Love, Marriage, Personal Injury & Divorce: Kentucky’s New Case Law on Marital Property

Love, Marriage, Personal Injury & Divorce Kentucky’s New Case Law on Marital Property

I did my share of divorces when I first started practicing law, and quickly decided that I wanted to keep love, marriage, and emotions limited to the private spheres of my life and not get involved in complicated and ever-changing marital relationships otherwise in my professional life. I found my calling in representing people who typically have no money to pay me but need their voice heard loud and clear against the insurance companies. As a plaintiff’s attorney, virtually all my contracts are contingent upon my success for each case.

For as long as I can remember, when preparing, explaining, or signing contingency-fee agreements with my clients, I have taken so many aspects of the case into account: my clients, expenses, the experts, the specific court system in which the case will be handled, and even the personalities and professionalism of the opposing counsel. Of course, I have always had to think about finances: How will I pay for the costs of this case? Which expert is more thorough but reasonably priced? Can I pay the rent during all the months or years this case will take? Where will the money come from until the case is resolved? Countless other questions always nagged at me even after I had the agreements signed by my clients.

I must admit, I never considered whether my contingency contract would be marital property, requiring me to share in the case proceeds long after any marital dissolution.

Well, recently, the Kentucky Supreme Court rendered a decision making contingency-fee contracts marital property and the connection between marital dissolution and the existing contingency contracts a serious consideration in Kentucky.

In the case of Sally versus Albert, Sally and Albert were divorced. According to the case records, Sally is not an attorney. At the time of their divorce, Albert had an active law practice and had “executed” several contingency-fee agreements. The trial court treated these as Albert’s income “when received,” leading Sally to bring the case all the way to the Supreme Court of Kentucky, arguing that the contingency-fee contracts that existed at the time of their divorce were marital property, subject to division in the dissolution of their marriage.

After an analysis and discussion of several family and property law concepts, the Supreme Court of Kentucky concluded that a contingent-fee contract in existence during the marriage constitutes marital property to be divided in a dissolution proceeding.

The full text of the opinion is published here.

It is well established that regardless of its source or the profession of the spouses, in a dissolution of marriage, income of either or both parties may be divided per the specific state laws where the divorce takes place. However, making the contingency-fee contracts of an attorney marital property may have far-reaching consequences which are not discussed in the Kentucky Supreme Court Opinion:

  • Isn’t the arrangement of allowing a non-attorney to share in the profits of a case against most state ethics rules, advisory opinions and ethical responsibilities of attorneys? We all know about the rules that prohibit the sharing of fees with non-attorneys (in come cases even with attorneys if such attorneys are not actively involved in the referred case), prohibition of fees to any persons for recommending the attorney’s services, etc.
  • What about the attorney-client privilege? Starting from the very early stages of law school and throughout our legal careers, we are all aware of our ethical and professional responsibility to not disclose the representation of a client or any of the case details without the client’s consent. If an attorney is required to share her contingency-fee contract information with non-party, non-lawyer individuals, does that not improperly disclose privileged information?
  • If the contingency-fee contracts are marital property, and if the case is unsuccessful with all the expenses outstanding, will the courts enforce a debt on the non-lawyer ex-spouse the same?
  • If the contingent case is successful, leading to some proceeds to be shared, should the non-lawyer ex-spouse not share in the non-deductible expenses the attorney had to pay in order to market, process, and win the case?

Undoubtedly, the attorneys for the spouses of contingent-fee-earning attorneys will figure out a way to evaluate these cases, their values, and how the division should be, and advocate for their clients, diving into the caseload of fellow attorneys to fish for any possible implications of marital property. On its face, this alone seems like a dangerous idea for so many ethical and professional reasons.

In Kentucky, we will wait and see how this decision will be enforced. It will be interesting to see if other states follow in the same path in the coming years. How does your state divide property in a dissolution of marriage? Are the contingency-fee contracts part of marital property where you practice law?