Sarah Jane Lenihan, partner at Dawson Cornwell
By Sarah Jane Lenihan, partner at Dawson Cornwell
When one party involved in high net worth divorce proceedings possesses staggering personal wealth, it can be tempting for that person not to fully disclose their assets. However, the lesson to be learned from a recent case in which a HNW academic concealed his £4m inheritance from his ex-wife is that such a choice very rarely ends well.
In this example, Cummings v Fawn, the husband was found to have failed to disclose the full extent of his inheritance from his parents following their deaths within days of each other. Mr Justice Nicholas Mostyn, sitting in the Family Division of the High Court, said Cummings was a victim of “fraud” due to her husband’s failure to reveal the actual amount. As a result of the non-disclosure, a retrial of the financial remedies hearing has been ordered.
I am frequently asked by clients whether they really must disclose everything in their divorce, and what the consequences are for not doing so. My answer is always yes; I inform them that if I am aware they are unwilling to disclose all assets during a divorce then I can no longer represent them. I warn clients that if they are found to be non-disclosing assets any agreement or order could be set aside, along with them being required to meet the costs of their spouse. The test for this was established in the Supreme Court decision in Sharland v Sharland [2016] AC 871. Where Baroness Hale at paragraphs 32-33 held:
‘… But this is a case of fraud. … A party who has practised deception with a view to a particular end, which has been attained by it, cannot be allowed to deny its materiality. Furthermore, the court is in no position to protect the victim from the deception, or to conduct its statutory duties properly, because the court too has been deceived.
The only exception is where the court is satisfied that, at the time when it made the consent order, the fraud would not have influenced a reasonable person to agree to it, nor, had it known then what it knows now, would the court have made a significantly different order, whether or not the parties had agreed to it. But in my view, the burden of satisfying the court of that must lie with the perpetrator of the fraud. It was wrong in this case to place on the victim the burden of showing that it would have made a difference.’
In the aftermath of Cummings v Fawn, the reason for this uncompromising necessity is self-evident. If ever there was a template for how a HNW should not behave when faced with such proceedings, this case was it. While there are no automatic criminal consequences in the Family Court, the husband has instead been ordered to pay his wife’s costs not only for the appeal, but also the previous hearings.
The parties in this case actually entered into an agreement following separation, which meant the wife would retain £33,750 which she had received following a legal services payment order but had not spent. Under the agreement, she would also receive £173,240 from the net proceeds of sale of an investment property and be paid two further lump sums totalling £362,000. The wife signed the draft order but asked the Court to determine if the agreement was fair.
The Court will generally give effect to agreements spouses enter into only if it can be shown there was no duress, mistake, fraud and that the agreement was fair. Reference was made to Granatino v Radmacher [2010] UKSC [2011] 1 AC 534 paragraph 75 and it pointed out in this judgment the difference between a prenuptial, postnuptial, separation of Xydhias type agreement is that the timing and starting point should be the same, whatever the type of agreement.
In terms of fairness it was determined the Court does not have to consider the granular detail but can instead take a broad view. In this case however it has been found that there was a failure by the previous Judge to make findings on debts, the wife’s mortgage capacity and therefore her ability to rehouse. There is now therefore doubt in respect of whether this agreement is fair.
The situation of the wife in this case identifies why it is important for the other party to raise any doubts regarding non-disclosure as early as possible. Even though she knew her ex-husband had received an inheritance she did not know the amount. Although her contestations were dismissed in earlier proceedings, the outcome could dramatically alter her financial situation.
The starting position in divorce is for inheritance to be ringfenced by the receiving party if it has been kept separate during the marriage. This was established in White v White [2001] 1 AC 596 by Lord Nicholls at paragraph 610 whereby he developed the concept of matrimonial as opposed to non-matrimonial property, but adding that:
‘in the ordinary course, [inherited assets] can be expected to carry little weight, if any, in a case where the claimant’s financial needs cannot be met without recourse to this property’.
In practice, whether or not an asset is non-matrimonial is only likely to be of significance where the other assets are sufficient to meet the needs of the parties.
In this case I believe we will see the Court taking the view that the wife’s needs should be met from the husband’s inheritance. Mostyn J has already set aside all parts of the consent order that have not yet been implemented. There is to be a rehearing of all of the wife’s claims as per Goddard-Watts v Goddard-Watts [2023] EWCA Civ 115.
