Should being the victim of a third-party’s Ponzi scheme entitle one to reopen a marital property settlement?

The May 30, 2011 New York Times reports a story about a husband, a partner at a powerful New York City law firm, attempting to reopen his marital property settlement because the value of a major asset he kept in the settlement, shares in the Madoff account, declined in value when it was learned that Bernard Madoff was actually running a giant Ponzi scheme.

The husband argued that he was entitled to reopen the marital settlement because this account was overvalued by both parties and therefore the agreement was the result of a “mutual mistake.” New York State’s intermediate appellate court has allowed him to reopen the case and the matter is now before New York State’s highest appellate court.

According to The Times this case “could influence how judges interpret laws in other states.”  For example, South Carolina law allows a party to seek to reopen a judgment for one year based on a mutual “mistake.” SCRCP 60(b)(1).  In the lawsuit The Times discusses, Husband’s shares dropped in value a few years after the divorce was finalized.  Should a party be able to vacate a marital property settlement years later because an asset was overvalued due to a third-party’s fraud?  As Wife’s attorney notes, Husband would have been entitled to any increase in the value of the Madoff account so why should he be able to impose any of the decreased value on Wife?  If New York State’s highest court allows Husband’s claim to go forward, it would be a more expansive understanding of “mutual mistake” than the case law I have seen.

 

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  • Rob Papa

    That would not have been a problem had they equally divided the account other than the fact that the value went up in smoke. That certainly suggests to me that it is safer to split accounts than to horse trade where H gets X and W gets Y.

  • But the husband simply made an unfortunate choice and through no fault of the wife lost his investment..Had the account value gone up it is doubtful that husband would have shared the profits with his ex-wife. And what about all the people who bargained for the marital home which is now worth substantially less than it was one year ago-should they look to have their former spouses share in the loss?.There is a practical reason why the husband cannot win this case-if the mere fact that some former marital asset lost value could subject a settlement agreement to attack there would be no finality to divorce.

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