Informed Consent Crucial for Family Law Financial Settlements

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“It is now, clear, that not only is the identification of each and every proprietary interest and resource necessary, together with a proper basis to estimate of value, but also, what needs to be disclosed to the other spouse is all negotiations, information and other dealings in relation to all proprietary interests that may or may not affect the value and interests that have been dealt with in any proposed property settlement Consent Order.”

A Case earlier this year highlights the massive dangers facing litigants who do not disclose all details about a financial settlement that are relevant to enable the other party to make a fully informed consent before signing off on a deal.

In a Court of Appeal decision of the Family Court, in early 2016, a property settlement Consent Order was entered into by the parties in 2005. Some nine years later, the wife sought to set aside that Consent Order and re-litigate the issue of property settlement.

If a property settlement Order is set aside under the Family Law Act, then the Court re-hears a property settlement based on current day values and existence of property and makes a new Order. The Court is not confined to assets that existed ten years ago, nor their value ten years ago.

In this Case, the wife received property and other interests, together with a cash payment in 2005 of $185,000.00.

Ten years later, she was successful in her Appeal and upon re-hearing, despite only receiving 35% of the net assets, she received a further cash payment of $2million.

In some cases, the lack of disclosure and information provided to the other spouse is so obvious and has such a material effect, that one can anticipate that Orders will be set aside.

That was not the case here and it serves as a frightening reminder to practitioners in family law, and their clients, to make sure that the duty of disclosure by their client is very extensive and is operative until the time that Orders are actually approved.

In this Case, there were two major grounds of complaint by the wife. She alleged that the husband had represented the value of one of their properties to be worth $550,000.00. There was a Notation on the Orders that actually said that each party thought this property was worth $550,000.00. Unbeknown to the wife, the husband had earlier represented to a Bank that the property was in fact worth $700,000.00.

The normal reaction to that by an experienced family law practitioner may be “so what, the wife knew about the property and she could have commissioned her own Valuation – neither of the husband or wife were valuation experts, so why should that matter?”

The Bank document was an Application for Finance form dated 20 March 2005 (some four months before the approval of the Consent Orders), signed by the husband and represented that the said property actually had a value of $700,000.00.

In this Case, the Trial Judge held that if the representation by the husband to the Bank had been disclosed and the Application form in which it was contained, the wife would have been put on notice of the discrepancy between that representation as to value and the significantly different representation as to value made relatively contemporaneously in Consent Orders. It was said that she was denied that knowledge and the consequent opportunity to make such further or other enquiries as she may choose as a consequence. It was this impugning of the “integrity of the judicial process” which the Trial Judge said lay at the heart of the requisite finding of miscarriage of justice. It was said that the integrity of the judicial process in respect to the Orders made by consent, demands full and frank disclosure about the Orders and the anti-seeded negotiations, because the integrity of that process depends upon each party giving a free and fully-informed consent to the Orders.

Similarly, the husband was attacked in relation to his representations as to the value of his business and disclosure as to the business’ purchase of a 50% share in another company. The Notations to the 2005 Order actually stated that the parties considered that the husband’s interest in the business was “nil” and that it had not returned a profit for a number of years and was currently in debt. Importantly, one would think, the Notations to the Orders also disclosed that the husband was in negotiations to purchase a 50% share of another company and that in doing so, his share of business profits in the future would be reduced and that he has no expectation of a significant increase to his income, at least over the next few years.

In other words, the husband attempted to disclose negotiations about his business’ purchase of 50% in another business and the effect on current and future income.

Once again, there could be no doubt that the wife knew of the existence of his current business and she knew about the existence of negotiations to buy another business at the time that she signed the Consent Orders.

Once again, the Trial Judge said that it was not so much the value of the husband’s business that was relevant, but the lack of disclosure causative of the miscarriage of justice, was the omission of significant information concerning the negotiations and the proposals. Further, at the time the Consent Orders on 20 July 2005, the husband had actually completed negotiations. The Share Sale Agreement was dated 30 June 2005 – and actually gave the husband shares in the new company.

