeal of final Financial Order on the ground of non-disclosure) had, until the recent Supreme Court decisions, remained the same for some 30 years, since 1985, when judgment in the case of Livesey (formerly Jenkins) v Jenkins was handed down by the Court of Appeal (See [1985] AC 424).

This leading case provided guidance for those applications where one of the parties to a marriage wished to re-open their final financial order.  This was usually on the basis that they had since the date of the order found out that the other party failed to disclose their true wealth. The party seeking to re-open the finances in the divorce had to prove that the non-disclosure complained of was material (the so called “materiality test”).

The materiality test required the complaining party to prove (it was their burden of proof) that had they and/or had the court known of the other party’s undisclosed wealth at the time the final financial order was made they/ or the judge would not have made the final order they did on exit from marriage. However, given the previously mentioned subjective nature of what is fair in each case applied by the courts, the difficulty was that the appellate court would usually decide (on an application to set aside or appeal a final Financial Order) that whatever the size or scale of the undisclosed wealth, it was not material.

To put simply, in a case where the wife who found out post-divorce and post the financial order dividing the marital assets that the husband was in fact far wealthier than he had previously told her and the court, she was faced invariably with a court decision that the husband’s failure to be honest was not material. This meant the husband escaped any penalty for being dishonest, he retained his previously hidden wealth, the wife had to accept the sums under the original order plus the wife’s costs of any further legal advice/ proceedings had to be paid by her alone.

The Supreme Court Judgment in the cases of (1) Gohil & (2) Sharland

The emotions of the wronged party is inevitably the same: they feel anger, want retribution and justice – and a whole lot more by way of money or income from the other party. The difficulty has been that according to the case of Livesey any application to appeal or set aside the original financial order previously made in ignorance of the parties’ true wealth was met with the court deciding that the non-disclosure was immaterial.

That changed as aforesaid on the 14 October 2015 when the Supreme Court handed down its’ landmark decision in the cases of Gohil v Gohil UKSC 2014/0200; Sharland v Sharland UKSC 2014/0074.

These two cases, heard together, concerned the appeal of two (separate) Court of Appeal orders made in divorce money applications. The wife to each marriage sought to appeal the orders made by the Court of Appeal dividing their marital assets. Both cases raised the same issues: the husbands in each wife’s marriage had failed to disclose their true wealth and assets to their spouse and to the court in their respective wife’s application for financial orders on exit from their marriage. By reason of each husband’s fraud each wife has agreed to orders dividing only known assets and wealth. Each wife subsequently sought to set aside and/or appeal the final financial orders in their divorce and each sought to re-open the issues and effectively seek a slice of the previously undisclosed wealth.

Both cases were heard together (over the 2 days on the 8-10 June 2015) by reason that both cases raised the same issues. The appellate court was made up of Lord Neuberger (President), Lady Hale (Deputy President), Lord Clarke, Lord Wilson, Lord Sumption, Lord Reed and Lord Hodge.

Issues considered in the case of Gohil & Sharland

Judgment in both cases before the SC considered the same issues, as follows:

1. The correct approach to a party’s application to set aside a final order made in ancillary relief proceedings on the basis that there has been material non-disclosure by the other party; and
2. The impact of fraud on:
   1. An agreement to compromise ancillary relief proceedings, and/or
   2. A consent order made following such agreement
   3. Is it different from, or the same as, it would be in other civil proceedings?
3. In proceedings for ancillary relief, does fraud give rise to separate remedies to those available in other instances of non-disclosure?
4. Where either fraud and/or material non-disclosure is established, does the refusal by the court to rescind the order (and so reinstate the trial process) wrongly derogate from the victim’s right to a fair trial?

Judgments appealed in both cases are found at: Gohil v Gohil [2014] EWCA Civ 274, Sharland [2014] EWCA Civ 95.

Judgment – “Fraud unravels all”

The Supreme Court gave separate judgment in the two cases. The previous materiality test of Livesey was made old law and finally the family courts was brought into line with other areas of law: it was held that “fraud unravels all” and further a party who either agrees an order dividing their assets on exit from marriage or is the subject of the same order made following a trial by the court is a victim and is deprived of their right to a fair trial if it later transpires that the other party has fraudulently hidden their true wealth.

As such it was held in this case that, in summary, financial orders in divorce will be set aside as of right (unless the party who failed to disclose can show good reason to the contrary) where there is evidence of fraud/non-disclosure.

The past line taken by the family court was that in the absence of the materiality test the floodgates would open and parties would flock to the courts to re-open their financial orders at a later date if they were not stopped. This line has led to a number of unfair decisions where a party could conceal their assets and where their fraud/crime really did pay. I don’t expect the floodgates to open, contrary to old beliefs, now that the materiality test has passed into old law, but I do anticipate more of a fair outcome for parties involved in financial orders before the courts.