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Post-Divorce Cash Flow and Financial Workability

By Carl M. Palatnik

The New York case of Simkin v. Blank, N.Y.3d 46 52 (2012), infamous for its ties to Bernard Madoff, illustrates one of the common financial mistakes made in divorce. In this case, pursuant to a settlement agreement incorporated but not merged into their judgment of divorce, the parties retained respective ownership of separately titled properties, including a brokerage account in the husband's name, managed by the Madoff firm, which had an agreed-upon value of $5.4 million. To balance this exchange and effectuate what they believed to be a fair and reasonable division of marital property, the husband paid the wife $6.25 million, and transferred to her $368,000 in retirement assets to equalize their retirement holdings.

Approximately two and a half years later, the Madoff brokerage account was effectively rendered valueless when Madoff's Ponzi scheme was exposed. The husband asked the court to reform the agreement based on the doctrine of mutual mistake, but the court declined, stating: “This situation, however sympathetic, is more akin to a marital asset that unexpectedly loses value after dissolution of a marriage; the asset had value at the time of the settlement but the purported value did not remain consistent.” As the court emphasized, rescission or reformation of a property settlement is limited to “exceptional situations.” Id. at 52 (quoting Da Silva v. Musso, 53 N.Y.2d 543, 552 (1981)).

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