Credit: Bigstock

Connecticut matrimonial attorneys are at odds over a state Supreme Court ruling that some say arbitrarily broadens the scope of asset protection at the outset of divorce proceedings, and could further clog an overburdened court system with disputes over personal financial transactions.

At the center of the controversy is a high-stakes divorce, O’Brien v. O’Brien, which has played out over the past decade in a trio of cases with differing opinions resulting at the trial, appellate and Supreme Court levels.

The Supreme Court’s ruling has piqued the interest of the American Academy of Matrimonial Lawyers, which has filed for amicus curiae status to appear and file a brief to address “substantive legal issues” and public policy implications.

In a unanimous decision released June 27, the state’s high court rejected an appeals court ruling—and reaffirmed a trial court’s decision—that the husband, Michael J. O’Brien, had violated automatic orders by cashing in stock options from Omnicom Group Inc. before his divorce from Kathleen E. O’Brien was finalized, and without notification to his wife or the court.

As matrimonial attorneys know well, automatic orders are issued at the beginning of divorce proceedings, so that marital assets may be protected during that time.

Attorneys for Michael O’Brien have filed a motion for reconsideration, with opposing counsel filing a statement in opposition.

Michael O’Brien is senior vice president, general counsel and secretary at Greenwich-based Omnicom. During divorce proceedings, but before the case was finalized, he sold 28,127 shares of company stock and exercised options to liquidate another 75,000 shares, according to court documents. The financial transactions, executed from 2009 to 2012, amounted to approximately $2.5 million.

While Michael O’Brien consulted with counsel prior to each transaction, he did not notify Kathleen O’Brien or seek court approval prior to the exchanges, the documents said. And while he contended his intent was to preserve the value of the marital estate by converting stocks to cash, particularly in a volatile market, Omnicom’s stock price defied his logic and grew in value. Over the course of the next four years, the stock and options values more than doubled. Had they been left untouched, they would have accrued an estimated $3.5 million in additional value, according to documents.

Consequently, Kathleen O’Brien filed a motion for contempt against Michael O’Brien for what she claimed were violations of the automatic orders, which aim to prevent litigants from depleting marital assets prior to dissolution. There are exceptions and provisions within the orders—including for transactions that take place “during the ordinary course of business”—which the trial court said were not met. The trial court penalized Michael O’Brien monetarily but did not find him in contempt.

On appeal, the decision was overturned, with the appellate court concluding that the trial court did not have the authority to penalize Michael O’Brien for violating automatic orders if it had not found him in contempt.

The state Supreme Court overturned that decision, agreeing with Kathleen O’Brien, and determining that Michael O’Brien “plainly violated the automatic orders” and that “the trial court was justified in determining that the plaintiff [Michael O'Brien] should bear the losses.” The court also determined Michael O’Brien’s exercise of stock options were not “in the ordinary course of business” and that “determining a party’s usual course of business is best treated as a question of fact to be decided by the trial court.”

Attorney for the plaintiff Daniel Klau said it is this interpretation of automatic orders that has some divorce lawyers incensed. “We think that their interpretation of the rule is unworkable and failed to appreciate the realities of what happens when you simply exchange stock for cash,” he said. “When you or your husband or wife sell your stock for cash, you are simply reducing the risk for your portfolio—which is exactly the point of automatic orders.”

Gary Cohen, co-counsel for Michael O’Brien, called the decision “a lose-lose” for the court system. “The problem for me is that, for reasonably affluent spouses, it is in fact the usual and ordinary course of their business to manage their investment accounts,” he said. “Hamstringing a reasonable investor from making appropriate transactions, I think, subverts the purpose of the automatic orders, and if the only way an investor can trade in an investment account is by asking the court for permission to conduct a trade or by insisting that the other spouse has to consent, you have taken away from a prudent investor the opportunity to manage his or her assets in an appropriate way.”

Attorney for Kathleen O’Brien, Daniel J. Krisch of Hartford’s Halloran & Sage, said those arguments are unlikely to succeed at this stage of the litigation. “I think that’s the argument they made before the Supreme Court and they rejected it,” he said, adding that remedies remain for spouses who want to make significant financial transactions while their divorces are pending. “First, you can ask your spouse for their consent,” he said. “Second, you can go to the court and say ‘Here are the reasons why I should be allowed to do this.’”

Krisch disagreed with Klau and Cohen’s contention that the Supreme Court’s ruling will result in major disruptions in court business—and with their estimate that the division of marital assets in the O’Brien case went from 55-45 percent in favor of Kathleen O’Brien to 78-22 percent in her favor.

“Their math is off,” he said. “It did become a more favorable split for Mrs. O’Brien, and that doesn’t bother me at all. It’s very rare to have a 50-50 split of marital assets, particularly if you look at the parties’ earning potential.”

Michael O’Brien was earning an estimated $1.2 million per year prior to the divorce, while Kathleen O’Brien earned about $143,000, according to court documents.

Bethlehem-based attorney Arthur Balbirer, a past national president of the American Academy of Matrimonial Lawyers, said many attorneys have watched the O’Brien case closely, and attorneys on both sides of the issue are members of the academy. “This decision is very good news for lawyers because it will create a tremendous amount of work for them,” he said. “It’s going to cause chaos in the courtroom and it’s going to cause a great deal of work for lawyers, for which they will now charge. Every time a guy wants to sell asset X, he’s got to get permission to do so.”

Balbirer said filing a motion could take two weeks or longer, and then there is testimony. “A lot of time may have gone by, and it may have cost your family a lot of money,” he said. “What happens is, sooner or later the court is not going to go through the regular motion calendar. It will go to a special hearing, where the guy has to explain to a judge why he wants to sell stock XYZ. He may have to bring in a financial adviser, and the wife may have her reasons to oppose it and have her own financial advisers saying all the reasons she doesn’t want to sell. Judges are judges; they’re not MBAs in finance. It starts to get absolutely preposterous.”

Balbirer called it “a mess beyond a mess,” but acknowledged that he does not think Michael O’Brien or the AAML will prevail in their pending motions before the Supreme Court. “My personal feeling is they’re not going to prevail on it, because I don’t think the Supreme Court is prone to reconsideration,” he said. “If seven justices felt comfortable with this decision, I think you would have to move heaven and hell to have them reconsider.”

Attorney Campbell Barrett of Hartford’s Pullman & Comley, chairman of the AAML’s Amicus Committee, articulated a point upon which attorneys on both sides agreed: Michael O’Brien appeared to be acting in good faith when he exercised his stock options, and showed no intention toward depleting his or Kathleen O’Brien’s marital assets. Until such time that the Supreme Court takes up Michael O’Brien’s motion to reconsider—which he said “is a high hurdle to clear”—divorce litigants will have to be more mindful of how they conduct their financial business. “In my view the safe way would be to let a court decide,” he said regarding potentially questionable transactions.

Another option, according to Klau, is that an addendum would eventually be made independently to Connecticut’s Practice Book through the lower courts. “I think there is already a significant movement afoot among members of the family bar—and I suspect some family court judges—to clarify that the practice book rule does not require judicial permission for the kinds of transactions Mr. O’Brien made. That’s nice—and important going forward—but it would be a tragedy if the rule were changed, but because Mr. O’Brien’s case had been resolved, he was stuck with what, in essence, was a deeply flawed Supreme Court interpretation of the automatic orders.”

Michael O’Brien’s motion to reconsider, along with a statement in opposition from Kathleen O’Brien, remained pending as of early August.

The AAML’s application to file an amicus curiae brief is on the state Supreme Court’s docket for Monday, Sept. 11.