The decision of the New York appellate court in the post-divorce lawsuit of Steven Simkin and Laura Blank is a lulu.
The well-heeled couple were married thirty-three years and divorced in 2006, with a property settlement that involved a complex series of transactions, juggling several properties, autos, accounts, and cash. One of the assets the couple valued at about 5.4 million dollars at the time was an account with Bernard Madoff, although that only constituted a little less than a third of their estate.
We all know how the Madoff investment turned out. But at the time it seemed like a good deal. Now the ex-husband, who retained the major portion of the Madoff account in exchange for the wife giving up certain other things, has sued to recoup some of the assets she got in the divorce as part of the deal because he says that no such account ever existed (it was a “mutual mistake”). The majority of the court agreed with him in a close 3-2 decision.
That went against the time-honored ruling that property settlements in divorce are final (custody and child support arrangements, on the other hand, can be re-opened by either party as long as the child is a minor and there are changed circumstances). Financial investments are inherently risky, and the only relevant value they have is the value at the time of the settlement, not what happens afterward, whether bad or good. The decision also has the potential for “destabilizing all types of contracts struck with the fraud victims,” not a good idea either.
The ruling in Simkin v Blank is not a man vs. woman thing; the results would be the same if the sexes were reversed, and the results would be equally stupid. You can read the entire judgment here if you like. I’m impressed with the well-reasoned dissent, which states, among other things:
Instead of enforcing the plain language of the agreement between the parties, the majority relies on the doctrine of “mutual mistake” to rewrite it. However, even if one accepts that mutual mistake is the appropriate analysis, the complaint fails. It fails first because the alleged mutual mistake does not involve a fundamental assumption of the contract. It further fails because the alleged mistake did not exist at the time the parties entered into their agreement. Moreover, the majority’s approach undermines decades of established precedent favoring finality in divorce cases. Thus, the conclusion the majority reaches, not only fails to follow precedent, but is truly “divorced” from reality…
Under the settled doctrine of mutual mistake, the alleged mistake must exist at the time the parties executed their agreement…The amended complaint repeatedly identifies the mistake to be that the parties thought they had an investment account [with Madoff] worth $5.4 million, when it was actually nonexistent. However, this allegation clearly conflicts with the allegation in the amended complaint that Steven withdrew actual money from this “nonexistent” account at the same time in 2006 to pay Laura. Thus, even looking at the amended complaint in isolation (i.e., without the agreement), plaintiff has failed to plead a mutual mistake that existed at the time the parties entered into their contract…Because Steven received significant value in exchange for the payment of $6.25 million to Laura, his retention of the Madoff account and subsequent losses render this case no different than the legion of cases denying a spouse’s request to open up a divorce settlement where the final value of an asset was not what the parties believed at the time of the divorce…
They say hard cases make bad law. I’m not completely certain this is a hard case, but if the appellate ruling were to stand, it would certainly be a bad law.