Commodity Futures Trading Commission v. Walsh, 17 N.Y.3d 162

Walsh and Schaberg were married in 1982; Walsh engaged in fraud between 1996–2009 with co-defendant Greenwood, allegedly misappropriating over $550 million from investors.
In 2004 they separated; November 2006 stipulation of settlement under Domestic Relations Law § 236 (B) (3) allocated assets and provided Schaberg a distributive award, waivers, and maintenance terms; the settlement was incorporated in but not merged into the divorce judgment (April 2007).
After fraud allegations, the Agencies filed complaints seeking disgorgement; Schaberg was named as a relief defendant, and federal courts froze roughly $7.6 million in her accounts and assets.
The Second Circuit certified two questions about whether fraud proceeds could be marital property and whether Schaberg paid fair consideration under Debtor and Creditor Law § 272; this Court reformulated and answered them.
The Court held that fraud proceeds can be marital property, and that fair consideration can be found even when the marital estate largely consists of proceeds of fraud; however, whether Schaberg gave fair consideration is a fact-intensive question for federal courts to resolve.

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether proceeds of fraud are marital property under DRL §236	Schaberg’s assets originated from Walsh's fraud and thus should be non-marital.	Marital property definition is broad; proceeds can be marital.	Yes, proceeds can be marital property.
Whether an innocent spouse pays fair consideration under Debtor and Creditor Law §272 when relinquishing claims to proceeds of fraud	Relinquishment cannot be fair consideration if proceeds are tainted.	There are other forms of valid consideration beyond relinquishment of shares.	Negative on reformulated question; fair consideration can exist even with tainted proceeds.
Whether the disgorgement policy defeats finality in divorce when tainted assets are involved	Disgorgement should override finality to return stolen funds to victims.	Finality and stability of divorce should prevail where innocent spouse acted in good faith.	Public policy favors finality; innocent spouse may prevail if fair consideration given.
Impact of equitable distribution on innocent spouse who had no knowledge of fraud	Disgorgement is appropriate to recover funds.	Innocent spouse should not forfeit legitimate, fair-valued assets.	Innocent-spouse protection if fair consideration was given; otherwise disgorgement may remain possible.

O'Brien v. O'Brien, 66 NY2d 576 (1985) (equitable distribution framework and purpose of DRL §236)
Fields v. Fields, 15 NY3d 158 (2010) (broad construction of marital property; includes intangible interests)
Stephens v. Board of Education of Brooklyn, 79 NY 183 (1879) (money obtained by fraud cannot be followed to bona fide transferees)
Hatch v. Fourth Natl. Bank of City of N.Y., 147 NY 184 (1895) (money has no earmark; finality in business transfers)
Banque Worms v. BankAmerica Int'l, 77 NY2d 362 (1991) (policy of finality; disallow traceability in some transfers)
Rainbow v. Swisher, 72 NY2d 106 (1988) (upholding settled domestic relations to preserve finality)
Boronow v. Boronow, 71 NY2d 284 (1988) (upholding finality and stability in divorce contexts)