Bernard Madoff Scandal: The Paramount Importance of Multiple Valuations and Appraisals
Posted by: Marshall Waller
March 02, 2009
Topic: Divorce and the Financial Crisis
The hardships and repercussions that the current financial crisis is wreaking upon people’s lives have now moved from the present and future, and reached back into the past. New revelations from the Bernard Madoff scandal have underscored the importance of both complete transparency, and valuation methods used, as they relate to equitable divorce settlements. Whether valuing businesses, real estate holdings, illiquid hedge fund investments or other financial stakes, divorcing parties should obtain multiple valuations from reputable and independent experts.
Often times in a divorce settlement, one party will take cash payment as an equitable share of a business enterprise, real estate holding or other investment –rather than dissolve the investment. While this is quite common, and proper valuations of such have always been of paramount concern, they are especially important in this financial meltdown. Patricia Hurtado, of Bloomberg News (February 5, 2009), recently reported on an incredible such episode that has emanated from the Bernard Madoff scandal. Hurtado wrote, “A lawyer who said he had $5.4 million invested with Bernard Madoff sued his ex-wife for the $2.7 million he paid her in cash for the value of the account in a divorce settlement.” The husband in the case, who kept the Madoff account in exchange for the cash settlement, was quoted as saying that, “he now knows that the Madoff account is ‘worthless, literally not worth the paper on which the parties’ valuation rested.’” The repercussions for both parties could be both devastating and everlasting.
It is quite possible that upon hearing the evidence in this case, a court indeed might revisit this divorce settlement with the possibility of a reallocation of assets. As divorced parties have most probably made new financial commitments with their ‘fair’ share of any settlement, such as purchasing a house for instance, any re-division of property could have severe ramifications. Suzanne Bracker, an New York attorney, was quoted in the article, “It’s what is fair, what is right. Is it fair that only he should be defrauded by Bernie Madoff and not her? If he didn’t know that Madoff stole their money, he could go to court and say ‘I got a phantom asset, it doesn’t exist and it’s not fair,’ to convince the court to re-allocate the marital assets.” The prospects of such a debacle must be strenuously guarded against.
The severity and unusual nature of this economic downturn is now affecting areas of people’s financial lives, which they might previously thought both safe and unassailable. Financial settlements can be both emotionally charged and difficult in nature, without having to possibly revisit the issue after the fact.
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