This Week’s Blog by Sarah E. Murray
At Broder & Orland LLC, we tell any person who seeks our advice in connection with the drafting and negotiation of a Prenuptial Agreement that the financial disclosures accompanying the Prenuptial Agreement are one of the most important aspects of the agreement. The reason that the financial disclosures are so important is because General Statutes Section 46b-36g(a)(3), which is applicable to all Prenuptial Agreements entered into after October 1, 1995, states that a Prenuptial Agreement will not be enforceable against a party opposing its enforcement if that party proves that, before the agreement was executed, he or she was not provided with “fair and reasonable disclosure of the amount, character and value of property, financial obligations and income of the other party.” In other words, a party to a Prenuptial Agreement can seek to have the Prenuptial Agreement set aside in the event of divorce if he or she can prove that the other party (typically the moneyed spouse) did not adequately disclose his or her assets or income.
Lack of adequate financial disclosure is one of the most common reasons that Fairfield County divorce litigants cite in favor of a claim that a Prenuptial Agreement should not be enforced. It is for this reason that parties to a Prenuptial Agreement need to take care in preparing their financial disclosures, which are typically attached to the Prenuptial Agreement. The question that clients ask is: What constitutes adequate financial disclosure for a Connecticut Prenuptial Agreement to be enforced? While there is no one answer, a review of Connecticut case law on this issue provides some guidance.
One of the more instructive cases on the issue of financial disclosure is Friezo v. Friezo, 281 Conn. 166 (2007). In that case, the trial court had found that the parties’ Prenuptial Agreement was unenforceable based on inadequate financial disclosure and the Wife not having reasonable opportunity to consult with counsel. The Husband appealed. The Supreme Court reversed the trial court’s orders, finding that the Prenuptial Agreement was enforceable. At the time of the divorce, the estate was worth approximately $23 million, including over $6.5 million of the Husband’s premarital assets. The Wife had claimed that her attorney did not show her the Husband’s financial disclosure at the time they met regarding the Prenuptial Agreement, though it was in his possession at that time. His financial disclosure showed his assets, one liability, and also reflected his income. The draft originally provided to the Wife’s attorney was the one attached to and incorporated into the parties’ Prenuptial Agreement. At trial, the Wife did testify that she had acquired substantial knowledge regarding the Husband’s finances prior to the parties’ marriage. The Wife claimed that the signing of the Prenuptial Agreement, which was 24 hours before the wedding, was the first time that she had seen the Husband’s financial disclosure.
The Supreme Court examined for the first time the meaning of “fair and reasonable” financial disclosure, as referenced in the statute, stating: “’[F]air and reasonable’ disclosure refers to the nature, extent and accuracy of the information to be disclosed, and not to extraneous factors such as the timing of the disclosure.” Id. at 183. The Court noted that the statute does not require that the financial disclosures be appended to the agreement. Id. The Supreme Court also looked to McHugh v. McHugh, 181 Conn. 482 (1980), the case governing the enforcement of Prenuptial Agreements entered into prior to October 1, 1995, in its analysis. In McHugh, the Supreme Court had pointed out that a party cannot knowingly waive his or her rights with respect to another party’s income or assets without sufficient knowledge as to the other party’s financial circumstances. “[F]inancial disclosure in Connecticut must be understood as a burden to inform borne solely by the disclosing party.” Id. Therefore, the focus is on the actions of the disclosing party, rather than on the party to whom disclosure is being made. The Supreme Court further stated:
The overwhelming majority of jurisdictions that apply this standard do not require financial disclosure to be exact or precise….We agree with the majority of jurisdictions that a fair and reasonable financial disclosure requires each contracting party to provide the other with a general approximation of their income, assets and liabilities, and that a written schedule appended to the agreement itself, although not absolutely necessary, is the most effective method of satisfying the statutory obligation in most circumstances.
Id. at 189-91 (Citations omitted; emphasis added)
In Friezo, the Supreme Court ultimately determined that, under the McHugh analysis discussed herein, the Husband’s financial disclosure was “more than adequate” to allow the Wife to waive her statutory rights, as it provided her with his gross income from all sources for the year prior and listed his assets (most of which were valued individually) and liabilities. The trial court had not found that the financial disclosure was inaccurate or incomplete, but rather that the Wife did not have the expertise to understand it. The Supreme Court responded “[w]hen the burden is on each party to inform, as established in McHugh, the test for adequate disclosure need not take into account or depend on the capacity of the receiving party to understand or digest the information received.” Friezo, 281 Conn. at 192. Furthermore, whether the Wife had sufficient time to review the disclosure does not go to the issue of whether it was fair and reasonable. Id. at 194. Justice Norcott dissented, stating that he would have found the financial disclosure to be inadequate for failing to fully explain the assets listed (particularly certain partnership interests).
In Oldani v. Oldani, 132 Conn. App. 609, 624 (2012), the trial court determined that the parties’ Prenuptial Agreement was enforceable. At the time of the signing, financial disclosures were attached to the Prenuptial Agreement. The Husband’s net worth at that time was over $5 million. His disclosure listed assets and liabilities itemized by category, along with schedules that provided additional details regarding bank accounts, notes, loans. He also included a schedule listing 11 commercial real estate properties in which he had an interest, including his percentage ownership, the replacement value, the mortgage debt, annual mortgage payments, and the net equity. The disclosure also included the gross rents received, as well as the annual operating expenses and “NOI” (net operating income). The disclosure did not specifically set forth his income, but the trial court found that there was sufficient information from which to extrapolate it. The Appellate Court found that the Husband had failed to provide a fair and reasonable disclosure of his income prior to the Prenuptial Agreement being signed. The word “income” did not even appear on the disclosure.
In contrast, in Beyor v. Beyor, 158 Conn. App. 752 (2015), the trial court enforced the parties’ Prenuptial Agreement and the Wife appealed, claiming that the Husband had failed to disclose his Schedule E income on his financial disclosure. The Appellate Court compared this case to Oldani, and noted that what is fair and reasonable financial disclosure may depend on the circumstances of the case. Id. at 764. The Appellate Court found that there was fair and reasonable financial disclosure. Although the Husband had not disclosed his Schedule E income, he had disclosed the business interests that were the source of that income and gave a value to those interests.
The above cases are just a sampling of cases regarding the sufficiency of financial disclosures in connection with Connecticut Prenuptial Agreements. As the case law discussed in this article demonstrates, each case is fact specific, but, generally speaking, the more comprehensive the financial disclosure, the better.