The adverse impact of Bounce Back Loans (“BBL”) is now starting to be felt in the family proceedings court.
According to recent Government statistics, whilst 0.3% of loans were paid over to organised criminals, the Government has written off £4.3 billion worth of loans, many of which would have been obtained by way of a fraudulent application.
How then, does fraud or other criminal offending by one party in a divorce affect the outcome? And what, if anything, can be done to protect the assets of one party from a fraudulent application made by another? What happens when one party wants a settlement whereby the debt owed would fall within the estate to be divided?
The Family Court may be unsure whether the BBL application was fraudulent or not, or whether the funds obtained had been used correctly. If a loan is found to be fraudulent then it could be excluded from the estate making the person who took out the loan personally liable for the debt, protecting the innocent party from that debt.
The question as to whether a loan has been fraudulently obtained requires a specialist assessment and expert advice. The questions the Court is likely to ask, which it may not be equipped to answer, are how would a bank treat the loan? What evidence can the Court consider? What impact will the debt have on the spouse? Has a fraud marker been loaded, or is one likely to be loaded, and if so, what impact would that have on the innocent party moving forward?
The sums involved can be substantial – the BBL scheme allowed for loans of up to £50,000. There are subtle differences between how debts impact company directors compared to sole-traders and what the loans could be utilised for.
When going through financial matters in divorce, the duty of full and frank disclosure is an essential element upon which the negotiations and any proceedings are based. In order for there to be a fair settlement all assets and income must be identified and valued.
If there has been a finding of fraud against one party this will have an adverse effect on the offender. The civil courts have held for a long time “fraud unravels all”. Recent case law has brought the family court in line with the civil division. The effect of this could be any final order made by consent or in contested proceedings being set aside if it later transpires that one of the parties has acted fraudulently. It could also lead to the fraudulent party being prosecuted for Perjury.
Fraud amounts to dishonesty which can be construed as misconduct and financial mismanagement. This will be taken into account in any family financial case where it would be “inequitable to disregard”. Naturally, this will affect the credibility of the offending party and can lead to severe penalties in the family courts. It may for example result in the offender being ordered to pay the legal costs and result in a more favourable settlement for the innocent party. It is essential any allegations of fraud and financial misconduct are raised at an early stage and legal advice is taken at the outset. It can be difficult to introduce these issues at a later date without reasonable explanation.
The implications of fraud in divorce proceedings are various and serious and expert evidence and representation is required. Therefore where a defaulted Bounce Back Loan is an issue in divorce proceedings expert advice should be sought to ascertain whether the default was fraudulent.
Jeremy Asher specialises in fraud, challenging banks that erroneously load fraud markers against customers, and has written widely on the subject of Bounce Back Loans, regularly negotiating with banks on behalf of clients. He is therefore well placed to provide expert evidence and opinion to assist the Court in relation to these questions. Brinder Khara is an expert family lawyer who has represented clients where business assets form part of an estate to be divided and where criminal allegations have impacted on the decision of the Court. Both have in excess of 20 years’ post qualification experience.