Court Decides Ex-Wife Can Keep Ponzi Scheme Money

Last Thursday in a 5-2 ruling, The New York Court of Appeals decided that in an instance where money was earned fraudulently, an innocent spouse could keep their money after the divorce rather than having to make restitution. The case centered on Stephen Walsh and Janet Schaberg, who were married for 25 years before settling their divorce back in 2006.

Two years later, financial regulators filed complaints that Walsh and another investor had misappropriated funds of over $550 million. While his business partner pleaded guilty last year, Walsh’s case is still pending. Due to the complaints, a federal judge froze $7.6 million Schaberg had in brokerage and bank accounts and she appealed the order. The New York courts’ definition of marital property can include fraud earnings.

The appeals court decided that Schaberg could keep these funds, cited by the majority as “tainted property,” because there was no evidence that she was aware of the fraud. Judge Victoria Graffeo stated that if a spouse were aware or participated in fraudulent actions, in cases of divorce they would also be responsible for compensation. The court explained its decision as “rooted in New York’s concern for finality in business transactions.”

Read more here : New York Times