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Husband's alleged Ponzi scheme complicates divorce's property division

A divorced couple's divorce settlement and property division have been complicated by allegations against the husband for running a Ponzi scheme. The fraud allegations were asserted against the former husband almost two years after he finalized a divorce with his former wife. It seemed that the former wife may have had to deal with her former husband's actions even after divorce, but a court ruled that the divorce decree allows the woman to live her life unimpeded by her husband's past acts.

In 2007 the former couple from New York agreed to a divorce settlement. The divorce settlement called for the wife to receive $12.5 million every other year and for the husband to retain $5 million and two condominiums. In 2009, the former husband was charged with fraud by the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) for allegedly running a Ponzi scheme for 13 years. As a result of the fraud charge, $7.59 million of the wife's assets were frozen because the assets were allegedly derived from the husband's Ponzi scheme.

More recently, the highest court in New York, the Court of Appeals, ruled on the issue. The court ruled that funds derived from fraud can be deemed marital property. The court went on to explain that such funds can be the object of a divorce decree if the receiving spouse is innocent, was not aware of the fraud and the property division was fair.

The state court's ruling was used last week during the ruling of a federal appeals court ruling on the same case. The federal appeals court unfroze the former wife's assets. The attorney for the wife took the victory with a grain of salt and said he was "cautiously optimistic" about the outcome of the case. The SEC and CFTC may try to challenge the validity of the divorce agreement by challenging whether the former couple's assets were equitably distributed.

Source: Reuters, "Ex-wife may recover assets tied to Ponzi scheme: court," Jonathan Stempel, Sept. 15, 2011

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