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Losses in Madoff Investments Spark Property Division Suit

An unusual case has been cleared for trial in an East Coast court, and it's caught the attention of divorce lawyers in Illinois. A man has asked the court to revise the property division he and his ex-wife agreed to in 2006, because his investment account with Ponzi-schemer Bernard Madoff was included as an asset.

The property division reportedly went like this: The husband got the house and agreed to pay his wife $6.25 million in lieu of spousal support. He also agreed to roll $368,000 into her retirement account. The wife got the family's city apartment, along with its $370,000 mortgage. The husband claims that $2.7 million of the money he gave his wife was based on the value of his Madoff account.

The appellate court looked at the property division as a contract between the husband and wife, citing two specific doctrines. Supporting the husband, the majority called on the doctrine of "mutual mistake." Supporting the wife, they referred to the doctrine of "unjust enrichment."

In contract law, if the parties both share and rely on an important part of the contract, the court can either revise the agreement or throw it out altogether. In this case, then, the husband could argue that both parties were mistaken in the value of the Madoff account. The court's ultimate decision would depend on the circumstances and the just how big the mistake was.

The wife's argument would be one of "unjust enrichment." The husband is asking for restitution -- repayment -- from her, but based on what? The terms of the agreement were completed. It's done and gone. If this were a 401(k) that had dropped in value, along with everything else during the recession, would he get a refund?

The dissenting opinion criticized the majority, saying their decision undermined long-standing family law precedents. The agreement did not specifically mention the Madoff account, the dissent continued, nor did the husband liquidate the account to pay his wife. In fact, he continued to invest in it.

As the dissent said, the outcome could dramatically reshape the law. Family law attorneys will be paying close attention.

Resource: "Madoff Investor Can Sue Ex Over $2.7 Million Divorce Accord" 01/04/11

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