Understanding Fraud In Financial Disclosures In A Connecticut Divorce

On Behalf of | Aug 24, 2020 | Property Division

Connecticut law requires divorce litigants to disclose assets and financial information to their opponents. The law imposes automatic orders upon the filing of divorce that require the litigants to exchange sworn financial statement in any family law matter. Similarly, mandatory disclosure and production rules during the dissolution require the litigants to provide full and frank disclosure of all assets and sources of income. The duty to disclose continues throughout the litigation, and the litigants have a duty to correct or supplement financial information if the facts change at any time before the judgment becomes final. See, Weinstein v. Weinstein, 275 Conn. 671 at 696 (2005).

While the dissolution remains pending, a litigant may seek a finding of contempt for misrepresentations or failures to disclose financial information. However, what happens if evidence of fraud in financial disclosures is discovered after the divorce decree is rendered?

Opening Or Setting Aside Property Division Judgments Based On Fraud

Generally, a litigant may seek to open or set aside a judgment if new evidence is found within four months of the date judgment was rendered. There is an exception to the strict four-month limitation period for instances when a litigant can show that the judgment (or underlying property division stipulation) was obtained by fraud.

While many people may conceptualize financial misinformation as hidden assets, fraud involves the successful use of deception that is intended to induce the opposing party to surrender a right or part with property. The individual elements of fraud in family law property division disputes include:

  • A litigant falsely represents a financial matter as a statement of fact
  • The statement was not true, and the litigant making the statement was aware of its falsity
  • The statement was made with the intent to induce the opposing party to rely on its substance
  • The opposing litigant relied on the substance of the statement

Reville v. Reville, 312 Conn. 428 (2014).

The litigant seeking to open a judgment based on fraud must provide clear and convincing evidence of the alleged fraud. Moreover, misrepresentations must involve more than mistakes or mere miscalculations. The evidence needs to include a showing that the litigant knowingly misrepresented the facts with the intent to deceive.

Misrepresentations In Financial Affidavits

In Weinstein v. Weinstein, the husband indicated in his financial affidavit that he had a business interest with a book value worth $40,000. Before the judgment in the dissolution was final, evidence showed that the husband rejected an offer to sell the company for $2.5 million, which would have netted the husband $500,000 for his interest in the entity. He reportedly told the prospective buyer that he believed the offer was too low as the offer undervalued the intellectual property value associated with the entity. The husband did not supplement his financial statement to include the offer before the judgment was final. The Connecticut Supreme Court held that the huge disparity between the offer and the husband’s stated valuation was sufficient to show by clear and convincing evidence that the husband knowingly misrepresented the overall value of the business.

Nondisclosure Of Assets

In Reville v. Reville, the husband did not include an accrued but unvested pension in four financial affidavits during the pendency of the litigation. There was evidence that the husband knew of the existence of the unvested pension. “The proper treatment of unvested pensions in dissolution actions was an unsettled issue in Connecticut” at the time of the original divorce litigation. The high court reasoned that despite the fact the law was not clear concerning how an unvested pension should be treated, the husband had a duty to provide full and frank disclosure of the existence and characteristics of the pension.

It is important to note that fraud by nondisclosure does not include any omission. A litigant must show that the failure to disclose requires a showing that the opposing party failed to disclose known facts. In Sousa v. Sousa, the husband provided information concerning the value of his contribution to his pension in his financial affidavit. At the time he filed the affidavit, he was entitled to his contribution plus benefits based on his years of service. The wife argued that the affidavit did not disclose the full potential pension benefits, based on information contained in an appendix for the plan. While the case took a circuitous route through the courts, the appellate panel ultimately noted that the wife’s attorney had previously obtained the appendix that explicitly provided details of the requirements for vesting and the formulae for determining value. The appellate panel found that there was insufficient evidence that the husband knowingly failed to disclose information in the affidavit. 173 Conn.App. 755 (2017).

Cases of fraud may often include vague references or mass documentation that do not adequately provide full and frank disclosure of assets, liabilities, income and other financial considerations. In complex assets structures, the details within the financial affidavits should be thoroughly analyzed. Moreover, it may be necessary to trace assets that move in and out of the marital estate. Sophisticated matrimonial lawyers may need to analyze and address every detail at the individual level to protect assets and rights in dividing property in divorce.