Court of Apppeals Permits Wife to Retain Funds from Husband's Ponzi Scheme

In a landmark case by the state's highest appellate court, the Court of Appeals, decided that in innocent spouse who had no knowledge of a husband's illegal scheme, could retain the money paid to her during a divorce settlement that could be traced to the moneys embezzled by her former husband. The court held that since the wife had no knowledge of the commission of the fraud, she could resist the claims of creditors who were defrauded by the husband.

The decision was made by a divided court in a 5-2 decision. Nonetheless it can be read to conclude that the high court stands ready to do the right thing within the parameters of the law. Since a party in a commercial litigation could resist the claims of such creditor if the party was an innocent bystander, the court reasoned that such result should also be afforded to a spouse in a matrimonial litigation.

It must be remembered that not every case can reach the Court of Appeals. It is only when there are two dissenting opinions in the Appellate Division that an appeal can be made "as of right" or if a question is presented to the court by a federal or lower state court. In most other situations, a motion must be made for leave to appeal before the Court of Appeals will decide the dispute.