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Divorced husband ordered to pay up after hidden share deal

The Court of Appeal has ordered a divorced husband to pay an additional £481,000 in ancillary relief to his former wife, five years after the original divorce was settled, because he hid information about a profitable share deal.                    

In April 2005, the couple reached an agreed settlement on a ‘clean break’ basis, whereby their assets were to be divided equally, with an additional payment of £200,000 from the husband to the wife.  This payment was intended to account for the likely higher earnings of the husband compared with the wife.

Shortly before the divorce, the husband had become a director of a start-up company in the then burgeoning sub-prime loan market.  As part of the divorce settlement process, he provided evidence that his salary would reduce and that he would not be a shareholder in the new company nor
have share options.

However it was later revealed that the information he provided was untrue. He did indeed subscribe to shares in the company, at par value of £200,000, taking out a loan to fund the subscription.  In November 2006, he sold around half of his shares at a net profit of £1,268,000. The husband made no gain on the remainder of the shares due to the collapse of the sub-prime market. He was made redundant later that year.

In March 2010, a court found that the material non-disclosure by the husband had invalidated the 2005 agreement but rather than set aside the whole award the judge decided to vary it by ordering a further £481,000 to be paid to the wife.  The husband appealed against the decision.

In the view of the Court of Appeal, ‘the husband had been guilty of deliberate, substantial and protracted non-disclosure’.  Even after the shares had been sold, the husband, through his solicitors, first claimed that these were valueless and then, after admitting that he had sold a proportion of the shares at a profit, claimed that 40 per cent Capital Gains Tax had been paid when, in reality, only 12 per cent had been paid by virtue of ‘taper relief’.

As a result, when arguments were advanced by his counsel that the entire 2005 order should be set aside, the Court decided against such action, on the basis that, if he had lied in statements used in earlier hearings, nothing he submitted to a future hearing could be accepted without lengthy and costly examination.  The Court held that, given the clear valuation of the previously undisclosed share deal, simply to make an additional award was the best solution. The appeal was duly dismissed.

“This case underlines the importance of making sure that information provided is truthful and complete when it comes to financial disclosure in divorce” says Melissa Markham Associate in the family team at Gullands.

Contact Melissa Markham, Philip Dimond or John Barrow in the family team at Gullands on 01622 678341.