Jefferson Circuit Court

Husband and Wife were married for 28 years. A divorce decree was entered in 2007, which divided the parties’ assets and provided a maintenance payment to Wife until Husband reached the age of 65 in 2017. Both parties appealed. In 2009, while their appeals were pending, the parties received notice that their funds held by West End Financial had been lost to a Ponzi scheme, resulting in a loss of over $1 million, $800,000 of which had been awarded to Wife as part of the decree. In 2016, Wife filed a Motion to Modify Maintenance, citing changed circumstances related to the loss of her $800,000 to the Ponzi scheme, Husband having returned to an active medical practice despite being disabled at the time of the 2007 divorce decree, and her loss of her own sums to the Ponzi scheme. The circuit court issued an order determining that the change in circumstances rendered the original maintenance award unconscionable, and later ordered that Wife receive a modified, increased maintenance award. The circuit court also ordered $46,000 in attorney’s fees to Wife’s attorney, payable directly to the attorney who could enforce the judgment in his own name.

Husband filed a notice of appeal and Wife filed a motion to dismiss for Husband’s failure to name Wife’s attorney as an appellee. The Court of Appeals concluded that the circuit court abused its discretion in granting Wife’s motion to modify maintenance, specifically disagreeing with the circuit court’s determination that the changes in circumstance rendered the original maintenance award unconscionable. Both parties filed motions for discretionary review in the Supreme Court, which reversed the Court of Appeals’ decision and remanded to the circuit court for reinstatement of the order modifying maintenance.

The Supreme Court addressed three issues: whether the circuit court erred in modifying the original maintenance award; whether the failure to name an attorney with an enforceable attorney’s fees award is fatal to an appeal; and whether the attorney’s fee award was proper.

First, the Supreme Court found that the Court of Appeals erred in reversing the circuit court’s modification of maintenance, because there was substantial evidence supporting its decision. Namely, the parties had been on equal financial footing at the time of the decree in 2007, but were not at the time of Wife’s motion to modify. The Court further opined that where there is a sufficient basis for the lower court’s conclusion, a reviewing court may not reverse simply because it would have decided the issue differently.

Second, the Court held that Husband’s failure to name Wife’s attorney as a party to the appeal was not a fatal error. The Court determined that though Husband had not strictly complied with the rules in adding the attorney as a party to the case, the attorney had adequate notice of appeal and the ability to protect his own interest in seeking affirmation of the attorney’s fee award, because he was named as Wife’s attorney on the first filing in the Court of Appeals and was included on the distribution list. The Court stated that under the new Rules of Appellate Procedure, the failure to name an indispensable party is no longer automatically fatal to an appeal.

Third, the Court held that the circuit court did not abuse its discretion in awarding attorney’s fees because the circuit court properly considered the parties’ financial resources, incomes, and other factors, and awarded attorney’s fees accordingly.

Carter Anderson

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No. 2021-CA-0667-MR

Jefferson Circuit Court

Leslie and Janice Geralds negotiated a property settlement agreement through a collaborative divorce process.  The property settlement agreement awarded Mrs. Geralds 40.62% of Mr. Geralds’ retirement plan.  Several years following the entry of the decree and property settlement agreement, Mr. Geralds retired and signed a noncompete agreement.  As a result, he received additional funds from his company that were not previously addressed in the divorce proceedings.  Thereafter, Mrs. Geralds moved to reopen their case as she believed the additional funds were part of the retirement plan and that she was entitled to receive a portion of those funds pursuant to the parties’ property settlement agreement. Mr. Geralds disagreed, claiming the additional funds were not part of the retirement plan, but rather, new income from him signing the noncompete agreement.

The trial court found that Mrs. Geralds was rightfully entitled to reopen the case because Mr. Geralds did not inform her of the additional funds he was receiving.  Further, the trial court determined the additional funds were in fact part of the retirement plan and that Mrs. Geralds was entitled to a portion of said funds.  Attorney’s fees were also awarded to Mrs. Geralds.  A timely appeal followed.

The Court of Appeals affirmed the trial court, in part, that CR 60.02(d) applied to this case and that Mr. Geralds intentionally did not disclose the additional funds.  By not doing so, the Court emphasized “[f]ailing to disclose assets to the court and [Mrs. Geralds] can be considered fraud affecting the proceedings,” thereby meeting a situation justifying reopening the case.  However, the Court disagreed with the trial court in that the additional funds were not part of Mr. Geralds’ retirement plan, but rather, funds he received after executing the noncompete agreement.  Therefore, the Court did not agree Mrs. Geralds was entitled to a portion of these funds because the funds were not marital property.  Finally, the Court reversed and remanded the case to address the attorney’s fee issue to determine if Mrs. Geralds was entitled to attorney’s fees in reopening the case due to Mr. Geralds failing to disclose an asset during the collaborative divorce proceeding and an unrelated hearing following his retirement.

