· SALLY CAROL GRASCH APPELLANT
ON REVIEW FROM COURT OF APPEALS v. CASE NOS. 2015-CA-000294 AND 2015-CA-000336 FAYETIE CIRCUIT COURT NO. 11-CI-05862
ALBERT FRANKLIN GRASCH JR APPELLEE
OPINION OF THE COURT BY CHIEF JUSTICE MINTON
REVERSING AND REMANDING
We accepted discretionary review of this marital-dissolution case to
determine as a matter of first impression in Kentucky whether an attorney's
contingent-fee contracts should be considered marital property to be divided as
part of the equitable division of the marital estate. We hold that they should, ., reversing the Court of Appeals. We also hold that trial courts must apply the
delayed-distribution method to determine the actual distribution of funds.
I. FACTUAL.AND PROCEDURAL HISTORY. When Albert and Sally Grasch divorced, Albert had an active law practice
in which he·had executed contingent-fee contracts with some clients, which the
trial. court treated as a component of Albert's income when received and not as
property. of the marital estate subject to division .. Sally argues to this Court-as she did in the courts below-that these contracts constitute divisible marital
property in a dissolution of marriage proceeding, the value of which she claims
the right to share, while Albert counters-as he successfully argued below-that
these contracts are not marital property.
II. ANALYSIS.
"[A] trial court's ruling regarding the classification of marital property is
reviewed de novo as the resolution of such issues is a matter of law."1
In order to ascertain whether a contingent-fee contract qualifies as
divisible marital property in a dissolution proceeding, we must first define·
marital property. KRS 403.190(2) defines marital property as "all property
acquired by either spouse subsequent to the marriage ... " with various
exceptions, none of which apply in this case. Because marital property includes
all property acquired by either spouse subsequent to the marriage, we must
provide a definition of property. This Court defines property broadly and
expansively, stating in Travis v. Travis. that property, as used . in KRS 403.190,
"refers to a determinate thing or an interest in a determinate thing."2
We must also ascertain what exactly a contingent-fee contract is. A
contingent-fee contract has been defined as a fee agreement under which the
attorney will not be paid unless the client is successful. 3 This Court in First
Nat. Bank of Louisville v. Progressive Cas Ins. Co. explained the nature ·of the
1Young v. Young, 314 S.W.3d 306, 308 (Ky. App. 2010) (Citing Heskett v. Heskett, 245 S.W.3d 222, 226 (Ky. App. 2008)). · 2 59 S.W.3d 904, n.6 (Ky. 2001). 3Robert L. Rossi, 'Attorney's Fees, § 2: 1 Definition and Validity Generally (3d ed., June 2017 update). 2 contingent-fee contract. According to First National Bank, a contingent-fee
contract is nothing more or less than a certain and specific property right-it is
the right to assert a cause of action to enforce a lien on a client's potential
recovery in order ~o secure rightfully cqntracted-for payment for legal services.4
In other words, the right is that of a chose in action. A chose in action is the
right to bring a lawsuit, whi~h the Court of Appeals in Poe v. Poe stated to be.
"undeniably a property right."5
In deciding this issue, we find ourselves drawn to the reasoning of the
Court of Appeals' analysis of a similar issue in Poe v. Poe. 6 In holding a
nonvested military pension to be marital property, the Court of Appeals first
recognized that it needed to change the way it analyzed property law as it
relates to family law.7
The Court of Appeals acknowledged the "traditional" way of thinking
about property law as it relates to family law: "[I]t is apparently reasoned ... that . . absent some present right to payment, future or 'immediate, a spouse's interest
4 517 S.W.2d 226, 230 (Ky. 1974) (discussing contingent-fee contract as affording attorney a cause of action to enforce a lien on the actual contingent fee itself); See also 7A C.J.S. Attorney & Client§ 473(Dec. 2017 update) ("Generally, a contingent-fee contract does not create an immediate property right in the possible future fee."); W.W. Allen, Terms ofAttomey's Contingent-Fee Contract as Creating an Equitable Lien in His Favor, 143 A.L.R. 204 (originally published in 1943, updated weekly) ("An equitable lien arising from an attorney's contingent-fee contract ordinarily attaches ... merely as of the time when the fund comes into existence .... Attomeys' contingent-fee contracts are frequently construed as creating equitable liens on funds recovered by settlement or otherwise.") s 711 S.W.2d 849, 855 (Ky. App. 1986). 6 The Court of Appeals' analysis in Poe provided the correct groundwork for the recognition of other forms of "nonvested" property. See McGinnis v. McGinnis, 920 S.W.2d 68 (Ky. App. 1995) (holding nonvested shares of stock as marital property). 1 711 S.W.2d at 855. 3 in a nonvested pension plan such as the military plan now before us cannot be
consid€?red 'property' and is instead a mere expectancy which cannot be divided
as marital property.... " The Court of Appeals then stated, "For several reasons
we consider such reasoning, albeit traditionally accepted, to be inadequate in
the present circumstances."8
The Court of Appeals then outlined the pitfalls of applying traditional
property law concepts to the idea of marital property, including the problem
with making decisions about what constitutes marital property based on the
concept of the "vesting" of property, finally culminating in a statement that we
find to be most applicable in our analysis today: "Setting aside this [traditional]
approach for the moment, we tum to the courts of New Jersey, which have
wisely avoided the pitfall of becoming entangled in applying ancient property law
concepts to such an unusual and important marital asset."9 Taking into account
the wise reasoning of Poe, we cannot confine .ourselves to thinking about this
issue under the cloud of "ancient property law concepts," such as the "vesting" ' of property.
