Blank Rome Partners Stacy Phillips and Kevin Martin provide the following commentaries in the January 2016 edition of California Family Law Monthly.
Attorney's Fees Paid by Wife's Father Were Properly Treated as Wife's Income for Purpose of Determining Parties' Relative Circumstances
Highlight: A trial court properly ordered a former wife to pay attorney's fees based on the relative circumstances of the parties, when the former wife's father paid her attorney's fees on a regular basis, intended to continue paying her fees, and considered the payments to be an advance against the former wife's sizable future inheritance.
COMMENTARY by Stacy Phillips and Kevin Martin:
A fundamental tenet of family law is that parties to a dissolution should have equal access to the courts, such that one party's superior economic resources do not tip the scales in his or her favor. To this end, the spouse with greater economic resources is commonly ordered to pay for or contribute to the payment of the other spouse's professional fees (e.g., attorneys, accountants, consultants, etc.) [see Fam. Code §§ 2030, 2032].
In In Re Marriage of Smith, the court may have gone one step too far in advancing the goals of providing financial equality and equal access to the courts. It appears that neither party in Smith had the financial resources to litigate, let alone engage in scorched earth litigation. Luckily for Appellant, her father was wealthy and committed to providing her the financial resources necessary to fund her litigation. To this end, Appellant's father paid all of her legal fees as a loan, evidenced by a promissory note, against her future inheritance.
Respondent did not have an independent source of funds to assist in the payment of attorneys' fees and became heavily indebted to his counsel. After trial, Respondent sought an award of attorneys' fees from Appellant pursuant to Family Code sections 2030 and 271. The trial court granted Respondent's request and ordered Appellant to pay over $175,000 to Respondent pursuant to Family Code sections 2030 and 271.
On appeal, Appellant argued that the trial court abused its discretion in making any award of attorneys' fees under Family Code section 2030. Appellant cried poverty, claiming that the trial court erred by considering the funds paid by her father to her attorney as Appellant's ''income'' when it analyzed the ''relative circumstances of the respective parties.'' In finding that the trial court did not commit error under Family Code section 2030 by considering the funds received from Appellant's father, the appellate court noted that it is well within the trial court's discretion to consider such regular, substantial infusions of cash as part of its determination of the relative economic circumstances of the parties in a Family Code section 2030 analysis. Is this fair? Is this equitable? While prior case law has clearly held that gifts from parents may be considered income to a party, is this precedent correct? Moreover, what makes the trial court believe those cash infusions will continue? Will this result in a chilling effect on family members helping litigants in times of crisis?
It is the authors' opinions that this decision (and the other decision it relies upon) represents a slippery slope that could result in inequitable outcomes on both sides. While the facts in this case recite a parade of ''horribles'' committed by Appellant and her counsel to drive up legal fees, would the trial court's decision have been different if Appellant and her counsel were wearing the ''white hat'' and Respondent and his counsel committed the parade of horribles at issue in Smith? Would the trial court's attorneys' fee award have been different if a parent funded their child's litigation by mortgaging their own home or maxing out their credit cards? If not, the trial court and the appellate court may have sentenced Appellant to ''debtor's prison'' for simply asking for parental help in a time of need. This is not equitable. Query, what is the outcome of a contempt hearing when a party does not have the funds to pay the award and his/her parents refuse to advance further funds?
On the other hand, a litigant with a family member's litigation war chest may use the disparity in financial resources to litigate the other side into submission through abusive litigation tactics and false accusations. In this situation, it would be inequitable if the litigant who abused their economic advantage were not ordered to pay the other party's attorney fees pursuant to Family Code section 2030.
Smith is a helpful reminder that it is a lawyer's obligation to tell a potential client, without personal financial resources to fund a litigation that, if they decide to accept assistance from a family member to pay fees, they could be exposing themselves to paying the other party's fees -- win or lose. We routinely have these discussions with our clients and potential clients and, inevitably, the sense of being stuck between a ''rock and hard place'' is palpable for clients who need financial assistance from family to pay their fees.
