Transferring money during divorce: key legal pitfalls explained

When an individual is going through divorce/separation and they hear that potentially, ‘all is up for grabs’, it is understandable that they might want to protect their hard-earned money, a family heirloom or something that they brought into the marriage. However, it is important that the implication of hiding, transferring, or selling resources is carefully considered beforehand.

Full and frank disclosure

As part of the divorce process, it is necessary to consider a financial settlement. The starting point for this is the exchange of full and frank financial disclosure. Full means complete, and frank means honest. If disclosure is not provided, or is incomplete, there can be serious consequences. Usually, one is expected to give at least 12 months of their financial detail. 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 provided, 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 their 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:

What was the amount of the transfer/sale
What was the reason for the transfer/sale
At what point during the divorce/separation was it done?
Who was it transferred/sold to?
Was the transfer/sale genuine
What other resources are there?

Suspicion of pending transactions

It is possible to prevent resources being transferred/sold if it can be shown that the transaction is intended to deprive the other person of a fair settlement. The relevant law is set out in Section 37 of the Matrimonial Causes Act 1973. If successful, such an application may result in the assets being 'frozen' or if already transferred, the transaction could be undone.

Has the transaction already happened?

This very much will depend on the circumstances and looking at the above considerations. Sometimes, if the transfer/sale has happened without a legitimate reason, then it might be frowned upon, and the following consequences could be the result (one or any combination):

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

Some may believe that once a resource has been completely hidden or removed, there is little chance of it being discovered. However, the court has various tools at its disposal to investigate suspected non-disclosure. It can examine a person’s lifestyle, instruct experts such as forensic accountants, and look beyond the standard 12-month period to trace funds. In some cases, the court may also grant a search order or summon the person in receipt of the asset to give evidence, in order to uncover the true position.

Financial settlement reached

Even after a financial settlement has been reached (whether by agreement or court order) it is still possible for one party to transfer or dispose of assets in an attempt to avoid complying with the terms of that settlement. While this may seem like a situation with no remedy, there are applications available to enforce the terms of the agreement or order.

Conclusion

There is little to be gained from dishonesty, and any transfer or sale of assets should be approached with caution and proper legal advice. Open and honest communication with the other party is essential and should not be underestimated. Failing to do so can create unnecessary complications and risks. Ultimately, providing full and frank financial disclosure benefits both sides: it allows the other party to make informed decisions, and it sets the tone for cooperation. When one person approaches the process openly and in good faith, they are more likely to receive the same in return. If you reach a financial settlement without giving full disclosure, then you risk that settlement being set aside in the future if the non-disclosure is discovered.

A separate 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 obtain disclosure without consent to ensure that the other person does not hide any assets, however there are serious consequences of doing so. It is important to obtain the appropriate advice before taking such action.

*This article is not intended to be legal advice and specific advice in relation to individual circumstances should be obtained from a solicitor or family law specialist to assist with the matters raised in this article.