Juggling family life whilst building a business is challenging in the event of marriage or civil partnership breakdown, are you and your business secure? Not only is the decision to part stressful which in itself can have an impact on business but the financial side of it can seem a minefield of liability, property selling, decreasing pension pots and your business subject to scrutiny.
There can be a temptation to squirrel away money, work less so the business is less profitable or ‘re-value' assets and interests so as to ensure that any liability to the former spouse or civil partner is minimised.
The Courts however do not condone such conduct and you should be aware of the consequences of this. Illustrated by the recent Sharland v Sharland [2014] case which, highlighted the fact that inaccurate financial disclosure on the breakdown of a marriage is unlikely to bode well for the party providing inaccurate information.
In this case, the husband had significantly undervalued his company. There were Financial Proceedings on divorce and the wife had agreed to a pay out of £10.35 million, believing this to equate to half of Mr Sharland's fortune. It became apparent following the Final Court Hearing the husband's share in the company was actually £150 million.
The wife appealed to the Court following the re-valuation. The wife's appeal was originally not allowed, as although the husband had not been accurate with the company valuation, the Court's feeling was that he would be penalised with her legal costs being awarded against him. Further, that the decision reached regarding the financial division would not have been materially altered even with the new, more accurate valuation.
However, the wife has now won her right to appeal to the Supreme Court and a further decision based on the more accurate company valuation will be made. It is unlikely she will be awarded less and poses questions over the husband meeting her costs for going back to Court. The case is likely to be heard in June of this year.
Deliberately undervaluing or providing the your ex-spouse or civil partner and court with false information, does not appear to in anyway benefit the business person seeking to protect their interests in this way. More often than not it will have the opposite effect and lead to them having to pay some, if not all of the other party's legal costs, which can, as in this case, be significant. The major financial risk now following the Sharland case, is that inaccurate company and business valuations can lead to an appeal of the original decision made and a larger pay out.
Ultimately though in Court proceedings, knowingly giving false information to the Court is the offence of Contempt of Court and can be enforced as such. In some cases, this can result in imprisonment.
The moral of the story is that should you find yourselves in Financial Proceedings when divorcing or dissolving your Civil Partnership, it is better to be accurate with your information. Better still seek advice from Family Lawyers to avoid Court Proceedings including taking advice on financial negotiations and proposals that can protect business assets. In the event that Court cannot be avoided, we can advise in respect of disclosing financial information and avoiding costs penalties.
Those determined to avoid such financial squabbling on divorce, may wish to consider the pre or post-nuptial agreements and take advice on tight shareholder, director agreements, Trusts and Wills taking advantage of all mechanisms that could be drafted now to minimise the hurt at a later date.
In recent years pre-nuptial agreements have been given much more weight by the UK Courts and allows an understanding and agreement between the parties before any such divorce of dissolutionment proceedings are contemplated. It may not seem romantic but when are decisions regarding business and finances based on romance?
Should you wish to discuss any aspects of this article further, please contact Laura Jennings, Head of Family and Child Law at A City Law Firm Ltd.
