Once Again, Timing (and Honesty?) Is Everything

In May 1998, when Luke Weinstein got divorced, his stock in the small computer company, Product Technologies Inc. (PTI), was only worth $40,000 — according to his financial affidavit for his divorce settlement. Five months later, his stock in the company that pioneered “smart card” technology, was purchased for $1,449,000 — 36 times the value his financial expert calculated.

In an effort to get what she considers her fair share of this windfall, his wife, Nancy, sued to open the divorce settlement on grounds of fraud. Although she's lost in two courts so far, many divorce lawyers are hoping she'll win at the Connecticut Supreme Court, to preserve hard-won principles of frankness and disclosure in divorce settlements.

Last year, an appellate court concluded that the wife could not attack the settlement terms because she failed to prove fraud. The court compared the rapid $1.45 million increase to “the occurrence of a windfall or an unexpected post-divorce prosperity.” Now the Connecticut Supreme Court is being asked to examine just how forthcoming divorcing parties and their lawyers need to be about financial documents.

The Argument

An amicus curiae brief, written on behalf of the Connecticut chapter of the American Academy of Matrimonial Lawyers by Gaetano Ferro, of New Canaan's Marvin, Ferro, Barndollar & Kent, contends that if Weinstein v. Weinstein is upheld, a 13-year period of fiduciary-like openness between divorcing parties could draw to a close. It would, in effect, reverse the 1991 precedent set in Billington v. Billington, 635 A.2d 1230 (Conn1993). Billington removed the requirement that a spouse first prove he or she had been diligent in digging for hidden assets before being allowed to attack the fairness of a settlement on grounds of fraud.

In Randall Billington's case, he had received an offer of $380,000 for a piece of New Haven residential property, but later told the court in his financial affidavit it was only worth $225,000. He was awarded that property, and the marriage was dissolved on June 19, 1987. Three days later, he sold it for the renegotiated price of $360,000.

Ferro's amicus brief contends that the appellate court failed to recognize the fiduciary relationship of spouses in divorce, predicting that, if upheld, it will lead to escalating litigation and discovery. Spouses and their lawyers, increasingly distrustful of their counterparts, will “grapple in a system which does not require full and frank disclosure of material financial facts.”

Luke Weinstein's appellate lawyer, Karen L. Dowd of Hartford's Horton, Shields & Knox, says that the gains achieved in Billington will not be on the line when Weinstein is before the state supreme court next fall. Dowd contends that an issue the wife's legal team regards as pivotal was not properly preserved for appeal. Unlike Billington, Luke Weinstein never received a specific offer for his property before the divorce settlement. The “smoking gun” in his wife's argument is a private placement memorandum seeking $5 million in funding to aid PTI. Dowd contends, and two courts have agreed, that there is no correlation between the $5 million request for 12,000 shares of series A PTI stock, and the company's actual value, or that the funding request was remotely instrumental in prompting another company to acquire PTI for $6 million, yielding $1.45 million in cash to Weinstein.

Representing Nancy Weinstein, New Haven lawyer Lori Welch-Rubin, of Engelman & Welch-Rubin, argues in her appellate brief that her discovery requests in the divorce were broad enough to require disclosure of the private placement memorandum. If it had been, Welch-Rubin contends in her brief, “no one in his right mind” would have settled for a $40,000 valuation on the stock.

It is now in the hands of Connecticut's high court.

In May 1998, when Luke Weinstein got divorced, his stock in the small computer company, Product Technologies Inc. (PTI), was only worth $40,000 — according to his financial affidavit for his divorce settlement. Five months later, his stock in the company that pioneered “smart card” technology, was purchased for $1,449,000 — 36 times the value his financial expert calculated.

In an effort to get what she considers her fair share of this windfall, his wife, Nancy, sued to open the divorce settlement on grounds of fraud. Although she's lost in two courts so far, many divorce lawyers are hoping she'll win at the Connecticut Supreme Court, to preserve hard-won principles of frankness and disclosure in divorce settlements.

Last year, an appellate court concluded that the wife could not attack the settlement terms because she failed to prove fraud. The court compared the rapid $1.45 million increase to “the occurrence of a windfall or an unexpected post-divorce prosperity.” Now the Connecticut Supreme Court is being asked to examine just how forthcoming divorcing parties and their lawyers need to be about financial documents.

The Argument

An amicus curiae brief, written on behalf of the Connecticut chapter of the American Academy of Matrimonial Lawyers by Gaetano Ferro, of New Canaan's Marvin, Ferro, Barndollar & Kent, contends that if Weinstein v. Weinstein is upheld, a 13-year period of fiduciary-like openness between divorcing parties could draw to a close. It would, in effect, reverse the 1991 precedent set in Billington v. Billington , 635 A.2d 1230 (Conn1993). Billington removed the requirement that a spouse first prove he or she had been diligent in digging for hidden assets before being allowed to attack the fairness of a settlement on grounds of fraud.

In Randall Billington's case, he had received an offer of $380,000 for a piece of New Haven residential property, but later told the court in his financial affidavit it was only worth $225,000. He was awarded that property, and the marriage was dissolved on June 19, 1987. Three days later, he sold it for the renegotiated price of $360,000.

Ferro's amicus brief contends that the appellate court failed to recognize the fiduciary relationship of spouses in divorce, predicting that, if upheld, it will lead to escalating litigation and discovery. Spouses and their lawyers, increasingly distrustful of their counterparts, will “grapple in a system which does not require full and frank disclosure of material financial facts.”

Luke Weinstein's appellate lawyer, Karen L. Dowd of Hartford's Horton, Shields & Knox, says that the gains achieved in Billington will not be on the line when Weinstein is before the state supreme court next fall. Dowd contends that an issue the wife's legal team regards as pivotal was not properly preserved for appeal. Unlike Billington, Luke Weinstein never received a specific offer for his property before the divorce settlement. The “smoking gun” in his wife's argument is a private placement memorandum seeking $5 million in funding to aid PTI. Dowd contends, and two courts have agreed, that there is no correlation between the $5 million request for 12,000 shares of series A PTI stock, and the company's actual value, or that the funding request was remotely instrumental in prompting another company to acquire PTI for $6 million, yielding $1.45 million in cash to Weinstein.

Representing Nancy Weinstein, New Haven lawyer Lori Welch-Rubin, of Engelman & Welch-Rubin, argues in her appellate brief that her discovery requests in the divorce were broad enough to require disclosure of the private placement memorandum. If it had been, Welch-Rubin contends in her brief, “no one in his right mind” would have settled for a $40,000 valuation on the stock.

It is now in the hands of Connecticut's high court.