What is financial disclosure and why is it necessary?
Financial disclosure is a term given to describe the giving of your financial information, usually supported by documentary evidence, to your spouse and to the Court. After issuing a Petition for divorce this is usually the next step to achieving settlement. As lawyers we are unable to provide you with any specific advice regarding your current and future financial position without seeing both yours and your spouse’s financial disclosure.
Financial disclosure is essential whether you intend to use the court to achieve settlement or you are looking to reach terms of settlement without court proceedings. In fact, the court will order financial disclosure as soon as an application to court has been made, before any hearing even takes place. Disclosure takes place using a standard form called a Form E. The same form is used in every single case whether you are ultra-wealthy or you are looking for a way to repay matrimonial liabilities. The form is relatively long and asks you to write down and provide supporting evidence of your income, assets, pensions, liabilities and so on.
But why is all this necessary?
Within your marriage you and your spouse may have always been totally open and frank with each other about your finances. You may have even shared a joint bank account and has access to a filing cabinet full of supporting letters and documents. Often a marriage of many years gathers an inevitable intertwine of family finances. The law is very clear when it says that the available resources of a marriage must be divided fairly upon separation. When a lawyer is asked ‘what is fair’ he or she must base her answer upon clear facts supported by evidence. Neither your lawyer nor a court can know what will be a fair solution unless everybody knows the full and true financial picture.
Many lawyers will tell you of their experiences of finding hidden assets or income and many will tell of business valuations and pension provisions not being as one originally thought – no matter how much knowledge a spouse may have available to them. The providing of truthful financial disclosure is essential. If you or your spouse gives false information this could be deemed as a criminal offence or contempt of court. If a court order is made based upon incorrect financial disclosure a party may ask the court to reopen the case and make a new order.
How can I prepare for giving financial disclosure?
It will assist greatly if you can provide your financial disclosure in an organised way. We will provide you with a list of the documents we will require in order to prepare your Form E and it will reduce your costs significantly if the supporting evidence you have gathered is presented in a lever-arch folder with dividers/markers identifying the relevant sections.
You will be asked for historical bank statements and evidence of your pension value, if applicable. These documents can take some time to come through therefore it is beneficial if you contact the relevant organisation to obtain the information as soon as possible. You may also need information from your financial advisor or accountant and so it is often wise to inform them of the divorce proceedings at an early stage so that they can be on standby to provide any necessary information when required.
What if my financial circumstances change after I have completed my Form E?
You are under a continuous obligation to provide your spouse and the court with up-to-date financial disclosure. If circumstances change, which they often do, advising the other party of the change should not be considered detrimental to your case. It is an obligation and any change in circumstances should be communicated to your lawyer immediately. Your lawyer will then discuss with you how this change will affect your case, if at all, and will inform all relevant parties of the updated disclosure.
A guide to an application for a Financial Order
Whether you are the husband or the wife when you make an application for the court to determine the terms of your financial settlement the form is the same as is called a ‘Form A’.
When the court receives the application it will generate some standard directions to enable your case to progress to the next stage. You will be given the following dates:
a) The date that you must both file at court, and provide copies to each other, a completed financial disclosure form (Form E) giving full details of your financial circumstances.
b) The date that you must both having reviewed the others Form E file with the court and exchange a short statement setting out what the financial issues appear to be, a chorology of important dates, any questions you want to ask your spouse about the information they have provided about their financial position and a form which states whether or not any further directions are necessary or if the case can progress ahead of a directions hearing to a mediation hearing.
c) The date and time for the first court appointment (sometimes referred to as an FDA or first appointment).
What happens at the first court appointment?
The first appointment is usually a short hearing and factual procedural matters are discussed rather than the terms upon which your case should conclude. At the first appointment the court will consider what further information is required to enable the Court to determine how a final settlement can be reached. The judge will order further dates for questionnaires to be answered and also consider what additional expert evidence is necessary. For example the court may decide that formal property valuations are required or a pension report to determine how a fair pension share can be reached.
Following the hearing a further date will be fixed for the next stage in the proceedings.
It is essential that during the time period between the first and second hearing (FDR) all relevant evidence of financial positions is gathered to the full satisfaction of both parties. If further information is required it is necessary to request the same from the other party or bring the matter back before the courts for a further short directions hearing for any outstanding issues to be dealt with.
What happens at the FDR?
The FDR (financial dispute resolution) hearing is usually the second court hearing. It is a longer hearing than the first and is designed to consider terms for settlement now all disclosure has been obtained and considered.
The FDR is a ‘without prejudice’ hearing, which means each of you is able to make proposals for settlement that cannot be referred to openly in court afterwards. Before the hearing both parties will set out in writing how they would each like to settle. The Judge will read those letters and will try to assist you to come to a settlement. Usually the Judge will give an indication, a view, of what they think could be an appropriate solution and how they might order financial settlement if they were the Judge at the final hearing. If you are able to reach an agreement the court can potentially make an order that day to formalise your agreement and end the court proceedings.
If you are not able to conclude an agreement on the day the Judge cannot force you to do so and instead will give any further directions about what is needed to get the case ready for the court to make a decision. This may include asking each of you to prepare a detailed statement and will fix a date for the final hearing.
What happens at the final hearing?
If it is not possible to reach an agreement, the court will decide at the final hearing (usually the third hearing) how you will financial separate. The court will rule upon all outstanding issues such as any property, assets and income. It is rare for proceedings to reach a final hearing. Most people agree at either the FDR or shortly afterwards. At a final hearing, the applicant presents their case first, then the respondent says what they want to happen. Each of you, and any experts you have asked for an opinion, will have to give evidence and be cross-examined by the other (or their legal representative if they have one). After hearing all the evidence and submissions from each of your legal teams, the judge will make an order about what should happen.
There is limited scope to have your costs paid by the other person in financial proceedings. The general rule is that each person pays their own legal fees.
The Courts have a strong emphasis on encouraging the husband and wife to agree on the division of their finances between themselves. Going to Court can be an expensive and time-consuming process; therefore it is in the parties’ own interests to settle matters out of Court.
Although reaching a financial settlement out of Court can often be more cost-effective and timely, it still has several stages and will require expert advice.
First, the parties will exchange a document called a Form E; this document contains financial information about your capital assets, pensions, income and needs and is probably the single most important document in your divorce. If matters were being dealt with through Court, the Court would order that this document be exchanged in the early stages of proceedings. However, it is equally important when negotiating out of Court. This is because your lawyers cannot begin advising you on how your finances could be fairly divided until they know the full financial picture.
Once you have exchanged financial information and raised any queries you may have, your lawyers can begin negotiating on your behalf.
Proposals for settlement will be put forward by one side, then the other spouse will make counter-proposals until the parties reach a settlement upon which they agree. Of course, there is a lot to consider and your lawyer will provide constant guidance.
If either party does decide to issue Court proceedings, they must file the Form A to commence these (see ‘Financial Orders’ tab for more information). In most cases, you must then attend a Mediation Information and Assessment Meeting (MIAM). This is an opportunity to negotiate with your partner in the presence of a specialist mediator who will facilitate discussions and is another example of the Court’s encouragement of settlement.
It is possible to reach agreement at any stage up until the Final Hearing. Once the parties agree on how the finances are to be divided, your solicitor will then draw up a Consent Order. The Judge will look at this on paper and if he’s happy it receives the Court seal and is legally binding.
Call us if you would like further advice on financial settlements.