PROTECTION OF ASSETS WITHIN DIVORCE PROCEEDINGS

Following on from the article written by Emma Easton of Turner Nicholson and Hannah Davie of Grant Thornton UK LLP (GT) published on 5 January 2021, this month they go into more detail as to how family solicitors and investigative accountants can work together when clients are going through divorce proceedings and there is the need for the identification and protection of assets to add real value for the client.

Also, they look at how bankruptcy proceedings can affect your client or their spouse before or after the financial Consent Order has been sealed by the family courts.

Further information in relation to each of the areas of interplay are provided below:

Pre divorce investigations

For some, contemplating divorce proceedings can be a daunting prospect especially when you are unaware of the full financial picture of the family finances. Quite often one party has been in control of the finances throughout the marriage and is unaware of assets that may be in the sole or joint names of the parties. Therefore, it may be prudent to carry out pre divorce investigations into the asset position of the parties to have a clearer idea of the finances; and be armed with the financial information before divorce proceedings are commenced and negotiations take place between the parties over the financial split of the assets.

By carrying out early investigations into the other parties’ assets prior to commencing divorce proceedings, it may prevent them from hiding or dissipating assets once they become aware that the other party has commenced divorce proceedings.

In most cases, the parties will reach an agreement as to how the assets will be split in terms of property, savings, investments, and pensions. The disclosure process requires both parties to be open and honest when disclosing their financial arrangements but there may be cases where a spouse fails to disclose assets in an attempt to avoid the assets forming part of the capital pot to be split equally. Common assets which may be hidden in the divorce process include:

• Cash

• Insurance policies

• Stocks and shares

• Overseas property and investments.

If assets are to be hidden, then it is likely that the assets are hidden in offshore accounts or property. Assets can be transferred into a third-party name to hold until such time that the divorce proceedings have been concluded.

Therefore, if there is any doubt that one party may not disclose all the financial assets of the parties or try to hide such assets, then it is imperative that the client reach out to an investigatory accountant prior to the commencement of the divorce proceedings to consider the use of Corporate Intelligence services, as further detailed below, to ensure that both parties come to the negotiating table on an equal footing.

Following Form E disclosure

As noted above, it is imperative clients know as early as possible what assets will be available to ensure their financial settlement is fair and equal.

Whether there are concerns entering into the divorce or the client starts to have doubts over the accuracy of the information provided by the spouse after completion of the Form E as they believe that not all assets have been disclosed, or has a suspicion the spouse may have concealed assets or not disclosed their interests held in Trust or corporate structures or may even be disposing of certain assets, the client should consider instructing a specialist accountant to undertake a Form E and asset review.

The Form E and asset review would include an assessment of the valuation information provided to enable further question or clarification to be sought, along with the use of Corporate Intelligence services to undertake comprehensive searches of certain statutory and commercial databases with targeted open source research, public social media posts, and where felt necessary human intelligence, to verify and further investigate the asset position, identify any hidden assets, provide a breakdown of complex corporate structures, including jurisdictions of various entitles and establish the ultimate beneficial owners.

An example of a case where GT were instructed by a wife to trace the assets of her spouse based on the suspicion that her husband was taking steps to conceal, disperse and shield certain assets from matrimonial proceedings following their marital breakdown. In this case, the Corporate Intelligence team conducted an examination of web domains and DNS infrastructure to reveal links between the husband and offshore interests managed by nominees for his benefit.

In addition, comprehensive searches of the statutory and commercial databases were undertaken together with targeted open-source research, which established the extent of the husband’s overseas interests, including development projects “fronted” by the husband’s associates.

Public social media posts also established details of the husband’s post separation lifestyle, recent movements, and trophy assets, including vintage vehicles and jewelry.

The report provided to the wife was vital evidence to contest the husband’s Form E disclosure and gave her the information need to ensure in the negotiations she was able to secure an equitable division of the martial assets.

This case demonstrates how early identification of assets helps to make better informed decisions around strategy and funding (should this be a potential issue) and paves the way for robust negotiations and prompt recoveries within the financial proceedings.

A Form E and asset review may also assist, if there is any risk that the spouse is holding interests in offshore Trusts or complex corporate structure; and is thought to be disposing of, or transferring their interests in these assets, to make it more difficult for the client to recover any financial award made in their favor in due course, as further detailed below.

Issues with recoverability following the financial consent order being sealed by the court

The hope is of course that financial matters within divorce proceedings are settled amicably or dealt with by way of mediation. However, there may be cases where matters are acrimonious, and the negotiations become protracted. In these situations, if the parties can evidence that false asset information or values have been presented, by providing an independent specialist accountants report, it is likely to mean they will inevitably be able to negotiate a greater settlement than would otherwise have been offered.

Alternatively, if a settlement has been agreed through a Consent Order sealed by the Court but one of the parties cannot recover what is due to them, then you may need to consider certain enforcement strategies.

Any such enforcement strategy must be asset and jurisdiction specific. Hence, once the assets and their location have been identified, you can consider with a specialist accountant, how best to safeguard those assets from dissipation during the course of the enforcement/litigation. Processes such as Court Appointed Receivers (CAR) or Freezing Orders can be used effectively in these situations.

One such example is where GT were appointed by the English Court as a CAR over assets, property and effects of an individual following an application made by the wife as part of matrimonial proceedings. GT’s role as receiver was to protect, investigate and recover the assets owned by the husband (who subsequently died). The deceased husband had corporate and personal assets in Brazil, Dominican Republic, Egypt, Spain, Switzerland, UK, US, and a discretionary trust in Gibraltar.

