A recent ruling in the English legal system may point to a number of cases arising where a former spouse has sought to hide or misrepresent the value of assets in dispute.

As readers know, brilliance in creating wealth is no guarantee against loss when marital life breaks down and ends in a costly divorce. The newspapers frequently carry colourful tales of such wrangles, for the benefit and enjoyment, one suspects, of readers rather than the participants. However dry and unromantic such an issue is, the number of high-profile court cases in recent years in London's courts puts a focus on how marital matters are an important wealth management issue. The authors of this article on a recent ruling in London are Emma Collins and Fiona Turner of law firm Weightmans. As ever, the editors of this publication are very pleased to share such insights without necessarily endorsing the views expressed. We invite readers to respond with their own perspectives.

A recent landmark decision was handed down in the Supreme Court in the cases of Sharland and Gohil. Both ex-wives underwent divorce proceedings, only to later find out that their husbands had failed to disclose their full wealth and financial plans.  

The Supreme Court decided that both cases would be re-opened and re-heard, due to the husbands’ lack of disclosure and fundamental dishonesty.

At the time of divorcing, Mrs Sharland believed she was receiving half of the family assets, having taken a larger percentage of the capital assets along with a 30 per cent share of the net sale proceeds of the family business, when sold. However it was later revealed that Mrs Sharland had probably settled for significantly less than half of the family fortunes. It transpired that her husband had misled the court over the value of his business by omitting to disclose plans for a future float, which was anticipated to raise the estimated value of his business from circa £40 million to $1 billion.

Upon finding out through the financial press that her ex-husband’s assets were higher than he had disclosed, Mrs Sharland took the matter to the Court of Appeal, and thereafter the Supreme Court to argue that "fraud unravels all". The original settlement was set aside and a clean sheet for renegotiating the terms of the financial settlement allowed. There will now be a rehearing.

Mrs Gohil, who settled her original divorce in 2004 on a much more modest scale, secured a similar outcome from the Supreme Court. Having re-opened her case in 2010 when criminal proceedings began against her ex-husband following accusations of money laundering and fraud, it became clear he had hidden his true wealth.

Further litigation and uncertainty awaits both Mrs Gohil and Mrs Sharland. Despite the lack of disclosure, will a re-trial significantly affect the final financial award given to either of the ex-wives when their cases are re-heard? Both Mrs Sharland and Mrs Gohil await further hearings in the family court, which will exercise its discretion to impose a financial solution in the absence of a negotiated settlement.

The press and commentators have made much of the Sharland and Gohil cases, which uphold essential tenets of our legal system in that a fraudster cannot expect to "get away with it". Women’s rights have also been championed.

The judgments provide advisors with much needed clarification about the legal processes that need to be followed, evidential rules and burdens of proof in the event of discovering non disclosure post settlement, and reaffirm the need for robust advice to be given to all parties to provide full and frank financial disclosure. But their significance goes beyond the headlines.

Advisors of business owners, and business owners themselves, need to adopt a careful strategy on divorce with expert consideration of the risks of endeavouring to settle a case where there is potential for dispute over the value of their business interests.

It is common place for there to be divergent opinion amongst experts on the value of a business. This is particularly acute when there is a potential prospect of a takeover or IPO. Business owners will be worried about market sensitive information being disclosed to a spouse or their advisors and the risk of jeopardising a deal, and as such confidentiality clauses/non disclosure agreements/possible "super injunctions" will become much more prevalent.

We predict that it will become much more difficult to negotiate a divorce settlement: one party may mistrust information provided about a potential sale or float and we have the generic difficulty of accurately valuing business interests in any event.

Business owners risk accusations of dishonesty/non disclosure – and the re-opening of past divorce settlements - if for example a future sale takes place which had not been envisaged.

In many cases, capital assets from other sources are used to "offset" business interests on divorce. We may see a higher percentage of cases settling for a share of the net sale proceeds of a business later down the line (with the need for careful, protective drafting to cover business restructuring and so on), rather than enhanced capital awards in lieu of a business share. How this sits with the business owner, and the courts, from a fairness perspective, remains to be seen, when an ex-spouse gains a share of the spoils, and of their ex’s endeavours, long after the marriage has come to an end.

Risks of claims against those advising business owners must potentially increase as a result, and as such, advisors must ensure that appropriate expert advice is given, pros and cons are fully explored, and even enter into disclaimers with clients in appropriate circumstances.

These Supreme Court rulings have rightly served to exemplify the importance of providing full financial disclosure but in many cases involving businesses, full financial disclosure is perhaps only the tip of the iceberg.