All perfect praise be to Allaah, The Lord of the Worlds. I testify that there is none worthy of worship except Allaah, and that Muhammad, sallallaahu ‘alayhi wa sallam, is His Slave and Messenger.
Undeniably, theft is a major sin that indicates weakness of faith. The Prophet, sallallaahu ‘alayhi wa sallam, said: “When a thief steals, he is not a believer at the time of stealing.” [Al-Bukhari and Muslim]
Hence, Allaah, The Exalted, Subscribed a corporal punishment for committing that sin, which is cutting the hand of the thief; Allaah The Exalted Says (what means): {[As for] the thief, the male and the female, amputate their hands in recompense for what they committed as a deterrent [punishment] from Allaah. And Allaah is Exalted in Might and Wise.} [Quran 5:38]
Therefore, if the theft incident was proven, whether via the wife’s confession or clear evidence; then her sin should be concealed if she does not sin in public. Your brother should bear in mind that whoever covers up the fault of a Muslim, Allaah, The Exalted, Will cover up his faults on the Day of Judgment, and whoever forgives the errors of a Muslim, Allaah, The Exalted, Will forgive his errors in return. Hence, he should seek the reward of Allaah, The Exalted, by his attempt to rectify his wife by giving her a second chance; perhaps she would repent to Allaah The Exalted. The conditions of repentance are: feeling remorse for committing the sin, giving up the sin, resolving not to repeat it, and in the case in question there is a fourth condition, which is to return what was stolen to the owner, or to seek his forgiveness. Therefore, if the wife showed any inclination towards repentance and an intention to hold on to the straight path and to righteousness, then it is better that your brother does not divorce her. However, if she maintained such blameworthy actions and continued stealing, then he should leave her and seek a good wife who would help him enhance his religiosity, aid him in his worldly affairs, and raise his children on virtue.
As for your older brother, he is not entitled to ask your married brother to divorce his wife. He only has the right to claim his due right of what was stolen from him. The married brother should not listen to him, even if he severed ties of kinship with him; for were he to sever ties of kinship with his brother, he would be considered a transgressor and should not be treated in the same way.
Allaah Knows best.