It was recently reported that in her divorce proceedings from husband Michael Lockwood, Lisa Marie Presley is being accused of hiding assets. In the particular circumstances of that case, the issue appears to be that a list of assets has been provided with values described as “unknown”. It does however raise the interesting question of how easy it is to hide assets in the context of a divorce action.
In Scotland, there is no specific duty of disclosure enshrined within our legislation. Suffice to say however that it is expected and encouraged, both in the context of any negotiation and even more so in the conduct of a divorce litigation.
We are sometimes asked by clients instructing us shortly after separation whether there is any way to move assets outwith the reach of their spouse. The frank answer to that is no, and that is for two reasons. The first of those is that in Scotland the entitlement to share in the matrimonial property crystallises as at the date of separation. Therefore, the financial position is being looked at as at that date, irrespective of any subsequent transactions. Secondly, within our legislation the Court has the power to set aside “avoidance transactions”. This allows the Court to set aside or vary any transfer of, or transaction involving, assets owned by the other spouse if the Court is satisfied that the transfer or transaction had the effect of, or is likely to have the effect of, defeating in whole or in part any claim. Therefore, it does not necessarily have to relate to a deliberate attempt at avoidance. . The Court can go back as far as five years from the action being raised, and therefore even any pre-emptive efforts in anticipation of a separation to move assets outwith the reach of a spouse can also fall foul of the legislation.
While there is a caveat that the unwinding of any such transaction is not to prejudice any rights of a third party, where the third party has acquired an asset in good faith, the Court’s power to set aside is intentionally sweeping, and in most cases will render any attempts at avoidance rather null and void. Even if set aside were to fail, a deliberate attempt at avoidance is unlikely to be received well.
Seeking to move assets out of the pot is one angle – the other that we regularly deal with are cases where one party is wilfully obstructive, or deliberately seeks to hide, the existence of assets which might fall within the definition of matrimonial property, or which might otherwise be relevant to the conduct of the case as a whole.
In these situations, there is a process by which, via the Courts, an order can be obtained for recovery of documents from the other spouse, and from any third party who might hold information on their behalf. This can include banks, family members, accountants, and corporate bodies to name but a few. Once served on the spouse and the various third parties, there is a seven day period for a response and the spouse who is the subject of the order has no control over what information any third party “returns” in response. We regularly see situations where third parties have, in misinterpreting the terms of the order served upon them, given us much more information than would have been required, and sometimes to detriment of the “non-discloser”. It is therefore always our advice to clients that it is much better to disclose information voluntarily, than be subjected to the uncertainties of the recovery process.
The final and perhaps self-evident point to note is that the failure to disclose information timeously and relevantly is not something which goes down particularly well in the context of any divorce action. Wilful failures to disclose, particularly if that then causes delay, can become extremely relevant to any question of expenses as the case proceeds.
There is a great deal that an experienced family law Solicitor can do to ensure the best possible outcome for their client. Whilst the temptation may be there to move or hide assets with the intention of minimising claims, in the vast majority of cases it makes it much harder to secure a good result. Our advice is that in the conduct of the financial issues arising from separation, honesty is always the best policy.