Oh, dear; this cannot be good public policy. Divorce courts should be requiring no-holds-barred open disclosure. This decision will create or perpetuate a culture of trickery in litigation.
It is beyond comprehension that the sale of business for $225 million could take place in one month. When the seller signed this divorce agreement he had to have known there was a buyer in the wings or a contract pending. Those of us doing divorce work for many years would probably be willing to bet our homes that the deal was really done long before, but pen not put to paper until the divorce was a done deal. How often is the non-owner supposed to do discovery? Must we negotiate a deal, then take a final round of depositions? Sorry to report two poor decisions in the same week.
Here's the entire digest of Kojovic v. Goldman, NY App. Div. October 19, 2006.from the Family Law Prof Blog:
"The New York Court of Appeals dismissed an action to set aside a divorce settlement in a high-dollar divorce between Actress Lora Kojovic and her husband Neal Goldman, who owned a minority share of an Internet information service Capital IQ. Wife signed a divorce settlement agreement in August 2004 that gave her nearly $1.5 million. However, about one month later, Standard & Poor's purchased her husband's company for $225 million, with his share being $18 million. Wife then brought an action to set aside the settlement agreement on the basis of fraud and unconscionability.
Wife argued that husband affirmatively misrepresented the liquidity of the company and the talks that were underway for purchase of the company. However, the court disagreed, finding that husband had disclosed the assets and that it was up to wife to inquire further. However, wife, who had been represented by counsel in negotiating the agreement, had acknowledged that she had the right to inquire
further into the financial aspects but waived this right.
The court noted its "disdain for post-divorce claims of concealment" and found that "[T]he wife concedes, as she must, that the husband consistently and accurately disclosed the full extent of his minority interest in Capital IQ, an asset of speculative value at the time the settlement agreement was executed... That the wife now believes her husband privately harbored a more optimistic assessment of the potential value of his minority interest in that company, or even had additional information that he kept to himself, is irrelevant... wife has only herself to blame for her failure to inquire further. Such failure is not, however, a basis upon which to vacate the settlement."
"... given her professional background and the advice furnished by her counsel and accountant, [wife] should have been aware of the distinct possibility that Capital IQ would be sold," the panel held. "That she opted for an immediate and certain payout instead of the uncertainty of an eventual sale does not afford a basis for setting aside the agreement."