When financial cases are bitterly contested, there can be allegations of non- disclosure, divorce hidden assets, and suspected fraud.
If one party has managed the family finances, the other may know little about their overall financial circumstances. With that additional knowledge about their finances, it’s not uncommon for the person who has managed the household finances to plan for a divorce by adjusting and offloading assets to deliberately produce a more modest balance sheet and make a financial disclosure that is less than expected.
Divorce hidden assets
If you suspect your ex-partner hasn’t been honest about divorce finances, or you believe they may have hidden assets, what can you do?
Expectations about divorce finances can be unrealistic, especially if you haven’t been close to the household finances. And emotions can cloud judgement. However, often suspicions are well-placed. Proving them is another matter. What if the evidence rests in another solicitor’s files – is it possible to obtain the crucial file?
Consider the following as an example. A spouse wants to add to his portfolio of assets, which will be divided in the event of a divorce. They don’t want to miss out on a great opportunity, but they also don’t want their soon-to-be ex-spouse to benefit from it. They make the decision to have a nominee acquire the asset on their behalf. It’s possible for this designated representative to be a friend, a business, or even an offshore trust. They make clear directions to commercial solicitors regarding how the transaction is to go through, indicating that only they will ultimately gain from it. The asset is properly purchased after the nominee also hires solicitors. All parties involved in this situation are fully aware who the sole beneficiary is.
However, these actions will minimise the ex-partner’s claims against them. This is fraud.
Fraud in divorce
If it ever came to light, the couple’s marital settlement could be set aside, and the husband could be prosecuted for perjury. There is an ongoing duty of full and frank disclosure in divorce financial cases in family law until a court order is made. A transaction such as this example, must therefore be disclosed, with the court and the other spouse made aware of the position. In our hypothetical case, the other party guesses what is going on but can’t be sure. They tell their solicitors that her former-spouse’s commercial solicitors are Firm X, and that the third party is a friend, and their solicitors are Firm Y.
Can the court order disclosure of the relevant files held by Firms X and Y on behalf of their clients? The answer is that on application, the court can “join” third parties such as the friend, into the proceedings but this is very risky as nothing may come of it and they may end up paying the friend’s legal bill. The court having joined the friend may also order disclosure of parts – but not all – of the relevant files of Firm X and Firm Y.
The problem is the rule of legal professional privilege which is regarded as sacrosanct. One form of this rule, known as legal advice privilege, applies to all communications between client and solicitor for the purposes of obtaining or giving legal advice. It exists for the client’s benefit. The courts preserve the right of a client to take legal advice free from outside scrutiny. Because of this, all instructions and advice remain strictly confidential.
There is one exception when privilege does not apply. In the case of fraud, the examination of a solicitor’s file would be ordered if the fraud came to light. The court could conclude that the case, which is founded on suspicion, lacks solid grounds and is not strong enough to merit the waiving of legal professional privilege.
This may seem unfair. How could a suspicious partner prove fraud has occurred without access to the file? Equally how could they gain access to the file without first proving a fraud?
Making an allegation of fraud is a serious matter; an incorrect accusation could mean that the party claiming that fraudulent activity has happened would have had to pay all the legal costs involved, as well as damages for any losses suffered.
However, do bear in mind that solicitors are Officers of the Court, and they cannot mislead the court and present a financial picture of a client, that they know to be false. If the client tries to pull a fraudulent stunt through the commercial department of his family law solicitors, their professional obligations to the court would prevent this happening and they could not continue to act in the family law proceedings if their client refused to tell the truth.