Marriage of Whitman

Summary

Doug claimed about $18 million of a $31.6 million hedge fund was separate property traceable to $900,000 of premarital capital. The trial court accepted only $300,000. His story on the $500,000 changed from discovery (Alex Brown) to trial (Hambrecht), and the $100,000 had no Northern Trust records and a trail that ended when Gardner Lewis mailed checks. Doug then withdrew $900,000 in July 1995 into a separately titled premarital account with no records of its later use, and the court held that withdrawal exhausted any separate interest. The Court of Appeal affirmed that the whole fund was community property (this part of the opinion is unpublished). It reversed only the allocation of a $935,000 SEC penalty to the community.

What it means for the financial analysis

Testimony without bank-level records is a weak foundation for separate property, and the court quoted the rule that the burden includes keeping adequate records. An expert who adopts the client's recollection, as Doug's expert did with the Alex Brown source, is exposed when the story changes before trial. Trace each deposit to a statement showing where the money came from, and show where every large withdrawal from a commingled account went. Here, a withdrawal into a separately titled account supported a finding that separate capital was taken out. Counsel should remember that the tracing discussion is in the unpublished portion of the opinion.

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