When assets are split up during the divorce process, investments are valued according to their worth on a set day — not the potential value they may someday hold, for better or worse.
A recent divorce case involving high-asset property division served as a reminder of this rule regarding investments and value changes. The divorce settlement awarded the woman in the marriage a $6.25 million settlement, $2.7 million of which was paid out by the husband to purchase her 50 percent share of a $5.4 million investment held at the time.
After the divorce, the investment flopped. It was one such investment held by fraudulent financier Bernard Madoff, who ran a Ponzi scheme that robbed billions of dollars from investors in Florida and elsewhere in the United States.
After the investment was found to be essentially non-existent, the man went to court and tried to get his wife to pay back the $2.7 million sum. He argued that the investment was a mutually made poor decision and that the investment did not actually exist at the time of the divorce because of the fraud.
The New York Court of Appeals rejected his claim, saying that the investment was valid at the time — the Ponzi scheme had not yet fallen apart, and the man could have withdrawn what assets did exist in his investment, had he chosen to do so.
Consequently, the eventual failure of the investment was irrelevant. The court pointed out that, had the investment become extremely profitable in the following years, the man would not have felt he owed his wife anything, nor would she have any entitlement beyond what was agreed upon in the divorce settlement.
The case points to the value of being represented by an attorney who is deeply experienced in property division and drafting settlement agreements. Such experience can make a big difference in protecting a divorcing party’s assets and financial future.
Source: Wall Street Journal, “NY’s top court refuses to undo divorce settlement,” April 3, 2012