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Wednesday, June 01, 2011

So Two Lawyers Walk into a Bad Marriage ...

OK, so we have all gotten into bad relationships that in retrospect we chalk up as mistakes.  But this article from Monday's N.Y. Times takes the concept of mistake to a potentially new level.  The basic story is that a husband and wife, both lawyers, divorced in 2006.  They divvied up their assets, with the wife preferring to take her share (other than one of their homes) in cash, and the husband keeping his share (again, except for the house that he kept) with their investment advisor.  The two part, and go their separate ways.

The investment advisor was Bernie Madoff.

So, according to the story, the husband is now asking the court to reopen their settlement.  He claims that, under the theory of mutual mistake, the money he thought he had in the Madoff account was never really there, and thus that he didn't get what he thought he was getting in the settlement. After losing at the trial court, the husband won a split decision at the appellate court.  Apparently the state supreme court is now considering the appeal.

My first thought is that this can't be right.  As lawyers interviewed for the article note, the husband's argument would mean the unspooling of all types of agreements.   Even the Madoff-related divorce litigation itself might be substantial.  And, as the dissenting appellate judge suggested, if there is one type of agreement we probably want to keep from being reopened, it's divorce settlements.

Conceptually, the question seems to be whether the money in the Madoff account ever really existed.  For example, if H and W have $200,000 in assets, including a house worth $100,000, and they agree on an equal split in which one person gets the house and one person gets the rest of the assets, it can't be (can it?) that the person getting the house gets to reopen the agreement if the housing market crashes the day after the divorce, and the house becomes worth only $60,000.  Is the difference here the husband's claim that the Madoff account was never worth that much?  Does the fact there was fraud have any influence on the analysis?

Of course, as my own husband (who brought to this article to my attention last night) pointed out, before the Madoff pyramid collapsed the husband could have gotten the money out.  So, in that sense, the money did exist -- sort of.

This strikes me as a really interesting legal, policy and conceptual question.  I'm wondering what people think about it.  Is it a straightforward win for the wife?  If so, what explains the appellate court's decision?

Posted by Bill Araiza on June 1, 2011 at 09:15 AM | Permalink

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Comments

Curb Your Enthusiasm already did this plot as part of the fake Seinfeld reunion show within the show. Life imitates art, or at least comedy.

Posted by: David Levine | Jun 2, 2011 1:16:55 AM

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