GT used the powers afforded to them as receivers from the English Court to appoint independent directors to the one of the UK companies to investigate the financial position of the company.

This case example illustrates the effectiveness of appointing CAR in matrimonial proceedings to protect, identify and if required, realise worldwide assets.

Furthermore, should the level of assets required to pay the financial award and associated costs be insufficient/ or a demand for repayment is made and unsatisfied, the debt can be used to petition for their bankruptcy and an Insolvency Practitioner would be appointed as a Trustee in Bankruptcy to investigate the financial and business affairs of the spouse and use their far-reaching powers, pursuant to the Insolvency Act 1986, to recover assets. These powers are a particularly useful tool to deploy when dealing with uncooperative individuals who reside in other jurisdictions.

For example, GT were appointed as joint trustees in bankruptcy of an Omani national following the ex-wife presenting a bankruptcy petition following the husband not paying the financial settlement under the financial Consent Order within UK family proceedings.

A litigation funder purchased the judgment debt and as no payment was made a bankruptcy petition was filed and GT were appointed trustees in bankruptcy (“the Trustees”).

The Trustees used their extensive powers to investigate the financial and business affairs of the husband with a view to recovering assets for the benefit of the creditors of the bankruptcy estate, which included his ex-wife.

Bankruptcy of a party before or after the financial Consent Order has been sealed by the family courts

If one of the parties is made bankrupt prior to the financial Consent Order being sealed by the court within the family proceedings, then the family courts do not have the jurisdiction to make a Property Adjustment Order over the family home or any other properties that the parties may hold in their sole or joint names. If a Bankruptcy Order has been made against one of the divorcing parties, then it is only a Trustee in Bankruptcy that has the power to deal with the bankrupt spouses’ assets. There are certain exceptions if it can be shown that the divorcing party made themselves bankrupt to defeat ongoing divorce proceedings. Investigations can be carried out by the family lawyers and specialist accountants to obtain evidence should the bankrupt party have been solvent at the time the bankruptcy petition was presented; such evidence may have been disclosed in the family proceedings under the disclosure process.

An example of this is when negotiations were taking place within divorce proceedings to have the family home, which was in the husband’s sole name, transferred into the wife’s sole name as part of the divorce settlement. Prior to the financial Consent Order being sealed by the Court, a creditor of the husband petitioned for his bankruptcy and a bankruptcy order was subsequently made before the financial Consent Order was sealed within the family proceedings. The result being that the solely owned family home of the husband was now an asset of the bankruptcy estate and the Trustee in Bankruptcy, under the Insolvency Act 1986, had the automatic right for an order for sale. The family home needed to be sold in order to pay off the bankruptcy creditors. This left the wife with no home in which to live and a limited financial settlement. The wife then needed to make a claim within the bankruptcy estate.

Once the financial Consent Order has been sealed by the Court within the family proceedings prior to the onset of any bankruptcy proceedings, then generally speaking a Trustee in Bankruptcy cannot make a claim to any of the assets transferred by the party subsequently made bankrupt to the non-bankrupt spouse within the family proceedings. Again, there are certain exceptions if it can be shown by a Trustee in Bankruptcy that any auxiliary relief orders contained in the financial Consent Order within the family proceedings were agreed through collusion or misrepresentation between the parties.

Once the financial Consent Order has been sealed by the family court and then one party is subsequently made bankrupt, the terms of the financial Consent Order must prevail. Caution should be considered over provisions for periodical payments, as these may be adjusted if the bankrupt spouse can no longer afford to pay such payments to the non-bankrupt spouse; or a trustee in bankruptcy seeks an Income Payments Order for the bankrupt spouse to pay a percentage of his income into the bankruptcy estate leaving less to pay the non-bankrupt spouse their periodical payments.

Any assets that are transferred into a spouse’s name following the implementation of financial Consent Order who is then subsequently made bankrupt, will then belong to a trustee in bankruptcy to realise for the benefit of the bankruptcy creditors. The only exception to this is personal pensions which are assets that do not fall within the bankruptcy estate.

When finalising a financial Consent Order within the family proceedings it would be prudent to ensure that each party agrees to a declaration of solvency clause to safeguard against any suggestion of collusion or misrepresentation should one party subsequently be made bankrupt following the financial Consent Order being sealed by the Court.

Both Emma Easton of Turner Nicholson and Hannah Davie of Grant Thornton UK LLP will be happy to discuss any of the points raised within this article should you require any further information, or should you or any of your clients contemplating divorce proceedings or currently within divorce proceedings, have any concerns with regard to ownership or valuations of assets, dissipation, enforcement or insolvency.

Emma Easton
Partner
Turner Nicholson

Phone 01327 263583

Mobile 07980279889

Website www.turnernicholson.com

Email emma.easton@turnernicholson.com

Address 26 Warwick Road, Upper Boddington, Northanptonshire (Reg.office) and 55 Kingsway Place, Sans Walk, London EC1R 0LU


Hannah Davie 

Director, Insolvency and asset recovery

Grant Thornton UK LLP

D +44 (0)20 7865 2849

M +44 (0) 7887 588 947

T +44 (0)20 7383 5100

E hannah.davie@uk.gt.com  

grantthornton.co.uk

30 Finsbury Square
London, EC2A 1AG