Repercussions of Failing to Provide Full and Frank Disclosures of Matrimonial Assets

Summary

In UZN v UZM [2020] SGCA 109 (“UZN”), the Court of Appeal allowed an appeal regarding a division of matrimonial assets by drawing an adverse inference against a party who failed to disclose/adequately explain his assets.

Reaching a fair assessment: How does a Court draw an adverse inference?

A Party’s non-disclosure of matrimonial assets would have the effect of diminishing the value of the pool of matrimonial assets to be divided, and places the undisclosed assets out of the reach of the other party to the proceedings.

The Court of Appeal in BOR v BOS and another appeal [2018] SGCA 78 laid down the well-established principles for drawing an adverse inference against a party in divorce proceedings:

there must be a substratum of evidence which establishes a prima facie case against the person against whom the inference is to be drawn; and
that person must have some particular access to the information he is said to be concealing or withholding.

The Court will not order an adverse inference against a party for every shortfall that is unaccounted for. The Courts recognise that the task of accounting for every transaction in a marriage would be impossible, particularly if the marriage was a long one, since parties would unlikely have kept detailed records, and may genuinely be unable to recount past transactions.

In the event that an adverse inference is drawn against one party, the Court gives effect to the adverse inference by either:

Ascribing a value to the undisclosed assets based on available evidence and include this into the pool of matrimonial assets to be divided (known as “the quantification approach”); or
Giving a higher percentage of the disclosed assets to the other party (known as “the uplift approach”).

The approach to be adopted by a Court is a fact-centric exercise based on the method it considers most appropriate for achieving a just and equitable result.

Background to UZN

The parties in UZN were married for 16 years with no children. The Husband is an equity partner of a law firm. The Wife worked as an administrator at the Husband’s law firm for 3 years from 2010 to 2013, but has been unemployed since.

The primary issue for determination was in respect of the division of their matrimonial assets.

Decision of the High Court (“HC”)

The HC valued the matrimonial assets at $1,908,602.19, and divided the parties’ shares in the proportion of 68% to the Husband, and 32% to the Wife.

The Wife alleged that the Husband’s expenses were vague and unsubstantiated, and that he was unable to provide a reasonable and reliable explanation on his earnings. Both parties appointed accounting experts to value the Husband’s earnings and shares in the law firm.

Crucially, the Husband’s own accounting expert concluded that the Husband’s cash balance ought to have been $428,678.36, while the total balance in his disclosed bank accounts amounted to less than $500.00.

Given the large discrepancy between the Husband’s earnings and bank account balances, the Court drew an adverse inference against the Husband for failing to make full and frank disclosure of his assets.

In light of the adverse inference, the Court adjusted the parties’ share of the matrimonial assets using the uplift approach by increasing the Wife’s share by 8% of the declared assets. The Husband’s share of the assets was reduced to 60% (totalling $1,145,161.31), while the Wife’s share increased to 40% (totalling $763,440.88).

The Wife filed an appeal and raised the issues of whether (i) the HC Judge was correct in his findings on the extent that the Husband failed to disclose his assets, and (ii) the manner in which the Judge gave effect to the adverse inference.

Court of Appeal’s (“CA”) Decision

The CA held that in the present case, where a spouse earned a significant income during the marriage for a number of years, yet has negligible assets at the time of divorce, this warranted a closer look at the Husband’s finances to explain the disparity, and as this was not adequately explained by the Husband, it was right to draw an adverse inference against the Husband.

The next issue concerns the approach to be adopted once an adverse inference has been drawn. While the CA indicated that the Judge’s decision on the approach to be adopted would not easily be disturbed, it opined that the court should prefer a finding which results in a higher share of the matrimonial assets being awarded to the other party.

The CA also provided guidance when electing the approach to be adopted.

Quantification Approach

Used where a specific asset has not been disclosed, and the Court finds sufficient evidence that this asset exists and ought to have been disclosed.
May be used even where the value of the undisclosed asset cannot be determined, since undisclosed assets would mean that any value ascribed to it would be speculative to an extent. Here, the court ascribes the likely value of an undisclosed asset, or ascribes a value based on a percentage of the total value of the matrimonial pool of assets.

Uplift Approach

Used where the court believes there has been a failure to make full and frank disclosure but accepts that a part of the assets may have been utilised or expended, and there is no information on the proportion of the expenditure to the non-disclosure.
May be used in cases involving assets of entirely unknown value.

Having considered the approaches and based on the factual matrix of UZN, the CA held that the quantification approach would have been the more appropriate approach to be adopted.

In adopting the quantification approach, the CA included the Husband’s expert’s finding of the Husband’s cash balance of $428,678.36 into the pool of matrimonial assets. In addition, the CA also included further unsubstantiated and undisclosed assets from the Husband. In total, the CA found that the Husband failed to disclose a total of $1,826,092.20 in assets.

The CA then included this amount into the pool of disclosed matrimonial assets, and awarded the Wife 32% of the pool of assets (which now totaled $3,734,694.39). The CA thus awarded the Wife $1,195,102.20 (from $763,440.88).

Conclusion

Ultimately, the Court, in dividing matrimonial assets upon a divorce, would endeavour to make a fair assessment of the pool of matrimonial assets to be divided to achieve a just and equitable division of the marital partnership between spouses. Drawing an adverse inference against a non-disclosing party is one tool that is available to the Courts to ensure that a fair assessment is reached.

The case of UZN is a pertinent reminder to parties in divorce proceedings to be mindful of their duty to provide full and frank disclosure of their assets. A failure to do so may result in the Court making a speculative effort to piece together the assets it deems to be undisclosed, which may in fact exceed the value of any actual assets that were not disclosed by a party.