By David Hodson OBE and Emma Chowdhury
A final financial settlement in the family courts in England and Wales can only reliably occur when there has been disclosure to both sides of the financial resources of each. But what does financial resources mean? In particular what does it mean for international families and those with complex financial circumstances?
The importance of disclosure jurisdiction
Most family court cases in England and Wales settle without a final court hearing. They are negotiated; between lawyers, in mediation, direct between the parties themselves, with the assistance of judges and in other ways. There may be proceedings started but there are very few final hearings. Nevertheless whatever form of settlement, it is always on the basis that there has been good and reliable disclosure of the financial circumstances of each party. Without this, there can be no reliable settlement. The court will not approve a final financial order.
Gathering and providing disclosure is an important part of the work of family lawyers. In England, as elsewhere around the world, some spouses are remarkably coy and reluctant to give complete disclosure. Some pretend they are not aware of the extent of the duty to give disclosure of all financial circumstances.
So what has to be disclosed? This short note gives a summary but legal advice should always be taken.
In essence, everything has to be disclosed regarding financial circumstances. Changes in the past 12 months or so. Anticipated changes in the next 12 months or more. Resources yet to be received. Resources held by others. Assets held on behalf of others. Offshore held assets. Resources held in trusts or companies. Assets shared with others. Everything. It is very comprehensive.
The governing legislation on finances upon divorce is the Matrimonial Causes Act 1973 (MCA 1973). Section 25 refers to the ‘financial resources’ which must be taken into account when considering how a couple’s assets should be divided upon divorce.
It specifically covers income, earning capacity and property as these are specifically stated. The statute also refers to the resources a spouse is likely to have in the foreseeable future.
What are some of the areas where in our experience issues can arise?
All foreign, non-English based resources and assets must be disclosed. This is in contrast to a number of countries around the world which have either no power to make family court orders against assets abroad or will invariably not do so. England will make orders against foreign-based assets. They must be disclosed wherever they are in the world. This includes foreign based real property, bank accounts and investments, trusts, pensions and corporate interests. The disclosure obligation is worldwide.
Assets held by others on behalf of a spouse must be disclosed. This might be real property held in the name of a family member e.g. a male relative, for a spouse. It might be bank accounts where a spouse has an interest but held in the name of somebody else. If a spouse has a beneficial interest in any asset held in the name of somebody else then it must be disclosed. It includes funds within trusts and companies of any kind. The court will make preliminary findings about who really owns the asset and order that the person in whose name the asset is held to give specific disclosure.
Assets held in trusts for which a spouse may be a beneficiary of any form, including discretionary beneficiary, must be disclosed. In coming to a settlement it will be important to know what is the likely practical future of any payment outs to the spouse as a beneficiary, often looking at the past history of payments out and of any intentions of the trust and trustees. Beneficial interests in trusts are an important financial resource for disclosure.
Assets and resources held in companies even if the shareholdings are held by other companies or corporate entities must be disclosed. This is inevitably a difficult area. Specialist advice should be taken. In some circumstances, the family court will consider that even though the shareholding is in the name of a company, trust or other entity, it is in reality the real ownership of one of the spouses who can determine what happens to that shareholding and its value.
Assets and resources owned by either spouse before the marriage, after the separation or received as inheritances or gifts must be disclosed. Although under English law these may not be automatically shared, they may be distributed if required to provide for the needs of one spouse. In any event they must be disclosed so the court has all the financial circumstances to make sure there is a fair settlement.
Financial disclosure through the courts is based on a disclosure document known as Form E. This is a comprehensive and fairly complex document which covers a wide range of financial resources for disclosure. It includes for example the following:
- Personal assets, including money held in personal bank, building society and National Savings Accounts (in the parties’ joint and sole names);
- Investments, including shares, ISAs and National Savings Investments, bonds, stocks and other quoted securities;
- Life insurance policies;
- All monies owed to the individuals;
- All cash held in excess of £500;
- All belongings individually worth more than £500. This can include cars, artwork, jewellery, furniture and house contents;
- Business assets and directorships;
- Other assets, including unrealisable assets, trust interests and share option schemes;
- Any of the above assets acquired before the parties married; and
- Any of the above assets acquired after the parties have separated.
The list above is not at all exhaustive and there is provision in the Form E for additional items that are not given as examples in the statement. The financial statement in fact encourages the parties to disclose assets that may not be considered as an obvious ‘financial resource’ at first, such as an asset held on behalf of a third party.
Because it is defined so widely, deciding what is or is not a financial resource can be difficult. Generally if in any doubt, it is prudent to give disclosure. Specialist advice should always be taken. We deal with many cases involving complex financial circumstances, whether entirely national or international. If you are in any doubt about financial disclosure in the family courts and do not presently have a lawyer, please make contact with us.
David Hodson OBE is co-founder and partner at The International Family Law Group LLP, London. He is an English solicitor, arbitrator and mediator and also an Australian qualified solicitor, and sits as a part-time family court judge at the Central Family Court. He is an Accredited Specialist (with portfolios in Substantial Assets and International Cases), a Member of the English Law Society Family Law Committee, a Fellow of the International Academy of Family Lawyers, a Fellow of the Centre for Social Justice, and a member of the Family Law Section of the Law Council of Australia. He is author of “The International Family Law Practice” (Jordan’s 5th edition Dec 2016). He is honorary Prof at Leicester University and visiting Prof at the University of Law. He received the OBE for services to international family law.
Emma Chowdhury is Emma is a Paralegal at iFLG. She graduated from the University of Bristol with a 2:1 degree in Spanish and Italian and then completed the Graduate Diploma in Law (GDL) at the University of Law, obtaining a Distinction. Emma deals with the administrative aspects of client matters. She assists with organising and collating trial bundles, attends court noting for Counsel and assisting clients when needed. Emma is fluent in Italian and Spanish.
David Hodson OBE
The International Family Law Group LLP
© 30 October 2017