All over the papers this week is the story of post-judgment litigation in New York.  In this case, in June 2006, the parties agreed to evenly split the $5.4 million in an account they had with Madoff Securities.  As a result, the husband gave the wife  $2.7 million in cash, and retained the account.

As a result of the alleged Madoff Ponzi scheme that has essentially rendered the account worthless, the husband has filed suit seeking the $2.7 million that he paid the wife. The husband alleges ta ht because the account turned out to be valueless, the lawsuit said, the spirit of the agreement was broken.

That said, if this case was in New Jersey, there may be the possibility of a recovery here.  Though the general rule is that equitable distribution is not-modifiable, the issue may turn on whether there was $5.7 million in the account at the time of the divorce or whether that was simply an illusion created by Madoff’s alleged fraud.  If the account really had no value at that time, then the parties made a “mutual mistake”.  In that case, the settlement agreement could be re-formed to create an equitable result.  If the money was actually in the account at that time, there could be a different result.  One could argue that this really wasn’t any different than any other investment that loses value – though that result seems harsh.  However, assuming the husband had that money in your ordinary stock account, given the stock market over the last year and current financial  crisis, it seems unlikely that his $5.4 million would still be $5.4 million.  If there were just stock losses, it is highly unlikely that he would be entitled to any relief.  Moreover, it is not unlikely that if the wife invested her $2.7 million in stock or real estate, that she has her full $2.7 million either.

We await the result of the suit and will post another blog entry when there is a resolution.

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