Form E failures: dos and don’ts during disclosure
By:2 commentsNovember 24, 2017
When a marriage that has broken down irretrievably, parties in the process of obtaining a divorce or separation are expected to make full, frank, relevant and continuing financial disclosure to each other, setting out full details of their circumstances.
Family law group Resolution encourages, and indeed expects, both parties to voluntarily begin financial disclosure at an early stage in order to help move negotiations along and increase the chances of reaching an amicable solution, thereby avoiding the acrimony and costs of having to go to Court.
Without an exchange of financial information then neither party can receive proper advice upon any settlement. Put very simply, the size of the matrimonial cake needs to be known and agreed before it can be shared out.
Indeed, if either party makes an application to the Court for a financial remedy (settlement) order, then the Court will automatically order both parties to fully disclose their finances and assets. These details will need to be filed with the Court and exchanged with each other by a given date.
It makes sense to therefore prepare and exchange this information as soon as possible.
In all but the most simple of cases, the usual manner in which mutual financial disclosure is made is by completing a document known as a Form E. This is a comprehensive document, a little like a questionnaire, in which each party sets out full details of their finances, with those details supported by certain, clearly identified documents which verify the information in the form. The form runs to some 28 pages or so and at first sight can be somewhat daunting to the uninitiated.
As a practitioner with over 35 years of experience in this area of law, I find even to this day that completed Forms Es can be spectacularly lacking in the required information and supporting documentation.
Even though the form can look quite intimidating at first glance, it is really not that difficult to complete it and with the benefit of proper legal advice there is no reason for it not being completed properly.
A poorly-drafted and presented Form E will take far more time to deal with and mean that the parties often has to ask for additional details in a questionnaire or ‘schedule of deficiencies’, incurring both in additional, unnecessary costs. They can also confirm one party’s suspicions that the other party is not being forthright and may be trying to hide assets or muddy the waters.
Stowe Family Law is probably one of the only dedicated specialist family law practices to have an in-house forensic accountancy team. This can be invaluable in the preparation of accurate Form Es, particularly where business assets are involved. The forensic accountancy team can also help scrutinise the other party’s Form E and supporting documents and raise relevant questions if the information therein seems to be lacking or unclear.
Let’s take a look now at some of the more common problems found in completed Form Es.
- Property valuation
The inclusion of a current valuation of any properties owned is good practice but not obligatory unless one has been obtained within the last six months. I would always recommend that an up-to-date valuation is provided for all properties owned, unless of course both parties fully agree on its current market value. A further common omission is an up-to-date mortgage redemption statement, showing the amounts outstanding for any mortgages secured against the properties. These should always be obtained and should be current.
- Bank details
All bank accounts, building society accounts and National Savings accounts held by either party over the previous 12 months, including joint accounts, must be fully detailed in the Form E. You will need to set out the name of the bank or building society, the type of account, the account number, the names of the account holders, the current balance and that party’s share of that balance. It is amazing how many times I find that bank accounts have not been disclosed, only to be revealed later on after questions have been raised. Often bank statements are not provided for the necessary period – i.e. a full 12 months – or they are illegible, or certain periods of time are missing or one statement merges into another statement making it impossible to clarify what accounts are held and what the current balances are. It really is not rocket science to provide a full 12 months of bank statements for each and every account held.
This includes such assets as PEPs, ISAs, TESSAs, National Savings, bonds, stocks, unit trusts, investment trusts, gilts and other quoted securities. These must be disclosed, giving the full name of the investment, the type of investment, the size of the holding, its current value, the names of all parties with an interest, and the current value of that party’s interest. The key documentation required in support will be the last statement or dividend counterfoil for each and every investment.
All life assurance (endowment) policies must also be disclosed even if they have no surrender value and pay out on death only. If they do have a surrender value, that should be included of course.
