Can I Move Assets During Divorce?
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Can I move assets to a family member during my divorce?
The breakdown of a marriage often leads to difficult questions about finances, and one that divorce lawyers hear frequently is: “Can I move assets to a family member during my divorce?” The straightforward answer is no, you should not. Not only does this breach your legal duty of full and frank disclosure, but it can also result in serious consequences under section 37 of the Matrimonial Causes Act 1973, including having those transfers set aside by the court, and a costs order against you.
The duty of full and frank disclosure
When going through divorce proceedings in England and Wales, both parties are under a strict legal obligation to provide “full and frank disclosure” of their financial circumstances. Full and frank disclosure means providing complete, honest information about all your financial assets, liabilities, income and expenditure. This includes everything from bank accounts and property ownership to investments, pensions, business interests and valuable items such as cars.
The duty of financial disclosure is continuous throughout proceedings, meaning you must update the court and your spouse about any changes to your financial position as they occur. If you intend to move assets, you must disclose this in advance and the reasons why (e.g. debiting a savings account to pay a tax bill). This disclosure process typically involves completing Form E, a comprehensive 30-page financial statement. The form includes a statement of truth, and if someone makes a false declaration of truth on an answer to a Questionnaire, the punishment is up to two years’ imprisonment for contempt of court.
As the courts have repeatedly emphasised, the duty of disclosure ensures that both parties can make informed decisions about their separate financial futures, and that any financial settlement reached is based on complete information. Without full disclosure, it would be impossible to achieve the fair division of assets that family law seeks to provide, and indeed impossible for your family law solicitor to advise confidently on what a fair outcome would look like.
Section 37 of the Matrimonial Causes Act 1973
Section 37 of the Matrimonial Causes Act 1973 (MCA) provides the court with significant powers to prevent and unwind any attempt to defeat financial claims through asset disposal. This legislation serves as a crucial safeguard against parties who might attempt to hide, sell, transfer or give away matrimonial assets to stop their spouse from receiving their fair share.
The section operates in two ways. First, the court can grant injunctions to prevent someone from disposing of assets if it appears they are about to do so with the intention of defeating their spouse’s financial claim. The starting point is that these freezing orders can apply to all types of assets, including bank accounts, property and investments, Bitcoin and cryptocurrency and even intangible assets like goodwill.
Second, and perhaps more significantly for our purposes, section 37 allows the court to set aside transactions that have already taken place if they were made with the intention of defeating a financial claim. This means that transferring assets to family members during divorce proceedings, even if completed before any legal action is taken, can still be unwound by the court.
When are dispositions “reviewable”?
The legislation defines certain transactions as “reviewable dispositions” that can be set aside by a judge. A disposition includes any conveyance, assurance or gift of property, and is not limited to assets within England and Wales—it extends to property anywhere in the world.
For a disposition to be reviewable under section 37, it must not have been made for valuable consideration to someone acting in good faith and with no knowledge that the parties were going through a divorce. In practical terms, this means that genuine arm’s length transactions at market value to innocent third parties are less likely to be set aside, but transfers to family members rarely meet these criteria.
Crucially, if a disposition takes place within three years of a financial relief application, there is a statutory presumption that it was made with the intention of defeating the applicant’s claim. This presumption shifts the burden of proof to the person who made the transfer to show they did not intend to defeat their spouse’s financial claim. This is a difficult burden to discharge when the transfer involves family members.
The AP v BP case: a cautionary tale
The 2023 case of AP v BP & Ors provides a stark illustration of how the courts deal with attempts to transfer assets during divorce proceedings. In this case, a wife transferred her shares in the family business to third-party investors for £51—significantly below their true value—while also arranging for litigation funding against her husband for losses she said her husband had inflicted on the business.
The judge found that the wife intended to undermine her husband’s position by removing him as a director and replacing him with the transferees to further her own interests. He was particularly critical of what he described as “secret manoeuvres, manipulations and underhand dealings in a misguided attempt to gain financial advantage.” The court set aside the share dispositions, finding that they were reviewable dispositions made less than three years previously with the intention of defeating the husband’s financial claim.
This case demonstrates that the courts will scrutinise asset transfers carefully and will not hesitate to unwind transactions that appear designed to frustrate legitimate financial claims, regardless of how sophisticated the arrangements might appear.
The serious consequences of asset disposal
The penalties for attempting to hide or dispose of assets during divorce proceedings are severe and wide-ranging. Consequences can include:
- The court making a less favourable settlement for the party who disposed of assets, effectively penalising them by awarding their spouse a larger share of the remaining assets.
- “Adding back” the value of disposed assets, treating the guilty party as if they still owned them for the purposes of the financial settlement.
- A costs award against the party who has breached their disclosure duties, meaning they may have to pay both their own and their spouse’s legal fees. Given that complex asset disposal cases often involve expensive litigation, including forensic accountancy and legal proceedings to trace hidden assets, these costs can be substantial.
- More seriously still, deliberately providing false information to the court can constitute contempt of court or even perjury.
What if the transfer is legitimate financial planning?
Of course, not every transfer of assets to a family member will be an improper asset disposal. The courts recognise that people need to deal with their finances in the ordinary course of their business and personal life, even during divorce proceedings. Transactions at full market value are less likely to be problematic, since the value received in return is typically added back into the matrimonial pot for division between the spouses. Other transactions that may be permitted include regular expenditure to the family member for their genuine living costs, or business transactions undertaken in good faith and in the usual course of business.
However, even these can come under scrutiny if there is any suggestion that the purpose was to defeat or undervalue the other party’s claim. The key consideration is always whether the intention behind the transaction was legitimate and whether all financial dealings are transparently disclosed to the court and your spouse. It is always best to disclose intentions in advance of any asset movement.
Protective measures available to spouses
If you suspect your spouse might be attempting to dispose of assets, tell your solicitor immediately. The sooner protective measures can be put in place, the easier it is to bring the asset back within the jurisdiction of the court.
The most immediate remedy is to seek a freezing order (also known as a freezing injunction or Mareva injunction) which prevents the disposal of specified assets. These applications can be made urgently, sometimes even without notice to the other party if there is evidence that assets are at immediate risk. The court will consider factors such as whether there is a real risk of disposal and whether damages would be an adequate remedy if the assets were dissipated.
Additionally, the court can make orders for disclosure against third parties, including banks, HMRC, and other organisations, to help trace assets that may have been moved. In extreme cases, search orders may be available to preserve documentary evidence of hidden assets.
Final words
The question of whether you can move assets to family members during divorce proceedings has a clear answer: you should not—or at least, not without speaking to a solicitor first. The duty of full and frank disclosure, combined with the powerful remedies available under the MCA, means that attempts to defeat a fair financial settlement are likely to be detected and unwound by the court.
If you wish to make a large gift to a relative or transfer wealth into a family trust, then take legal advice. Legal mechanisms like a post-nuptial agreement could record the legitimate gift and ensure that your spouse does not challenge the transfer if you later decide to divorce or separate. Other protections are available as part of sensible estate planning, but these should always be transparent and properly documented to avoid any risk of challenge.
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