‘Only the Little People Pay Taxes’: The Cost of Standing by Notorious Men

Behind many a high-profile financial scandal, there lies a spouse who faces both public scrutiny and also legal challenges of their own. Women like Ruth Madoff and Eleanor Daugerdas have found themselves inextricably entangled in the fallout of their husbands’ crimes. Here, we delve into their stories, explore the IRS's Innocent Spouse option, and even take a short time-travel trek through tax crime history. By examining these stories, we’ll discover how to navigate a PR (and personal) crisis, and the potential financial relief available through legal avenues.

Ruth Madoff: The Enigmatic ‘Ruthie Books’

Ruth Madoff, Bernie Madoff’s wife of 61 years, was at the center of one of the largest Ponzi schemes in history. Her role in the scandal has been a subject of extensive debate and is outlined in the new book Madoff: The Final Word by Richard Behar. While Ruth has consistently portrayed herself as an unsuspecting spouse, the evidence presents a largely different picture.

The 60-Minutes Interview

In a now-infamous 2011 interview with 60-Minutes, Ruth Madoff portrayed herself as a passive participant in her husband’s multi-billion dollar scam, claiming she was unaware of the full extent of her husband’s fraudulent activities. During the interview, Ruth described herself as a victim of her husband's deception, expressing shock and devastation upon learning the truth. 

However, this narrative has been challenged by various pieces of evidence. Critics argue that Ruth's active involvement in managing the Madoff Investment Securities' books and reconciling critical accounts suggests a deeper connection to the scheme. In The Final Word, Behar notes that skeptical law enforcement officers even gave her the nickname “Ruthie Books.”

The Evidence

Testimonies from former employees and financial records reveal that Ruth Madoff was more involved in the operations of the Madoff firm than she has admitted over the years. For instance, records indicate that Ruth handled significant financial tasks, including managing the firm's books and overseeing transactions. 

Her role extended beyond what would be typical for a non-financially involved spouse, raising questions about her level of awareness and involvement in the scheme. Scrutiny largely arose after Frank DiPascali’s 2009 plea agreement testimony. DiPascali, a key lieutenant of Bernie Madoff for three decades, passed away in 2015.

Public Perception and Legal Outcome

Despite Ruth Madoff's claims of victimhood, the public and legal scrutiny she’s faced over the years has been severe. Her role in withdrawing millions of dollars from the Madoff accounts before her husband's arrest painted a complicated picture. 

While Ruth certainly faced significant personal – her sons reportedly no longer speak to her – and financial consequences, including the forfeiture of her assets and a public fall from grace, many in the legal system still believe she could have faced legal repercussions for her involvement, per a Forbes first look at Behar’s new book, aptly titled ‘The Sins of Ruth Madoff.’

At the time of Bernie’s sentencing in 2009, fraud victim Marcia Fitz Maurice summed it up in a court statement, “Your wife, rightfully so, has been vilified and shunned by her friends in the community.”

Eleanor Daugerdas: The Wife Caught in the Web of Fraud

Eleanor Daugerdas's story unfolds differently than Ruth’s but equally dramatically. Her husband, Paul Daugerdas, was convicted of major tax evasion and fraud, casting a long shadow over Eleanor's life and finances.

Court documents from an appeal Paul’s legal team launched in 2015 note that, following a jury trial, he was initially convicted of one count of conspiracy to defraud the Internal Revenue Service (IRS), four counts of client tax evasion, one count of IRS obstruction, and one count of mail fraud. He was sentenced to 180 months’ imprisonment, three years’ supervised release, $164,737,500 in forfeiture, and $371,006,397 in restitution.

The appellate court denied Daugerdas’s appeal.

Asset Forfeiture

Following Paul Daugerdas's conviction, Eleanor faced a challenging legal battle to protect her assets. The government’s asset forfeiture actions sought to recover funds linked to Paul’s fraudulent activities during his time at the Chicago law firm Jenkens & Gilchrist, impacting Eleanor’s financial stability.

In September 2021, Reuters reported that a federal judge in Manhattan blocked Eleanor’s request to sanction the United States government.

Legal Challenges and Rights

The legal system's approach to Eleanor's claims reveals the complexities of safeguarding personal assets in the wake of a spouse’s criminal activities. Eleanor's struggle highlights the importance of timely and proactive legal measures to shield one’s assets from forfeiture and other legal repercussions. 

