I can transfer money to a trusted friend and it cannot be counted as a marital asset’

Thursday 19 August 2021 | 4 min read

When someone is going through divorce or separation and they hear that potentially ‘all is up for grabs’, they might be forgiven for wanting to protect their hard earned money, a family heirloom, or something that they brought into the marriage by hiding, transferring, or selling resources. However, it is important that the implication of any action is considered beforehand.

Full and frank disclosure

As part and parcel of the divorce, one has to look at a financial settlement. The starting point is to provide full and frank financial disclosure of resources. The word ‘full’ means ‘complete’ and the word ‘frank’ means ‘honest’. Should the disclosure not be provided or be incomplete, there will be  consequences.

Usually each party is expected to give at least 12 months worth of financial details. This means disclosing documentation such as:

• bank statements
• property valuations
• pensions valuations
• mortgage statements
• company accounts
• payslips
• P60s
• tax returns

Once the financial disclosure has been assembled, it is exchanged with the other person. These documents will be scrutinised to understand the full extent of the resources and ‘build up the matrimonial pot’ which then has to be divided. If there are unexplained entries, questions will be raised and explanations will need to be given.

Transaction considerations

One might think that if the money is in someone’s own account, it is their money and they can do with it as they wish. However, there are points that need to be considered before the transaction is undertaken:

• the amount of the transfer/sale
• the reason for the transfer/sale
• at what point during the divorce or separation the transfer/sale was done
• who was it transferred/sold to?
• was the transfer/sale genuine?
• what other resources are there?

Suspicion

It is possible to prevent resources from being transferred/sold if it can be shown that it is to deprive the other person of a fair settlement. The outcome of such an application might be to ‘freeze’ resources or, if already transferred, undo the transaction.

Sometimes, if the transfer/sale has happened without a legitimate reason, then it might be frowned upon and the consequences could be one or any combination of the following:

• undo the transfer/sale
• adjust the settlement to make up the amount of the transfer/sale
• order costs to be paid
• penalties such as prison, community service, etc
• create doubts as to a person’s credibility
• inference being drawn regarding the resources/disclosure, or any of the other resources

Where all traces of the resource have been eradicated, there may still be ways in which the transfer or sale could be discovered. The court may look at a person’s lifestyle, involve experts (such as forensic accountants), look beyond the 12 months to trace the funds, etc. In some cases, it may also be possible to order a ‘search order’ or even summon the person in receipt of the resource to explain what has happened.

After a financial settlement is reached

Even after a financial settlement has been achieved (either by agreement or a court order), one person might find that the other has transferred or sold resources to avoid complying with terms of the settlement. At that point, applications can be made to ensure that the terms of the agreement/order are held to/enforced.

Takeaway

There is no real advantage of being dishonest and any transfer/sale should be considered very carefully and advice sought. Open and honest communication with the other person cannot be underplayed. Otherwise, one could find that they are ‘opening a can of worms’. Also, providing complete disclosure as openly as possible, assists not only the other party so that they can then make an informed decision based on the financial information available but also, if one person comes to the table with open arms, they are likely to expect reciprocation.

As an aside but equally important issue, is self-help, which is outside the scope of this article. An individual might assume that it is perfectly reasonable to help themselves to disclosure to ensure that the other person ‘does not get away’ but there are serious consequences of doing so. It is important to obtain the appropriate advice before taking such action.