Supreme Court decides that ‘fraud unravels all’ in divorce cases

The Supreme Court ruled Charles Sharland’s divorce settlement could be revisited after he lied about his assets. Suzanne Plunkett/Reuters

The UK Supreme Court has ruled that if a divorcing spouse lies about his or her assets, the financial aspect of the divorce can be reconsidered. Before now, spouses could deliberately and fraudulently mislead the court on divorce with rarely any consequence – provided their lies came to light after a financial order had been made. That is why this Supreme Court decision is so significant.

When a marriage breaks down, it is common for spouses to reach an agreement about how their finances will be divided up, and the agreement is embodied in a court order, known as a consent order. This means that the agreement is sealed by the court, and once this happens it is extremely difficult to have it reopened. Before the Supreme Court decision, this was even the case when assets had been fraudulently concealed.

For instance, if I got a new job and a pay rise, I could have hidden this from my wife, led her to believe I had less earning capacity than I really did, and on divorce make a financial agreement much more in my favour than hers. I would have had full knowledge of our finances, while my wife would not, which would provide me with significantly more bargaining power when reaching an agreement.

In this scenario, it is unlikely that the court would have invalidated the consent order. Even though I had a duty to make full and frank disclosure of my assets, the court must have also found that my non-disclosure would have made a material difference to the agreement. Put simply, the judge must have been convinced that if I had not lied, the financial award made to my wife would be completely different. This can be very hard to prove.

This example mirrors the circumstances of real cases concluded before yesterday’s Supreme Court decision. But if wealthy spouses in such cases could lie and get away with it, then as some lawyers have argued, there would be little incentive for spouses to be transparent.

The Supreme Court cases

In a judgment on October 14, the Supreme Court ruled on two cases which make it easier for misled spouses to have their financial settlement revisited. In the first case, Gohil v Gohil, the wife sought to reopen the financial element of her divorce proceedings after discovering that her husband had lied about his assets. His lies were exposed whilst he was being prosecuted in criminal court for money laundering.

In the second case of Sharland v Sharland, Alison Sharland challenged the financial award she received on divorce after discovering that her husband, Charles Sharland, had knowingly misled her as to the value of shares in his software business. He claimed they were worth £47m when the real value of the shares was estimated at approximately £600m.

The lower courts in the Sharland case decided that the husband’s fraud would not change the financial provision made to the wife, because in hindsight it did not make a material difference. But in the Supreme Court, Baroness Hale of Richmond said that the focus should be on whether the fraud would have affected the outcome at the time of the original agreement.

The judgment also said the lower courts were wrong to ignore the fact that the husband’s fraud prevented the wife from properly consenting to the original division of assets. As a result, in both the Sharland and Gohil cases the wife was permitted to have her financial award reconsidered by the court.

A misplaced concern for opened floodgates

Reports of this case have overwhelmingly focused on the possibility that the Supreme Court’s decision will lead to many more divorce settlements being reopened. Whether this is true or not, these fears indicate a real problem with attitudes towards financial provision on divorce.

It is quite remarkable that some newspapers are more outraged by Alison Sharland’s financial award than by her husband’s outright deception. One reason for this might be that Alison Sharland received more than £10m in her original settlement, a spectacular sum of money by anyone’s assessment. But no-one is criticising Charles Sharland’s share of the assets, and he was left with £600m worth of shares.

There is a misconception that the £600m in shares and the sum of £10 million “belong” to Charles Sharland. In reality, it is unlikely that this wealth would have been generated without Alison Sharland’s work in the home. She was primary carer of three children (one of whom requires lifelong care) throughout the couple’s 17-year marriage, enabling Charles Sharland to build his career. These non-financial contributions must be recognised.

So we should be celebrating that the outcomes in the two cases makes the homemaker less vulnerable to the concealment of assets, not fearing the “floodgates” of divorce cases may open. The Supreme Court has sent out a clear message: spouses need to be open and transparent with each other on divorce, or they could regret it in future.