Madoff Worthless Account And Impact On Prior Divorce Settlement

Several years ago before the Madoff Ponzi scheme was discovered a wealthy NYC attorney, who was a partner in a major law firm and his wife settled their divorce. They had been married for over thirty years and the assets were in the millions which included a Madoff account of the couple that, on paper, was worth $5,400,000. The husband attorney as part of the negotiated settlement paid his wife several million dollars which included $2,700,000 for her half of the Madoff account. The agreement was signed, the monies and other property adjustments were made and the couple was divorced in 2006.

In December, 2008 the sons of Madoff turned their father in and the discovery of his Ponzi scheme that had defrauded and stolen billions of dollars from his investors became public. After learning that his Madoff account was worthless and that he had been defrauded the former husband sued his ex-wife to modify and reform the settlement agreement on the basis of mutual mistake and other legal theories. The husband claims that neither he nor his ex-wife at that time knew that the Madoff account was a scam and therefore he paid his ex-wife for an asset that no longer existed. The attorneys for the ex-wife claim that there was a bargain made between the two and it was the ex-husband's decision whether to keep the account, divide it in half or liquidate it when the divorce was pending and that he chose to keep the account hoping to keep earning huge returns on the account. The wife's lawyers say that there was no "mutual mistake" because he kept the account.

The case is now pending before the highest court in NY, the Court of Appeals, and the decision will be fascinating to read. The prior Appellate Court in a 3-2 split decision ruled in favor of the ex-husband denying his ex-wife's motion to dismiss his complaint, which had previously been granted by the lower trial court (Supreme Court). The case will be argued this month and then the judges will review the briefs and write their decision.