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New York court allows ex-wife to keep fraud money from divorce

Asset division can be tricky in divorce court when a former spouse is being prosecuted for fraud. A New York appellate court decided recently that an ex-spouse, who was unaware that her husband's gains might have been obtained illegally, deserved to keep the money she received in the divorce settlement, even if it may have come from questionable sources.

Federal government regulators had wanted the divorcee to fork over $7.6 million they claimed were part of the funds her ex-husband stole from investors. However, the woman, married to one of two men accused of bilking financial investors of $550 million, has been granted the court's approval to keep the money she was awarded in her 2006 divorce settlement.

It was not until two years after the divorce that federal officials filed formal charges against the woman's ex-husband and his business partner, accusing the pair of misusing investors' monies between 1996 and 2009. The government was able to secure a federal judge's ruling to freeze the woman's millions in assets - a decision she appealed.

The New York high court told government officials that they could not attach the ex-husband's alleged crimes to what he paid his ex-wife in their divorce. The court believed the ex-wife had no knowledge of her husband's alleged fraud and, therefore, was allowed to keep the money.

Government attorneys argued that money obtained fraudulently could not be part of marital assets, but the court disagreed. Judges agreed that the only way the ex-wife's settlement could be taken back by federal authorities was if she had been part of or knew about any fraudulent activities that had taken place.

The court felt the woman's good faith should not be challenged and ruled that she could keep the money she received in her divorce.

Source: Forbes.com, "NY court backs divorcee keeping ex's fraud money," Michael Virtanen, 24 June 2011

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