Madoff’s Costly Commingling of Funds Mistake

Commingling of funds occurs when you mingle business funds with personal funds.  Bernie Madoff’s wife Ruth is still living a life of luxury even though Bernie has been sent to jail for 150 years. While she will probably not spend time in a cell, there is a good chance she will lose more of her assets. Her troubles come from a “commingling” problem that was triggered when Bernie’s company BLMIS transferred money to her and other companies and accounts she owned without an appropriate paper trail or reason. There are a whole series of asset protection lessons to take away from the Bernie Madoff disaster. One big one is that you have to have a reason and a paper trail when you transfer money in a corporation.

In the complaint, filed on July 29, Mrs. Madoff was accused of having a no “good faith basis” to believe she was entitled to the money taken out of the firm, BLMIS.. In other words she wasaccused of  commingling of funds.  Three days before Mr. Madoff confessed to the fraud, $11 million was transferred from the firm’s business account at JPMorgan Chase to DWD Associates, a real estate partnership partly owned by Mrs. Madoff, according to the complaint. There were also other payments to partnerships Mrs. Madoff had partial ownership in. Mrs. Madoff also received more than $3 million from the business over the last six years to pay personal expenses charged to her American Express card. Mr. Picard, the attorney for the petitioners, also discovered $2 million in payments to a business Mrs. Madoff had invested in, called PetCare RX.

“Ruth Madoff was never an employee of BLMIS yet millions of dollars belonging to BLMIS and its customers found their way into her personal accounts and investments without any legitimate business purpose or any value to BLMIS, simply because of her relationship with Bernard Madoff, she was accused of commingling of funds,” Mr. Picard wrote in the complaint.

If Bernie and Ruth Maddoff had been more careful with their paper trail and more vigilant not to commingle funds, Ruth may be in a better position today. Of course everybody knows you shouldn’t commingle funds. But, please evaluate your actions. Stand back and take a long unemotional look at your company books from a third party’s perspective. Yes, the lessons are stupidly simple, but they are overlooked by thousands of bright people who lose millions because of the oversight. I write and talk about these topics, but I still see very bright people make these mistakes all the time. My Accumulation and Preservation of Wealth course has a checklist with 38 items you need to pay attention to when maintaining your corporate liability protection. Please don’t overlook these items.