Caitlin P. Kidd, Esq.

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Fayette County Circuit Court

The parties were divorced in 2015, and their settlement agreement was incorporated into the decree of dissolution. The settlement agreement provided that Husband would pay Wife $4,000 per month in maintenance. Husband unilaterally reduced his payments to $1,000 after a decrease in his pay. Wife filed a motion to compel, and asked that Husband be held in contempt. Husband filed a motion to modify maintenance, alleging he had been terminated and had recently gotten a new position with a lower starting salary with a commission as well. After a hearing Family Court denied Husband’s motion for modification of maintenance and granted Wife’s request for attorney fees. Husband appealed.

Husband argued that Family Court abused its discretion in denying his motion to modify maintenance by ignoring his his significant reduction in income. The Kentucky Court of Appeals held that there was no evidence of changed circumstances so substantial and continuing as to make the terms of the settlement agreement unconscionable because Husband failed to demonstrate the change in circumstances was anything other than temporary, not substantial and continuing. To determine changed circumstances, the Court of Appeals compares the parties’ current circumstances to the circumstances at the time the decree was entered. At the time the decree was entered, Husband had superior income, and Wife was disabled, was a cancer survivor, and suffered  from significant health issues. At present, Husband had received a setback of a couple months’ salary, but his new position would provide similar benefits to his former position. Additionally, Husband had incurred a significant amount of debt that was not related to his change in jobs but rather was incurred on casinos, dining out, jewelry for his new wife, hot yoga classes, among other items. The Court of Appeals affirmed Family Court.

Regarding the issue of attorney fees, the Court of Appeals summarily found no abuse of discretion in Family Court’s award.

Digested by Nathan R. Hardymon

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After rendering a custody decision in favor of mother, the trial court ordered father to pay mother’s attorney’s fees pursuant to KRS 403.220. The trial court made its decision after considering the father’s annual  income of $32,000.00, the mother’s annual income of $41,000.00,  and the father’s  lack of candor and cooperation which led to the accrual of many of the fees. The Court of Appeals reversed and remanded the trial court decision, determining that no disparity of income existed between mother and father’s income to justify an award of attorney’s fees pursuant to KRS 403.220.

The mother petitioned the Supreme Court for discretionary review, arguing that the plain language of KRS. 403.220 does not require a financial imbalance for an award of attorney’s fees, but only requires the court to consider the financial resources of both parties in determining if attorney’s fees should be awarded. Overturning forty-years of precedent, the Supreme Court held that KRS 403.220 does not require that a financial disparity must exist for the trial court to order one party to pay a reasonable amount of the other party’s attorney’s fees in a dissolution of marriage action. However, the Court noted that financial disparity “is still a viable factor for trial courts to consider in following the statute and looking at the parties’ total financial picture.”

The Supreme Court found that the trial court acted within its discretion when assessing attorney’s fees against father after giving consideration to the parties’ financial resources and reversed the decision of the Court of Appeals.

Digested by: Emily Cecconi

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Unmarried mother filed an action to establish paternity and set child support. On May 24, 2012 the District Court set child support, and awarded pre-petition support. The District Court ordered that the child’s social security dependent benefits satisfied Father’s child support obligation, and ordered that the surplus dependent benefit could act as a monthly credit towards Father’s pre-petition support liability. The District Court also held it was without the authority to award attorney fees. Father and Mother both appealed to Circuit Court which affirmed as to fees and the current child support obligation, but concluded that the child’s excess dependent social security benefits could not act as a monthly credit towards Father’s pre-petition support liability. The Court of Appeals granted discretionary review.

The Court of Appeals held that although Father was ordered to pay a pre-petition child support, he was not in arrears because there was no order for support in place until the May 24, 2012 Judgment. Thus, the child’s social security dependent benefits could be applied to Father’s pre-petition support liability. Moreover, the Court of Appeals held that because Mother was represented by a private attorney and her request for child support fell “squarely under KRS Chapter 403” the Court could consider an award for attorney fees pursuant to KRS 403.220.