The Court of Appeals applied New Jersey's rule that "vesting as it.
originated in the law of future interests has been specifically held in New. l Jersey to have little meaning in determining the equitable distribution of the
marital estate."10 The rationale New Je.rsey uses in analyzing issues of marital
a Id. 9 Id. at 856 (emphasis added). 10 Id. (citing McGrew v. McGrew, 377 A.2d 697 (N.J. 1977) (citing Stem v. Stem, 331 A.2d 257, 262 (N.J. 1975))). 4 property is the same rationale we apply to support our hold1ng, as the Court of
Appeals did in Poe to support its holding:
While the uncertainty of enjoying benefits may be a factor to be considered in awarding distribution, the failure of the property interest to have vested in the sense essential to the alienability of real estate cloes not disqualify it as property acquired durin'g the marriage· for purposes of equitable distribution. Of greater importance .. .is "the nature of the interest and defendant's control over it."11 Although some question exists as to when or whether the retirement benefits will be enjoyed, the consideration critical to the issue of distribution is the extent to which the anticipated benefits will have been generated by the mutual effort of the parties. Thus, the court's focus must rest upon the equities which are relevant to the claims asserted upon the proceeds, when, as, and if they materialize.12
The Court of Appeals also recognized that:
[Plan-holding spouse] does, at least in one sense, have a 'vested' interest in the retirement plan. Upon his employment and rendition of services, [plan-holding] spouse has a vested interest to participate in the plan, which if wrongfully denied by his employer would be the proper basis for a suit at law to enforce his contractual rights. 13 This interest has been described to be in the nature of a chose in action which is undeniably a property right. Thus, while [plan-holding spouse]'s rights in his military pension plan may not be fully vested so as to inalienably entitle him to payment at some later time, he does have a vested interest in participating in the pension plan. This is a vested interest then which [non-plan-holding spouse], through her support as homemaker and helpmate, enabled [plan-holding spouse] to acquire and continue throughout their marriage.14
So 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 bring a cause of action if denied that participation. This is exactly the
u Citing Blitt v. Blitt, 353 A.2d 144, 147 (N.J. Ch. Div. 1976). 12 Poe, 711 S.W.2d at 856. 13 Id. at 885. 14 Id. 5 interest that an attorney spouse has in a contingent-fee case-although the attorney does not possess a vested right to the actual contingent fee itself until
the case is won or settled, when the attorney and client sign a contract for a
contingent-fee case, the attorney does possess the right to work on that case
for that client and to bring suit if the client unjustly interferes with that right.15
The Court of Appeals in Poe went on to recognize nonvested military pensions
as marital property.16
Like a nonvested military pension, the "~ature of the interest" of a
contingent-fee contract is that of a chose in action, and, like the military
employee, the attorney possesses full control over that chose in action. While
the attorney spouse may put forth work, for the benefit of the marriage, on the
contingent-fee case itself, the non-attorney spouse, through that spouse's work
and efforts elsewhere for the benefit of the marriage, anticipates receipt of the
benefits resulting from the attorney spouse's work on that case. This is just
like the plan-holding spouse's receipt of the benefits of the plan because of the
direct work performed, for the benefit of the marriage, for the entity issuing the
plan, and the non-attorney spouse's entitlement to those same benefits
because of that spouse's work and efforts elsewhere, for the benefit of the
marriage.
is See Baker v. Shapero, 203 S.W.3d 697, 699 (Ky. 2006) ("(W]hen an attorney employed under a contingency fee contract is discharged without cause before completion of the contract, he or she is entitled to fee recovery on a quantum meruit basis .... "). 16 Id. at 857. 6 W.e fail ·to see a material distinction betWeen a nonvested military pension
and a contingent-fee contract so as to hold that nonvested military pensions
are marital property and, at the same time, that contingent fee contracts are . . not. Instead, we hold that contingent-fee contracts do c·onstitute marital
property under KRS 403.190(2). This holding is consistent with :the trend in
other states that hold contingent-fee contracts constitute marital property,
although admittedly· some states have held the opposite.17
Understanding the practicalities of our holding, we now provide guidance
as to the procedure for the division of this property in a dissolution proceeding.
