The short answer is yes, potentially – they can. There is an obligation on both parties in a divorce to disclose assets fully and frankly. And marital property should be preserved until the court reaches a final decision that is fair to both sides. Transfers of valuable assets to family members or third parties before or during the process could be seen as a way to reduce the pot available for division by the court or in any agreed financial settlement.
We have previously discussed the implications for a spouse who attempts to hide assets and whose actions are subsequently discovered. They include reopening of settlements in the future and negative cost consequences for the offending party.
But is the situation any different when, instead of hiding assets, one spouse decides, whether transparently or not, to transfer assets to a third party? Divorce courts have a wide discretion to make property adjustment and other orders when making decisions on financial matters. And this extends to examining transactions with third parties, including family members, that have reduced the assets of one spouse.
The relevant rules are contained in s37 of the Matrimonial Causes Act, 1973. Below we discuss how the courts approach these cases and how such applications can be an effective way for a spouse to prevent their ex from transferring assets to family members during divorce.
Is the transfer ‘reviewable’ under s37?
The s.37 provision is only applicable to matrimonial proceedings but covers most forms of financial relief, including maintenance pending suits applications, financial relief generally and property adjustment orders.
Where a transfer has been made with the intention of defeating or reducing a claim for financial relief, the courts have power to set the transaction aside. And if the transfer has not yet been made, they can prevent the transfer from taking place with a freeezing order. However the court’s power only extends – in the language of the statute – to ‘reviewable dispositions’.
The rules state that a disposition made by one spouse in financial relief proceedings is not reviewable if it was made to a bona fide purchaser. That means:
- It was made for valuable consideration
- It was made to a person who was acting in good faith
- That person was unaware of any intention of the spouse to defeat or reduce a claim for financial relief.
Challenging Attempts to Reduce Or Prevent Financial Relief – s37 Applications
If the disputed transaction is reviewable, you must also be able to show that there is an intention to reduce your financial relief on the part of your spouse. Applicants are helped by a presumption that unless the contrary is shown transfers of assets that do in fact defeat or reduce the claim for financial relief were done with that intention. The presumption also applies in the situation where the transfer has yet to take place but would have the effect of reducing the financial claim.
If the s37 application is successful, the transfer can be set aside. The court has extensive powers to make any orders necessary to restore the status quo that existed before the transfer. For example, it can order a third party to sign a transfer deed of the property or pay back any money received by the third party.
Comment
In situations where a spouse suspects their ex is transferring property to reduce the amount available for a financial settlement, they should obtain specialist legal advice as a matter of urgency. Failure to do so could result in it being difficult to bring assets back within the jurisdiction of the courts. Sometimes it is tempting to take matters into your own hands and investigate your spouse’s financial affairs surreptitiously. But it is never a good idea to access documentation or computer records belonging to your spouse without consent. It could undermine your position in the eyes of the court and even open you up to the possibility of criminal or civil charges.
It also worth reiterating the limitations discussed above in what transfers are ‘reviewable’ under s37. If the transfer is made to a bona fide purchaser, the court cannot apply s37 and the asset’s value will fall outside the financial claim. (It may though in these circumstances still be possible to try to claim a larger share of another asset.)
Finally, because of the risk and expense involved, s37 applications should be made sparingly and only when it is proportionate to do so. Even where the conditions of s37 are established, the court still has a discretion as to whether to set aside or prevent a transfer. Where the asset transferred is low in value in the overall financial context of the case or where there are enough other assets to satisfy the financial claim it’s unlikely the application would succeed. Reassuringly however s37 does often act as a deterrent to a spouse thinking about trying to transfer assets to thwart a legitimate financial claim.