Both parties moved the Supreme Court for discretionary review on separate issues, which was granted.

The Supreme Court first addresses Father’s jurisdictional argument that a paternity action cannot be brought by a private attorney pursuant to KRS 406.021. The Supreme Court holds that “complainants under KRS 406.021 are authorized to bring a paternity action through private counsel, if they so choose.” The mandatory language in the statute relates to the obligations of the County Attorney or Cabinet, and not how the Complaint can proceed.

The Supreme Court second turns to the attorney fees issue, first disagreeing with the Court of Appeals holding that “KRS 403 does not provide an avenue for a party in a paternity action to recover attorneys’ fees.” The Supreme Court believes the plain language of KRS 403.220 clearly refers to only proceedings “under this chapter” which does not include the paternity statutes.

The Supreme Court then looks to Mother’s next argument on attorney fees, that KRE 407 which provides for attorney fees applies because KRS 406.051 states that “All remedies under the uniform reciprocal enforcement of support act are available for enforcement of duties of support under this chapter.” The Supreme Court holds that “KRS 407 does not provide an avenue for a prevailing obligee to recover attorneys’ fees in a paternity action.” As the paternity statutes pre-dated the KRS 407 UIFSA provision regarding attorney fees, the legislature could not have intended the attorney fee remedy when it enacted KRS 406.051.

The Supreme Court goes on to hold that “A court is no longer imbued with equitable power to award attorneys’ fees.” The American Rule applies unless there is a statutory exception for fees. “While attorneys’ fees are awardable as a sanction ‘when the very integrity of the court is in issue, trial courts may not award attorney’s fees just because they think it is the right thing to do in a given case.’” Thus, if the Court believe equity dictated Mother was entitled to attorney fees, it is without authority to award them to her.

Third, turning to the issue of excess social security benefits, the Supreme Court agrees with the Court of Appeals in holding that a trial court may use its discretion to “apply excess social security retirement dependent benefits as a credit against the pre-petition liabilities a father incurs when a paternity action is initiated before a child turns four years old.” The Supreme Court notes that its holding only applies in narrow cases when “a debt owed for past costs… only become legally due after adjudication and decision by the court.” The Supreme Court empowers trial courts to use discretion to “equitably determine whether credit for prepetition liabilities…should be gleaned from excess benefit” instructing courts should consider the KRS 403.211 (3) factors in their equity analysis. “Thus, the guiding light in making this decision should be: what best protects the interests and needs of the child?” The Supreme Court remands this issue back to the trial court for fact-finding consistent with its decision.

Justice Wright dissents, in part, arguing trial courts should not have equitable discretion to offset pre-petition liabilities with the excess social security income because the funds belong to the child and the court does not have authority to take a child’s assets to pay a parent’s debt.

Digested by Elizabeth M. Howell

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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.

GRASCH V. GRASCH

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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The trial court awarded maintenance based on its finding that Wife’s reasonable living expenses totaled $5,800 monthly, including $1,440 of the children’s living expenses. Accordingly, Husband was ordered to pay maintenance. Husband was also ordered to pay an additional $15,000 for wife’s attorney fees based on an imbalance in financial resources.

Both parties appealed. The Court of Appeals held that the trial court erred by including the children’s expenses in its calculation of wife’s reasonable living expenses and in failing to make findings justifying its award of nine years of maintenance, but upheld the trial court’s ruling on attorney fees. The Supreme Court granted discretionary review.

Wife argues the trial court properly considered the children’s expenses in calculating her maintenance award. The Supreme Court agrees noting KRS 403.200, the Kentucky maintenance statute, permits a trial court to consider “the extent to which a provision for support of a child living with the party includes a sum for that party as custodian.” The Supreme Court reverses the Court of Appeals holding the trial court properly reconciled the maintenance and child support statutes in assigning a percentage of the children’s living expenses to Wife.

The Court next turns to address duration of the maintenance award, holding that the trial court made sufficient findings of fact to justify the nine year duration of maintenance. The trial court properly considered the length of marriage, Wife’s age, and the medical needs of the parties’ children in addition to other factors. The Supreme Court does not find merit in the Court of Appeal’s dicta which criticized the trial court for its failure to consider the financial positions of the parties in nine years. Thus, the Supreme Court reverses the Court of Appeals holding it improperly asked the trial court to speculate.

The Supreme Court affirms the rulings of the Court of Appeals as to the calculation of Husband’s income and the award of attorney fees to Wife holding the trial court properly considered all evidence relating to Husband’s income, and did not abuse its discretion in ordering payment of attorney fees.

