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Wife does not have to pay up for post-divorce investment losses

High-income Maryland couples going through a divorce may want to think hard about how to divide their assets, including not only the amount of assets that each party receives, but also the type of asset. If a particular asset loses value after the high asset divorce is finalized, one party may be left with much less than they originally thought.

For example, when one New York couple divorced in 2006, the wife received $6.25 million. As part of the settlement, the husband retained ownership of other non-liquid assets, including funds managed by none other than the now notorious Bernard Madoff.

In 2008, it came to light that Madoff was a fraud who had been running a high-stakes Ponzi scheme for years. Madoff is now serving a 150-year sentence for stealing billions of dollars from investors.

At the time of the divorce, the couple valued the Madoff-managed funds at $5.4 million dollars. Two years later, when the Madoff scandal came to light, the funds were worth virtually nothing.

The husband, who took the entirety of the loss, sued his ex-wife for a partial refund of the cash portion of the settlement. He requested that the court award him $2.7 million dollars, half the amount at which the couple had valued the investment. The husband sued under the legal theory of mutual mistake, claiming that he and his wife were both wrong about the investment's value at the time of their divorce.

The court denied the husband's claim, saying that, upon agreeing to the divorce settlement, he had assumed any potential financial gain as well as any financial loss associated with the investment. If the investment had risen in value instead of fallen, the wife would not have been able to receive any additional compensation.

Source: Las Vegas Sun, "NY court: Man stuck with Madoff loss in divorce," April 3, 2012

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