Contingent fee contracts are marital property to be divided using delayed division method - Ky Supreme Court Published Opinion

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At the time of dissolution, Husband had an active law practice in which he had executed contingent-fee contracts with some clients. The trial court treated the contingent-fee contracts as a component of Husband’s income when received and not as property. The Court of Appeals agreed. The Supreme Court accepted discretionary review.

The Supreme Court first looks to KRS 403.190(2) which defines marital property as "all property acquired by either spouse subsequent to the marriage." The Supreme Court notes that none of the exceptions to marital property apply in this case. The Court then defines a contingent-fee contract as “a fee agreement under which the attorney will not be paid unless the client is successful.” Thus, the Court holds that a contingent-fee contract is a “chose in action” which is “undeniably a property right.”

The Supreme Court looks to the analysis of the Court of Appeals in Poe v. Poe, where the Court of Appeals held that a non-vested military pension was marital property, noting that in dissolutions the Court should favor the equitable division of the marital estate over traditional property law concepts. In Poe, “ while the right to the actual funds from the pension had not vested yet, what did vest was the plan-holding spouse's right to participate in the pension and to bring a cause of action if denied that participation.” Similarly, contingent-fee contracts gave Husband “the right to work on that case for that client and to bring suit if the client unjustly interferes with that right.” Failing to see a “material distinction” between the nonvested military pension in Poe and the contingent-fee contracts at issues, the supreme Court holds that “contingent-fee contracts do constitute marital property under KRS 403.190(2).”

The Supreme Court goes on to give lower courts direction on how to divide contingent-fee contracts adopting the "delayed division" method that was also used in Poe. The Court concludes that although the ruling does not conform to traditional property law concepts, “marriage and its dissolution must be treated equitably, focusing on the contribution of the non-attorney ex-spouse to the marriage through work both outside and inside the home.” Thus, they reverse the Court of Appeal and remand to the case to the trial court for further consistent proceedings.

Digested by Elizabeth M. Howell


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