Connecticut law imposes Automatic Orders upon the commencement of divorce proceedings. These orders have a primary purpose of maintaining the status quo while the litigants or the court resolve the underlying disputes in the divorce. The Automatic Orders prohibit litigants in dissolutions from transferring, selling, trading, exchanging, assigning, or otherwise disposing of property without the consent of the opposing litigant, or a court order allowing the financial transaction. Historically, the only exception for the sale or transfer of property was conducted in the ordinary course of business to cover usual household expenses or to pay for reasonable attorney’s fees associated with the divorce.
Historically, Sales Of Securities Were Highly Cumbersome In Divorces
The historic rule posed significant risks during periods of volatility in the markets for investors with large securities portfolios. Seeking consent from an estranged spouse in divorce to sell a stock in the face of a bear market is often not pragmatic. Seeming court permission could take weeks to address, increasing the risk of substantial losses.
The issue was highlighted in O’Brien v. O’Brien, 326 Conn. 81, 161 A.3d 1236 (2017). In a volatile stock market, the husband sold a substantial amount of stock options during a pending divorce without obtaining consent from his wife and without permission of the court. The husband entered into the stock transactions in a turbulent market (after consulting with a lawyer) in an effort to preserve the value of the assets. The market recovered and the stocks appreciated above their value at the time of sale by the time of the trial.
The wife filed a motion for contempt, claiming that the husband had violated the automatic orders in selling the options. The trial court found that the husband violated the automatic orders but did not hold the husband in contempt. The trial judge considered the stock transactions in dividing assets, awarding the wife roughly two-thirds of the financial estate. The Supreme Court generally upheld the trial court’s rulings.
New Rules To Protect The Value Of The Estate In Turbulent Times
The high court decision caught the attention of the Connecticut Chapter of the American Academy of Matrimonial Lawyers. Attorney Thomas Parrino, on behalf of the Academy, as its former President and Chair of the Rules Committee, worked with the Connecticut judiciary and court administrators to amend the language of the automatic orders in light of the issue highlighted in the O’Brien decision. The revisions now permit divorce litigants to seek to preserve value of assets in a declining market, in the face of a downturn in stock related to poor performance of a company or during otherwise turbulent events in the markets.
Connecticut Automatic Orders § 25-5 provides several components for divorce litigants to meet in making investment decisions during divorce to avoid violating the prohibition of selling assets, including:
- The purchase or sale must intend to preserve the value of the marital estate
- Securities transactions must be conducted either on an open and public market or at an arm’s length on a private market
- Any purchased securities or sales proceeds involved in the securities transaction must be retained in the account where the original securities or cash were held immediately before the transaction
The new rules recognize that some couples discuss securities transactions during marriage. In cases where there the litigants have a prior history of such discussions as a part of the usual course of making investment decisions, a litigant may engage in engaging in transactions absent contacting the opposing party without violating the Automatic Orders under the following circumstances:
- The litigant sees a sense of urgency with a good faith belief that discussing the transaction first would result in losses to the estate
- The litigant notifies the opposing party of the transaction immediately upon execution of the deal
- The transaction is intended to preserve value and complies with all the other general requirements of securities transactions during the dissolution of marriage
The value of stock may fluctuate wildly for a wide variety of reasons. Delays in investment decisions may, at times, results in substantial losses, whether based on the individual performance of a stock or as a result of market-wide trends during changing times. Investment decisions and stock transactions are often highly time sensitive. The Automatic Orders now account for these circumstances. However, complying with the fine details of the rules is critical. A sophisticated matrimonial lawyer can help guide you through the issues involving financial matters, as well as analyze issues related to compliance with the orders and any potential contempt hearings based on non-compliance.