Divorce Dispute over Madoff Investment Ends in Court Dismissal

A financial victim of the infamous Ponzi scheme engineered by Bernard Madoff will not be allowed to revise a divorce agreement to recover investment losses. A state appellate court threw out an asset division dispute that would have reaped millions of dollars for an unlucky ex-husband.

The court battle over an ex-husband and wife's investment account began in 2009. The lawsuit was launched in a Manhattan courtroom the same year financial swindler Bernie Madoff was convicted and three years after the couple's divorce decree. A trial judge dismissed the case, but the ex-husband, a real estate attorney, kept the suit alive in appeal.

The New York couple married nearly 30 years, agreed to a separation a decade ago. A divorce followed in the summer of 2006. Among the investments, the couple held together in marriage and split in divorce was an account with Madoff valued at $5.4 million. The wife opted to cash out her share of the account value, $2.7 million, while the husband decided to keep his remaining share locked up in the investment. However, the discovery of Madoff's wrongdoing made the former husband's investment worthless.

The divorced husband wanted to undo the settlement to regain some of his lost money. However, a second higher court agreed that the ex-husband had a case to try to prove his former wife was "unjustly enriched" during property division.

The recent ruling by New York's highest court agreed with the original trial judge. The court said the husband was in control of his asset and had two years, from the time of the divorce until the collapse of the Madoff account, to decide how to invest.

While the court sympathized with the former husband's losses at the hands of a financial fraud artist, it did not burden the man's ex-wife with the problem. Instead, the written decision likened the ex-husband's misfortune to devaluing any other value-volatile, post-divorce asset.

The Madoff investment contained risk, which the divorcing husband agreed to take, and the ex-wife did not. The couple's settlement included an account value determined when the marriage dissolved. It did not anticipate what the account might be worth based on the future actions or inactions of the spouses.

Source: bloomberg.com, "Madoff Victim Can't Revise Divorce Deal, Appeals Court Says," Chris Dolmetsch, April 3, 2012