In Poe, the Court of Appeals applied the "delayed division" method to distribute
the actual pension fund once the plan-holding spouse started receiving
payments.ls We adopt this method to determine the distribution of this marital
property, adhering to our consistent use of this method in Kentucky law:
In the delayed division method, a formula is used to determine. the division at the time of the decree, but the actual distribution of monies is delayed until payments ... are received. Each party then receives the appropriate percentage of the ... payments as they are paid out in accordance with the formula. The use of this method ~as long been approved in the Commonwealth.19
This method not only affords the non-attorney ex-spouse the rightfuily
obtained property interest created during the marriage, but also protects the
11For a brief overview of this discussion, see Charles W. Davis, Divorce and Separation: Attorney's Contingent Fee Contracts as Marital Property Subject to Distribution, 44 A.L.R.Sth 671 (originally published in 1996 but continuously updated). 1s Poe, 711 S.W.2d at 856. 19 Young v. Young, 314 S.W.3d 306, 309 (Ky. App. 2010) (citing Poe V. Poe, 711 S.W.2d 849 (Ky. App. 1986); Duncan v: Duncan, 724 S.W.2d 231 (Ky. App. 1987); Foster v. Foster, 589 S.W.2d 223 (Ky. App. 1979)). . 7 attor~ey ex-spouse from distributing to the non-attorney ex-spouse anything
until the case is settled or won, because the attorney ex~spouse may ultimately
prove to be unsuccessful in the case and receive nothing .. We wish to highlight
that ~e formula must take into account the fact that the non-attorney ·ex-
spouse is only entitled to a share of the contingent fee attributable to the. work
done by the attorney spou~e before the dissolution, as is usually the case with
the application of the delayed-division method. Lastly, the trial court, by order,
should require the attorney ex-spouse to notify the trial court and the non-
attorney ex-spouse of ·receipt of the contingent fee to be divided when the
contingent fee is earned or lost in order for the trial court to enter such
additional orders as necessary to complete the delayed distribution.
This method also captures the modern relationship between property law
and family law. Admittedly, affording the non-attorney ex-spouse property
rights in the actual contingent fee, instead of that ex-spouse's share of the
value of the chose in action to recover that fee, does not conform with
traditional notions of property law-only the right to the chose in action has
vested, not the contingent fee itself. But, as ,stated, the Court of Appeals in Poe
and other states that have recognized contingent-fee contracts as marital
property correctly note that 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. While the right to
the proceeds from the fund had not yet vested for theplart-holding spouse in
Poe, the Court of Appeals recognized that the efforts by both ex-spouses during
the marriage contributed to some of the proceeds from the pension, and that 8 the non-plan holding spouse was entitled to the portion of the fund that the
non'-plan holding spouse contributed work and efforts towards during the
marriage. We apply the san:;ie line of thought to dismiss any notion of "vesting"
as a limitation on a non-attorney ex-spouse's right to recover that ex-spouse's
fair share of the contingent fee earned during the marriage.
III. CONCLUSION.
We reverse the Court of Appeals and hold that a contingent-fee contract
in existence during the· marriage does constitute marital property to be divided
· in a dissolution proceeding. Additionally, we hold that trial courts shall apply
the delayed-division method to determine the distribution to the attorney and
non-attorney ex-spouses. Accordingly, we remand this case to the trial court
for further proceedings consistent with this opinion.
Minton, C.J.; Cunningham, Hughes, Keller, Venters and Wright, JJ.,
sitting. Minton, C.J.; Cunningham, Hughes, Keller, Venters and Wright, JJ.,
concur. VanMeter, J., not sitting.
COUNSEL FOR APPELLANT:.
· Suzanne Marie Baumgardner Valerie S. Kershaw Kershaw & Ba~mgardner, LLP
COUNSEL FOR'APPELLEE:
Kara Read Marino Meredith Fannin· Henry Watz Raine & Marino, PLLC