The Court of Appeal found clearly that the failure to disclose the “value of the interest” at the time of the concluded deal, did not give rise to a miscarriage of justice, but in fact, it was the failure to disclose information and documents which may have provoked enquiries by the wife as to whether the picture painted in respect of the new company (mentioned in the Consent Orders) was an accurate one, or at least, further enquiries were warranted. It was said that the wife was denied an opportunity to negotiate a settlement whose terms may have reflected what was revealed by information and documents that were not disclosed by the husband.

The Case has important and serious ramifications for clients who are involved in large property settlement matters when reaching agreements with their spouse.

It is now clear, that the failure to make a full disclosure of not just documents, but also information, negotiations or dealings that could have any impact upon the nature and value of the matrimonial proprietary interests, must be disclosed.

Counsel for the husband (Respondent to the Appeal), submitted strongly that the miscarriage of justice could not arise because even if those documents and information had of been made available to the wife and properly valued at the time, that there would have been no difference to the outcome – that is a common argument made in previous cases about whether a miscarriage of justice is established or not. However, the Full Court made it clear that such an enquiry may be relevant to the exercise of establishing whether a miscarriage of justice occurred or not, but it is not essential to the finding. They said that the maintenance of the integrity of the judicial process, through the measure of miscarriage of justice is not necessarily connected with the comparison of what the Orders provide, compared with what a party may have received from the Court, had consent not been given.

It is said that the requisite miscarriage of justice derives from a parties’ consent not being a free and informed consent…where there is a failure to disclose matters relevant to the decision to enter into the Consent Orders that are peculiar within the knowledge of that party or omissions, which knowingly engendered, or permitted a mistake in understanding of the part of the other party.

Even if a miscarriage of justice is established, one would have thought from previous Full Court decisions that the exercise of the discretion (setting aside an Order is always a discretionary remedy), would not be exercised in the circumstances where the result would have been the same back in 2005. However, the Full Court again disagreed with that proportion and said that with respect to the value of assets included within the Consent Orders may be one of those circumstances, but again, the comparison of values is but one example of circumstances that might inform the exercise of discretion.

Of particular relevance, it seems in this case, it was up to date financial information which would have been contained in management accounts at 30 June 2005, which showed the earning of the business had improved and was in excess of $600,000.00.

Even though that increase in revenue of the business may not have, at the time, affected the value of the business described by the parties in the Consent Orders, the fact is that in the Consent Order Notations, the husband noted that he would not expect there to be any increase to his income. The Court of Appeal said that may or may not have been the case, but what was important was the fact he failed to disclose those negotiations and/or the up to date relevant financial information at the date the Orders were actually made. They said that the essential mischief to which the duty of disclosure is directed was the failure by the husband to disclose information and documents which prevented the wife herself, from deciding the materiality of what each might contain and denied her the opportunity to make such enquires as she may have chosen, so as to render her consent a fully informed consent.

The ramifications for advisors acting for clients in large property matters is enormous.

One can only imagine the duty of disclosure that is now necessary in large blistered business operations, property developers and other wealthy individuals who rightly try to settle their matters sensibly through negotiations and a Consent Order.

It is now, clear, that not only is the identification of each and every proprietary interest and resource necessary, together with a proper basis to estimate of value, but also, what needs to be disclosed to the other spouse is all negotiations, information and other dealings in relation to all proprietary interests that may or may not affect the value and interests that have been dealt with in any proposed property settlement Consent Order.

The ramifications are enormous.

Husband and wives are not valuers. They are not experts as to what something is worth. However, it now seems that whatever information one party withholds from the other (regardless of whether that impacts the identification and value of an asset) must now be disclosed to the other party so that they can make due enquiries and make their own assessment of what impact it has on the Consent Orders. It seems it does not matter if those own enquires that would have been made by the wife, would have still resulted in her signing the Consent Orders. It is now said, that the fact she was not availed of information, it means the consent was not fully informed and therefore there has been a miscarriage of justice and the risk is that the Court will exercise a discretion to set aside an Order.

It is suggested, in any property settlement, but particularly in those involving substantial assets and wealth, that there now needs to be extensive due diligence undertaken prior to the signing of any Consent Orders or Binding Financial Agreement.

That should involve a Brief of documents disclosing all relevant information and negotiations that have taken place in relation to any matters at all concerning each and every proprietary interest, entity, income, liabilities etc within the matrimonial pool.

That task is simply enormous but seems to be now essential having regard to the recent decisions of the Court of Appeal in the Family Court.

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