Saturday, October 21, 2006

Claim for Concealment of Value of Marital Assets Dismissed in New York

Once a divorce case is settled, parties often experience “buyer’s or seller’s remorse’ but a just-decided New York case shows how tough it is to set aside a divorce settlement -- even in an extreme case in which the value of an asset turns out to have been undervalued by many millions of dollars.

In Kojovic v. Goldman a New York appellate court expressed its “disdain” for post-divorce claims of concealment of the value of marital assets.

The parties settled their divorce case after the parties had exchanged financial information. The husband had disclosed his minority interest in an information technology company. The settlement agreement gave the wife nearly $1.5 million.

About one month later, Standard & Poor's bought the company for $225 million, of which the husband’s share was $18 million. The understandably-furious wife sued to set aside the settlement agreement on the basis of fraud and unconscionability.

The Appellate Division, First Department would not allow the wife to present her case at trial, finding that she had not stated a valid cause of action. It held that merely because the wife now believed that her husband privately harbored a more optimistic assessment of the potential value of his minority interest in that company, or even had additional information that he kept to himself, was irrelevant.

What is significant, the Court held, is that the wife, a former equity research assistant at Morgan Stanley with a degree in finance, along with her experienced counsel and accountant, could have freely availed themselves of any number of valuation and discovery procedures during the divorce proceeding but declined to do so, as was expressly acknowledged in the separation agreement. Thus, “the wife has only herself to blame for her failure to inquire further. Such failure is not, however, a basis upon which to vacate the settlement.”

Matrimonial lawyers should note with some trepidation the Court’s reference to their responsibility to protect the parties in this kind of a case.