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Grasch v. Grasch

Supreme Court of Kentucky

December 14, 2017



          COUNSEL FOR APPELLANT: Suzanne Marie Baumgardner Valerie S. Kershaw Kershaw & Baumgardner, LLP

          COUNSEL FOR'APPELLEE: Kara Read Marino Meredith Fannin· Henry Watz Raine & Marino, PLLC.


         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.


         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 t 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 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 to secure rightfully contracted-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, which 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 in a nonvested pension plan such as the military plan now before us cannot be considered '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 turn 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 (Jersey to have little meaning in determining the equitable distribution of the marital estate."[10] The rationale New Jersey uses in analyzing issues of marital property is the same rationale ...

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