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Sharp  Thinking

No. 104         Perspectives on Developments in the Law from The Sharp Law Firm, P.C.        November  2013

Divorce Retainers May Be Diverted To Opponent

            By Rebecca L. Reinhardt, Rreinhardt@lotsharp.com, 618-242-0246


            The Illinois Supreme Court has affirmed that in a dissolution-of-marriage action, a trial court may order that advance payment retainer funds held by one party’s attorney be turned over to opposing counsel as interim attorney fees.

            Affirming Earlywine v. Earlywine, 2012 IL App (2d) 110730 (see Sharp Thinking No. 70 (August 2012)), the Supreme Court said the turnover powers not only apply to client trust accounts, in which funds are owned by the client, but also to funds which have been provided to the attorney as an advance payment retainer and which have been placed in the attorney’s operating account as property of the attorney.  In re Marriage of Earlywine, 2013 IL 114779.

            In Earlywine, the circuit court had determined that both parties lacked the financial ability or access to assets or income to pay reasonable attorney’s fees and costs.  The husband had borrowed $8,750 from his parents to retain an attorney.  The husband’s attorney, in attempt to avert disgorgement of his fees entered into a fee agreement with the husband which utilized an advance payment retainer.  The funds then immediately became the property of the attorney, and in cases such as bankruptcy, prevent creditors from accessing such funds.  The wife’s attorney petitioned for attorney’s fees and requested disgorgement of $5,000.  The circuit court ordered disgorgement of $4,000 of the advance payment retainer.

            750 ILCS 5/501(c-1) allows for disgorgement of fees already paid to an attorney. Specifically, it states in part, “[i]f the court finds that both parties lack financial ability or access to assets or income for reasonable attorney’s fees and costs, the court (or hearing officer) shall enter an order that allocates available funds for each party’s counsel, including retainers or interim payments, or both, previously paid, in a manner that achieves substantial parity between the parties.” The court allocates available funds for each party’s counsel, including retainers or interim payments, or both, previously paid, in a manner that achieves substantial parity between the parties.

            The husband’s counsel appealed the decision to the Appellate Court and argued that the fees paid to him were in the nature of an advance payment retainer as opposed to an advance of the martial estate and therefore not subject to disgorgement. The Appellate Court affirmed the Circuit Court.  The Supreme Court said that to allow the husband to place said funds in an advance payment retainer that was not subject to disgorgement would allow him circumvent the “level playing field” rules set forth in the Marriage and Dissolution of Marriage Act.  It would defeat the purpose and goals of the Act, which is to enable parties to have equitable access to representation.  The court surmised that if it were to accept this proposition, an economically-advantaged spouse could obtain an unfair advantage in a dissolution case by stockpiling funds in an advance payment retainer account held by his or her attorney.  The court also clarified that the source of the funds are irrelevant:  there is no distinction between funds that are marital, non-marital or coming from another source. 

            The decision does not address whether fees already actually earned by an attorney are subject to disgorgement.  However, the plain language of the statute regarding disgorgement states that “retainers or interim payments, or both, previously paid” may be subject to disgorgement.  Moreover, the advance payment retainer has been viewed as already being earned by the attorney in possession thereof.  Dowling v. Chicago Options Assoc. Inc., 226 Ill.2d 277 (2007). It appears that even fees truly earned could be subject to a disgorgement order.

            Until further clarification by the courts, Earlywine and the statute place the family law attorney in a precarious situation of potentially being stripped of fees already actually earned, or even funds already placed into an operating account and spent.  

            Noting Dowling, the Supreme Court acknowledged that in bankruptcy and forfeiture cases, a client may have difficultly hiring counsel if funds for attorney fees are subject to the claims of the client’s creditors.  The court distinguished dissolution clients’ difficulty in hiring counsel from bankruptcy and forfeiture clients, stating that in dissolution cases there are two clients, both of whom require access to counsel.             However, the court failed to consider how the family law bar may react to such uncertainty. 

            While the court has attempted to comply with the legislative intent of a “level playing field,” one has to wonder if the decision ultimately will make it more difficult for low income, limited-asset dissolution clients to find representation.  Not only is there no certainty for the attorney collecting the fee from the client who has the initial access to the funds, the court in a footnote references In re Marriage of Johnson, 351 Ill.App.3d 88 (2004), for the proposition that “by definition, a disgorgement order is never a final adjudication of the attorney’s right to fees, it merely controls the timing of payment, with no effect on whether, or how much, the attorney is entitled to collect at the collusion of his services.”  Thus, the attorney who obtains a disgorgement order in favor of his or her client may ultimately not be entitled to those funds for payment for his or her services. 

            The general ethical rules regarding the various types of retainer fees and the ability to place the funds into an operating account after becoming the property of the attorney have been overlooked by the Supreme Court in Earlywine in its attempt to comply with the legislative intent of leveling the playing field in dissolution cases.