Shafmaster v. Shafmaster
1994 N.H. LEXIS 52, 138 N.H. 460, 642 A.2d 1361 (1994)
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Rule of Law:
A party to a divorce settlement has an affirmative duty to correct a financial representation that is true when made but becomes erroneous before the settlement is finalized. A failure to disclose a material change in financial status can constitute fraud, even if the other party is represented by counsel and has been warned to conduct their own valuation.
Facts:
- Michele Shafmaster and Jonathan Shafmaster were married for nearly seventeen years and sought a 'no-fault' divorce, intending to proceed cooperatively without formal discovery.
- At the suggestion of Jonathan's attorney, Michele initially hired a financial advisor rather than a lawyer to assess the marital property.
- In September 1986, Jonathan's accountant provided Michele's advisor with a financial statement dated April 30, 1986.
- Michele retained her own attorney in December 1986, and negotiations for the property settlement were based on the April 1986 financial statement.
- Unbeknownst to Michele or her representatives, Jonathan had a new financial statement prepared as of December 31, 1986, which he signed in March 1987, showing a significant increase in his assets.
- In May 1987, Jonathan's attorney refused to add a clause to the settlement agreement stating that each party had been 'forthright' about their assets.
- The attorney's refusal letter stated, 'We have provided you... with all of the financial data you have requested, and I feel it is your responsibility to determine what the values are for property settlement purposes.'
- The parties signed the permanent stipulation in June 1987 without the 'forthrightness' clause and without Jonathan having disclosed his updated, more valuable financial statement.
Procedural Posture:
- Michele Shafmaster and Jonathan Shafmaster were granted a divorce in June 1987, with the Superior Court approving and incorporating their permanent property settlement stipulation.
- In January 1989, Michele Shafmaster (plaintiff) petitioned the Superior Court to bring forward and modify the divorce decree, alleging the property settlement was obtained by fraud.
- Jonathan Shafmaster (defendant) filed motions to dismiss the plaintiff's petition, which the Marital Master recommended denying.
- After a hearing on the merits of the fraud claim, a different Marital Master recommended denying the plaintiff's petition, finding that her counsel had been warned of potential problems but chose not to act.
- The Superior Court approved the Master's recommendation to deny the plaintiff's petition.
- The plaintiff, Michele Shafmaster, appealed the denial of her petition to the New Hampshire Supreme Court.
- The defendant, Jonathan Shafmaster, cross-appealed the denial of his earlier motions to dismiss.
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Issue:
Does a party to a divorce proceeding commit fraud by failing to disclose a significant increase in the value of their assets after initially providing financial information, even when the other party is represented by counsel and has been warned that they are responsible for determining asset values?
Opinions:
Majority - Brock, C.J.
Yes, the defendant's failure to disclose the updated financial information constituted fraud. A party who makes a representation that is true when made is under a continuing duty to correct the statement if it becomes false before the transaction is consummated. The parties began their negotiations in a spirit of cooperation, which enhanced their obligation to deal fairly and truthfully. The defendant induced the plaintiff's reliance on the initial financial data and could not absolve himself of his duty to update it with an 'eleventh hour change of negotiating posture from cooperation to combat.' Because the defendant allowed the plaintiff to rely on information he knew was dated and false, he fraudulently induced her to sign the property settlement, and under these circumstances, the plaintiff had no duty to conduct further discovery.
Dissenting - Thayer, J.
No, the defendant's actions did not amount to fraud because the plaintiff's reliance on the outdated information was unreasonable. The plaintiff's attorney was explicitly warned not to rely on the defendant's valuation and that it was her responsibility to determine the values. The attorney acknowledged this warning as a 'red flag,' discussed pursuing discovery with the plaintiff, and the plaintiff chose not to proceed. This was not a case of hidden assets but of valuation, and the plaintiff, after being warned, unreasonably relied on a year-old opinion of value. Therefore, there is no basis to set aside the property settlement.
Analysis:
This decision significantly reinforces the duty of good faith and fair dealing within divorce negotiations, establishing that this duty can create an ongoing obligation to update financial disclosures. It curtails the ability of a party to induce reliance through initial cooperation and then disclaim responsibility with a late-stage adversarial warning. The case establishes that the failure to correct a prior financial representation that has become materially false can constitute actionable fraud, potentially overriding the other party's own failure to conduct formal discovery. Furthermore, by making Superior Court Rule 158's financial affidavit requirement mandatory, the court created a significant procedural safeguard to promote full disclosure and prevent similar disputes in future New Hampshire divorces.
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