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Losses tied to Madoff won’t alter divorce pact

NEW YORK - New York’s highest court ruled Tuesday that a man who lost his settlement proceeds in Bernard L. Madoff’s Ponzi scheme will not get a do-over of his divorce agreement.

The unanimous decision from the New York Court of Appeals overturned a lower court ruling that had allowed Steven Simkin, a real estate lawyer at a Manhattan firm, to sue his former wife, Laura Blank, also a lawyer, to alter the terms of their divorce pact.

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“Given the extensive and carefully negotiated nature of the settlement agreement, we do not believe that this presents one of those exceptional situations warranting reformation or rescission of a divorce settlement after all marital assets have been distributed,’’ wrote Judge Victoria A. Graffeo.

The ruling ends one of the most unusual lawsuits resulting from the Madoff fraud - one that riveted the matrimonial bar. Some lawyers feared that if the court had allowed Simkin to upend this agreement, it could have destabilized a variety of settlements, especially those tied to the Madoff case.

“Unscrambling the deal would have been a mess and invited dozens of copycat suits, ripping open any deal tied to Madoff’s scam - or any investment that isn’t what it seemed,’’ said Lawrence A. Cunningham, a law professor at George Washington University.

The ruling is the second in less than a year in which New York’s highest court has refused to claw money back from divorce agreements.

In June, the court ruled a woman could keep proceeds from a divorce agreement even if that money was the ill-gotten gain of a financial fraud perpetrated by her former husband.

“Finality is crucial in a divorce,’’ said Richard D. Emery, the lawyer for Blank. “And this ruling shows that you can’t reform a deal just because you want to shift your investment losses to your former spouse. A deal is a deal.’’

Blank, 62, a labor lawyer for the City University of New York, and Simkin, 64, head of the real estate practice at the law firm Paul, Weiss, Rifkind, Wharton & Garrison, declined to comment.

In 2006, the couple divorced after more than 30 years of marriage. They decided to split their assets evenly. Of their $13.5 million fortune, $5.4 million was invested with Madoff. Simkin kept most of his assets invested with Madoff. Blank took her settlement proceeds in cash.

In 2008, Simkin lost millions of dollars when it turned out that Madoff’s investment business was a giant Ponzi scheme. Madoff is serving a 150-year prison term.

Shortly after the fraud was revealed, Simkin asked Blank to revise their divorce deal. She refused, and he sued.

A trial judge dismissed Simkin’s suit, but in January 2011, a divided New York appellate court ruled Simkin could sue to seek a redo of the settlement.

The New York Court of the Appeals rejected Simkin’s argument that he and Blank had made a “mutual mistake’’ about the existence of a Madoff account. The doctrine of “mutual mistake’’ is a well-established one allowing for the cancellation of contracts when both parties are innocently mistaken about a crucial element.

Simkin argued that the Madoff account did not exist because it had been nothing more than part of a giant Ponzi scheme - and should not have been counted as part of the marital assets.

The court did not agree. Graffeo said that the Madoff account did exist because Simkin could have redeemed his investment at least until December 2008, when Madoff turned himself in.

Emery said the ruling gave his client peace of mind.

“Laura’s been in a state of upheaval and turmoil because of this case,’’ Emery said. “I’m now just glad she can sleep at night and not have her whole emotional and financial livelihood hanging in the balance any longer.’’

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