The American Bar Association even used her as a prime example of why “white-collar wives” should retain their own legal representation as soon as possible after their husbands are accused of any form of criminal activity.

Historic Perspective: Women in the Shadows of Financial Scandals

The experiences of Ruth Madoff and Eleanor Daugerdas are not isolated. Throughout history, women have found themselves embroiled in financial and criminal scandals, sometimes through mere association.

Al Capone’s Wife, Mae Capone

Mae Capone, wife of the infamous mobster Al Capone, faced considerable public and legal scrutiny during and after her husband’s trial. While Mae’s involvement in Al Capone’s criminal empire was minimal, her intimate connection to him brought her into the spotlight. 

After Al Capone was convicted of tax evasion in 1931 and sent to prison, Mae Capone's life took a dramatic turn. She moved into a modest home in Miami, distancing herself from the luxurious lifestyle they once enjoyed in Chicago. Mae was fiercely loyal to her husband, visiting him regularly during his incarceration at San Francisco’s Alcatraz Prison, despite the grueling journey. 

After Capone was released in 1939 due to his deteriorating health, Mae took on the role of his caregiver, managing his severe syphilis symptoms and the mental decline that came with it. She became reclusive, rarely leaving their home, and focused entirely on protecting the remnants of her family from further public disgrace. Her dedication to her husband, despite the havoc his life of crime had wrought on their family, is living proof of the adage “stand by your man,” though it came at a great personal cost.

Other Notorious Figures

Over the years, other women have also been thrust into the public eye due to their marriages to infamous criminals, often facing harsh scrutiny even if they had a minimal – or nonexistent – level of involvement. 

For instance, Victoria Digiorgio, the wife of notorious mob boss John Gotti, known as the "Dapper Don," lived a life of relative seclusion but could not escape the fallout from her husband's criminal empire. Similarly, Kelly P. Rogers, the wife of Ponzi schemer Scott Rothstein, saw her life upended when her husband’s $1.2 billion fraud scheme came to light. Though she claimed ignorance of her husband's actions, Kelly faced lawsuits from investors seeking to recover assets tied to the scheme. 

In another case, Leona Helmsley, dubbed the "Queen of Mean," was both a co-conspirator and a victim of her husband's tax evasion tactics. Her flamboyant lifestyle and infamous quote, "Only the little people pay taxes," became a symbol of greed, leading to her conviction and prison sentence. These stories illustrate the far-reaching consequences of being associated with financial criminals, where the line between complicity and victimhood often becomes blurred.

The IRS Innocent Spouse Option: A Lifeline for Financial Victims

For those truly unwittingly tied-up in their spouses' financial misconduct, the IRS offers relief through the Innocent Spouse Relief program. This program is a critical tool for individuals seeking to distance themselves from the tax liabilities incurred by their partners.

Understanding the Innocent Spouse Relief Program

The Innocent Spouse Relief program provides a potential lifeline for individuals who were legitimately unaware of their partner’s tax fraud or errors. It allows qualifying spouses to seek relief from joint tax liabilities if they can demonstrate that they were unaware of the misrepresentations or omissions on the tax returns. This relief can be crucial for individuals who find themselves liable for tax debts they did not personally incur.

Eligibility Criteria

The program offers three types of relief: Innocent Spouse Relief, Separation of Liability Relief, and Equitable Relief. Each type has specific eligibility requirements. Innocent Spouse Relief applies to individuals who can prove they were unaware of the inaccuracies on their joint tax return. Separation of Liability Relief allows for the division of tax liability between spouses, while Equitable Relief provides relief in cases where the other two types do not apply but where fairness dictates relief should be granted. A qualified tax professional can help you determine if you qualify.

The experiences of Ruth Madoff, Eleanor Daugerdas, and other wives throughout history offer a glimpse into the complex realities faced by women linked to high-profile financial scandals. Although their tales often read like a tabloid headline or a fairytale gone wrong, these cautionary stories are a reminder of the challenges that ensnare those caught in the web of criminal activity – unwittingly or not. There is a fine line between ignorance and complicity, proven by the devastating consequences that can ripple through the lives of those who become collateral damage in their partners' illicit financial affairs. As society continues to scrutinize the roles of such women, these stories serve as powerful lessons on the importance of awareness, independence, and the potential costs of silence.

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