Tatler Experts' Corner: Since we separated he says he’s broke but I don’t believe him. Where did all our money go?

seksan Mongkhonkhamsao

As part of the Tatler SOS Experts’ Corner, we delve into the subject of legal arrangements surrounding relationships. Here, Catherine Bedford, Nicholas Westley and Morag Ofili from Harbottle & Lewis share their advice on what to do when a spouse might not be giving full financial disclosure during a divorce proceeding.

Before any divorce lawyer can advise you about the likely parameters of a financial settlement, a clear understanding of the financial landscape needs to be obtained. All good lawyers will advise their clients to obtain financial disclosure before attempting to negotiate a settlement. If your spouse will not provide such disclosure voluntarily, court proceedings can be commenced which will oblige each of the parties to produce full and frank financial disclosure, including bank statements covering at least the preceding 12 months. As such, there is no need for you to rely on the mere say-so of your spouse about his financial circumstances.

If your spouse refuses to provide financial disclosure, the court has a number of different options. Ultimately, the court has the power to imprison him for failing to produce proper financial disclosure.

Alternatively (or additionally) the court can make assumptions as a result of a person’s failure to produce proper financial disclosure, e.g. if he denies owning a particular asset but refuses to provide clear disclosure about it, the court can proceed on the assumption that such asset is owned by him. The court can also order third parties to provide disclosure, so that a complete financial picture can be obtained.

In cases of obvious inappropriate conduct (e.g. transferring an asset to a third party to avoid having to disclose/share it), the court will readily take such steps as are necessary to remedy any prejudice caused as a result of such conduct (e.g. by reversing any such transfer).

However, such flagrant non-disclosure is not particularly common, not least because of the potential consequences (which, in extremis, could lead to a person being sent to prison).

Unfortunately, there could be other – less obvious – reasons why your husband’s wealth may be less than you anticipate. A common strategy deployed by unscrupulous spouses is to increase their expenditure, so as to reduce the assets available to share with the other party.

In theory, if the court concludes that your husband has spent ‘wantonly and recklessly with the intention of prejudicing your claims, the court has the power to notionally ‘add back’ any such expenditure. In other words, the court can proceed on the assumption that he still has those funds available to him.

However, in practice, this power is exercised exceptionally sparingly. By way of example, in a 2015 case, despite the court finding that the husband had spent c£250,000 on cocaine and prostitutes, the court declined to proceed on the basis that the husband should be treated as still having £250,000 available to him. As a result, the wife received £125,000 less than she otherwise would have received (as the parties’ remaining assets were divided 50:50).

A further common consequence of divorce is that trustees, who may have previously been willing to fund the parties’ lifestyle without demur, suddenly become a lot more concerned about their obligations to any other beneficiaries – and become much more reluctant to make funds available. This could also explain an apparent diminution in a person’s financial circumstances.

If necessary, the court can join trustees to any financial proceedings taking place between the parties, and make disclosure orders against them, in order to gain a clearer understanding of the dynamic between the trust and the spouse.

The emotional upheaval of divorce can cause people to act inappropriately – including attempting to conceal the existence of assets from their spouse. But divorce can also make people very suspicious of their spouse’s behaviour and motivations.

This frequently leads to concerns that one party has failed to make full and frank disclosure – but such concerns are not always valid. Often in divorce cases more time/money is spent in the pursuit of undisclosed assets than is spent considering how to divide those assets that have been disclosed.

Furthermore, in many cases significant sums are spent unsuccessfully trying to ‘find’ such assets. Therefore you should give careful consideration and obtain specialist legal advice – as to how and when (and the extent to which) you pursue such issues.

For more gold-standard guidance on divorce visit the Tatler High Net Worth Address Book