Details of all monies owed to a party must be included, as well as all cash sums held in excess of £500. Similarly, all personal belongings individually worth more than £500. Often valuable items of jewellery or family heirlooms are often excluded when they should of course be disclosed.
On the flip side of this coin, all liabilities should be disclosed as well, with details of who the debt is owed to and the current amount of the liability. Interestingly, the Form E does not require supporting documents to be provided for this, but I always recommend that they should be included anyway to save time, as the other side is likely to request up-to-date statements for verification.
- Capital gains
If capital gains tax might be payable, then it is good practice and indeed expected that a calculation should be included in the Form E, as clearly this has an effect on the net value of the assets. As Stowe Family Law has its own forensic accountancy team these calculations can be undertaken in-house.
- Business assets
There are detailed sections of the Form E for any business assets or directorships. These need to be completed with supporting documentation, including business accounts for the last two financial years and any documentation that values a party’s interest: either a formal valuation or otherwise, with all directorships held or having been held in the last 12 months detailed.
As the parties’ pensions are often very valuable items in the pool of matrimonial assets, these can be taken into account by the Court, so full details of all pensions need to be provided in the Form E, together with an up to date cash equivalent (CE). The CE is an important document which the Court requires for the initial valuation of all pensions held. As they can take quite a long time to obtain from the pension provider, it is good practice to ask for these at a very early stage, to avoid delay later on in the proceedings. The pension providers are obliged by law to provide this information and documentation to the member of the pension scheme, free of charge, annually. In certain cases, the cash equivalent may not be an adequate valuation and in those cases it may be necessary to obtain an actuarial report on the pensions held, but this would have to be ordered by the Court at the first appointment hearing.
Parties to a divorce must also fully declare their income from all sources, whether that be from employment, self-employment, a partnership or investments – i.e. dividends, interest, rental income, state benefits, pensions or any other source. Supporting documentation must be provided for each type of income. So for example, for PAYE employment the P60 for the last financial year will be needed, along with the last three wage slips they received and the last form P11D if this is relevant.
- Income needs
Each party will also be required in their Form E to set out a schedule of their monthly or annual income needs, both for themselves and for any children, as well as their ‘capital needs’ – i.e. the funds they may require to purchase a property or replace a motor vehicle or undertake essential repairs on their home. It is good practice to obtain details of several suitable properties similar to the former matrimonial home to assist the Court in establishing the costs related to that party’s housing needs. This is often not dealt with at an early stage but it is preferable to do at the outset to clearly establish housing needs.
- Changes in circumstances
There are other sections towards the end of the Form E that require details of any significant changes in assets or income over the preceding 12 months or in the following 12 months. Further sections allow comments upon relevant factors such as contributions or inheritance prospects or conduct. It should be remembered that in the case of the latter, only the most serious misconduct should be detailed and only if it is relevant to the financial issues at hand.
At the end of the Form E each party must sign a ‘statement of truth’ which confirms that the information they have given is a full, frank, clear and accurate disclosure of his or her financial and other relevant circumstances. It includes a warning that anyone making false statement on the Form E may face Contempt of Court charges.
Even after the Form E has been filed and exchanged, the parties must make full, frank, relevant and continuing disclosure of their finances until an agreement has been reached or the Court has made a final order. In effect, this means each party will be legally obligated to disclose to the other party any changes in their financial circumstances, or indeed any relevant changes in their personal circumstances.
Although to the uninitiated Form Es may appear cumbersome, one of the beauties of their use is that both parties exchange like-for-like documents. Furthermore, the Form E acts as an excellent check-list of what information and what supporting documentation needs to be disclosed during the divorce.
If the factors I’ve listed above are all taken into account when completing a Form E, then you are far more likely to avoid unnecessary delays, costs and questions later on.
It is always advisable to seek independent legal advice, preferably from a family law specialist, if you are required to complete a Form E.
Photo by AgriLife under a Creative Commons licence
November 24, 2017
Categories: Finances and Divorce