The NY Times recently published an article announcing that a husband is suing his ex-wife for her share of their Madoff investment funds.  Unfortunately, the account is now worthless, but 4 years ago it was worth $5 million, when Husband withdrew $2.5 million to satisfy the divorcing couple’s settlement agreement.  Husband left his share of $2.5 million in the Madoff Investment account.  Over the subsequent 4 years, the value plummeted to zero.  He is now suing Wife, stating that they were both mistaken about the value of the account, and thus the court should void the settlement agreement.
 

In Pennsylvania, a court is allowed to set-aside a contract, when both parties make a mutual mistake about a material fact in the contract.  For example, if Party A thought he was buying a Ferrari car, but Party B thought he was selling a Ferrari hood ornament, then the parties have made a mutual mistake.  A court is likely to rule that the contract is void. 

The problem with the Husband’s case is a matter of timing.  At the time that Husband and Wife signed the settlement agreement, the account was, in fact, worth $5 million dollars.  That is why he was able to withdraw the $2.5 million.  It took 4 years for the account to lose its value.  A Pennsylvania court would not void this contract on the grounds of mutual mistake. 

And I believe no court should void the agreement.  I posted a comment to the Contract Professor’s blog.  This is what I wrote:

I think the court should dismiss this case faster than the speed of light. The husband-plaintiff didn’t make a mistake about the value of the investment. At the time of the agreement, the investment was worth $5 million. This is why he was able to withdraw the wife’s share of $2.5 million. He chose not to withdraw his share of the investment. The fact that the value of the investment plummeted after her withdrawal is a matter of the market and timing. He can’t have his cake and eat it too. If his $2.5 million doubled in a month, would he have given the wife an extra $1.75 million? Absolutely not. The husband is a sore loser and the law does not protect sore losers under these circumstances. Madoff harmed the husband; he should sue Madoff. Oh wait, he can’t because Madoff doesn’t have any money.  

It is not Wife’s fault that Madoff stole Husband’s money.   And Husband cannot contort contract law to make Wife return the money.  IMHO.