Digested by Elizabeth M. Howell

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Wife signed an employment contract with attorney which gave him a lien on all of her assets. Parties subsequently entered into a Marital Settlement Agreement which provided Husband would buyout Wife’s interest and receive marital home. It further provided each would pay his or her own attorney fees, but Husband would pay $1,500 of Wife’s fees. After the entry of the divorce decree, Wife’s attorney placed a lien on the marital home. The trial court Judge set aside the lien and was upheld by the Court of Appeals. Attorney moved for review and the Supreme Court granted discretionary review.

Attorney first argues that he is entitled to a fee under the attorney fee lien statute, KRS 376.460, which does not require notice. The Supreme Court holds that the attorney’s fee lien statutes “does not apply to property assigned or divided in divorce proceedings.” KRS 376.460 allows an attorney to place a lien on fees that were recovered by the attorney. In a dissolution of marriage, marital property is already owned. The court merely divides just shares of the marital estate to one party or the other. Thus, no new interest is being created and KRS 376.460 does not apply.

Second, attorney argues that he has a contractual agreement with Wife that is enforceable against third parties without notice. The Supreme Court holds that an attorney may obtain a contractual lien against a client, but cannot enforce that lien against third parties without timely notice. While attorney had a valid lien, it could only be enforced against Husband if he was provided timely notice of the lien. Attorney-client privilege does not allow Wife to hide the encumbrance from Husband. Ultimately, the Supreme Court affirms the lower court decision in setting aside the lien on the marital home retained by Husband.

Justice Venters writes a separate concurrence to note a difference in his interpretation of KRS 376.460 which he would read broadly to include all claims for recovery of money or property, but not to include the division of a marital estate.

Justice Keller writes a separate concurrence arguing KRS 376.460 should be interpreted to allow for the recovery of marital property, but agreeing in result as in this case the lien was only perfected after the Wife had lost all interest in the marital residence.

Digested by Elizabeth M. Howell

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Husband filed an appeal of an award of attorney fees, but failed to name Wife’s attorney as a party. As the fee award was “ordered paid directly to the attorney, the attorney ‘may enforce the order in his own name’ and, thus is the real party in interest and a necessary and indispensable party to any appeal from that order.”

The court dismisses Husband’s appeal holding that the naming of indispensable parties in the notice of appeal requires strict compliance and belatedly adding the attorney’s name to the appeal was insufficient.

Judge Thompson dissents arguing that “an attorney is often overlooked as a party to an appeal…because there is no logical reason or real purpose in naming the attorney in the notice of appeal.” He believes the case should be heard on its merits and urges the Supreme Court to review this issue.

Digested by Elizabeth M. Howell

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Unmarried mother filed an action to establish paternity and set child support. On May 24, 2012 the District Court set child support, and awarded pre-Petition support. The District Court ordered that the child’s social security dependent benefits satisfied Father’s child support obligation, and ordered that the surplus dependent benefit could act as a monthly credit towards Father’s pre-Petition support liability. The District Could also held it was without the authority to award attorney fees. Father and mother both appealed to Circuit Court which affirmed as to fees and the current child support obligation, but concluded that the child’s excess dependent social security benefits could not act as a monthly credit towards Father’s pre-Petition support liability. The Court of Appeals granted discretionary review.

The Court of Appeals first turns to the question of whether the surplus social security dependent benefits could be used to pay Father’s pre-Petition support liability. As the paternity action was initiated before the child turned four, pursuant to KRS 406.031(1) the district court appropriately awarded pre-petition support. The Court of Appeals holds that although Father was ordered to pay a pre-Petition liability, he was not in arrears because there was no order for support in place until the May 24, 2012 Judgment. The Circuit court erred in considering the pre-Petition liability an arrears. On May 24, 2012, the child was already collecting social security depended benefits, which could be applied to Father’s pre-Petition support liability.

The Court moves on to consider the question of attorney fees. KRS Chapter 403.220 allows for an award attorney fees for any proceeding under Chapter 403, but both the District and Circuit Court found there was no statuary authority to permit an award of attorney fees as the paternity case was initiated under KRS Chapter 406. The Court of Appeals holds that because Mother was represented by a private attorney and her request for child support fell “squarely under KRS Chapter 403” the Court could consider an award for attorney fees pursuant to KRS 403.220.

Digested by Elizabeth M. Howell

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