Madoff victim can’t revise divorce deal, appeals court says

A New York real estate lawyer who paid his ex-wife $2.7 million of the supposed value of his account with Bernard Madoff can’t revise the agreement because he lost money in the Ponzi scheme, a state appeals court ruled.

The New York Court of Appeals, the state’s highest court, dismissed a suit brought by Steven Simkin against his former wife, Laura Blank, reversing the decision of a Manhattan appellate court, which had said the case could proceed.

Simkin, chairman of Paul, Weiss, Rifkind, Wharton & Garrison LLP’s real estate department, sued Blank in February 2009, saying she was unjustly enriched by their 2006 divorce settlement. A trial-court judge in Manhattan dismissed the complaint in December 2009, and the intermediate appellate court later reinstated the suit.

Judge Victoria A. Graffeo of the Albany-based Court of Appeals wrote in today’s ruling that Simkin could have redeemed all or part of the investment until Madoff’s Ponzi scheme began to unravel in late 2008, more than two years after the division of property was completed.

“This situation, however sympathetic, is more akin to a martial asset that unexpectedly loses value after dissolution of a marriage,” Graffeo wrote. “The asset had value at the time of the settlement but the purported value did not remain consistent.”

Madoff Account

Simkin and Blank separated in 2002 after almost 30 years of marriage and divorced in August 2006. Simkin agreed to pay Blank $6.25 million in the settlement, including $2.7 million from an account with Madoff that was valued at $5.4 million as of September 2004, according to the ruling.

Simkin tried to use his wife as a “downside hedge on his poor investment,” said Richard D. Emery of Emery Celli Brinckerhoff & Abady LLP, who represented Blank in the appeal.

“It’s a poor choice of the use of his assets in the divorce,” Emery said in an interview. “I think the court recognized that that does not constitute a mutual mistake.”

Allan J. Arffa of Paul Weiss, a lawyer for Simkin, didn’t return a phone message seeking comment on the ruling.

Madoff pleaded guilty in 2009 to running what prosecutors say is the biggest Ponzi scheme in history. He is serving a 150- year sentence in federal prison in North Carolina. A trustee is liquidating Madoff’s firm in federal court in New York.

Emery said he wasn’t aware of any other similar divorce cases involving Madoff accounts. While there have been cases where “fruits of fraud” have been transferred in divorces, they are rare, Emery said.

“It’s an odd situation,” Emery said. “Obviously you’ve got to be sympathetic to all the Madoff victims. But most of them don’t look to their former wives to get paid back.”

–Bloomberg News–