Given the many different fact patterns that may emerge to tip the scales one way or the other, it is incumbent upon the family law bench to look at each fact pattern individually, especially when a third party is footing the cost of litigation, to make sure that equity is truly served by any award of attorneys' fees. I hope this case is used not as a bright line, but as an example for courts and litigants to consider as part of their analysis.
Wife's Support Judgment Lien Was Limited to Amount of Support Owing at Time Husband Encumbered Property
Highlight: An appeals court held that a wife did not have a spousal support judgment lien against real property previously owned by her former husband, which the defendants purchased from a bank after it conducted a nonjudicial foreclosure sale. The trial court correctly interpreted the applicable statute as fixing the amount of the lien at the amount that was mature and owing (zero dollars) at the time Husband encumbered the property, rather than the amount that was owing at the time the property was later transferred to the defendants.
COMMENTARY by Stacy Phillips and Kevin Martin:
The Court of Appeal's decision in Guess v. Bernhardson illustrates the old adage that timing is everything.
The underlying facts in Guess are straightforward. In 1999, a supplemental judgment was entered requiring Husband to pay spousal support. Wife recorded her judgment in May 1999. Husband acquired real property in 2001 and encumbered that same property in 2005. At the time of the encumbrance, Husband was current with his spousal support payments. In 2009, when Husband defaulted on the loan, a nonjudicial foreclosure sale of the property occurred through which title was transferred to Mark and Ivy Bernhardson (''Defendants''). At the time of the foreclosure sale, however, Husband by then owed over $330,000 in spousal support arrears - a far different picture than when he first encumbered the property in 2005. In 2011, Wife filed a declaratory relief action against Defendants requesting a judicial declaration that her judgment had senior lien priority over the Trust Deed.
In affirming the trial court's decision, the Court of Appeal engaged in a strict construction of Code of Civil Procedure section 697.390, which provides: ''a property remains subject to a support judgment lien in the amount of the lien at the time of a transfer of or encumbrance on the property.'' (Emphasis added) Both the trial court and the appellate court concluded that, based on a strict reading of Code of Civil Procedure section 697.390, because Husband did not owe any spousal support at the time he obtained a loan from the bank in 2005 (i.e. the ''encumbrance''), the amount of Plaintiff's lien was zero when the Property was subsequently sold at foreclosure. It was undisputed that all of the support payments owed to Plaintiff were incurred after the bank's encumbrance on the Property. For this simple reason alone, the appellate court determined the amount of Wife's support judgment lien was fixed at the amount of Husband's unpaid support payments due at the time of his Trust Deed encumbrance in 2005. Therefore, Defendants took title free and clear and Wife was simply out of luck.
We can all empathize with Wife's predicament. She thought she had taken every precaution to protect against the possibility of Husband's failure to pay support. She did not count on the trial court's strict interpretation and the surprisingly pragmatic approach taken by the court in deciding the case. The decision to use a bright line rule in interpreting Code of Civil Procedure section 697.390 was the right one. Without this strict interpretation of section 697.390, what lender would be inclined to lend money to a borrower subject to a support judgment? The lender's security would be inherently ''unsecure'' every time a support judgment was at issue. In 2005, Husband was current with support, thus the trial court declined to place lender in the position of predicting future events and Husband's future conduct. Putting aside the inequity of effectively denying a class of people (those subject to judgment liens where there are ongoing support payments) the ability to borrow money, the negative impact on California's banking industry and economy could be devastating if this population were unable to obtain secured loans.
However, let us look at the flip side - what can recipients of support do to secure these support payments? What is the take away? There is no ''quick fix'' for clients like Carol Guess. No mechanism exists to fully securitize these payments. While it is helpful for settlement agreements/judgments to include notice requirements when a property becomes further encumbered, enforcing such agreements is nearly impossible. Moreover, how do you protect a lien from a Guess situation? Generally speaking, filing a judgment to secure support payments is the only security possible unless the payor has a prior history of delinquent or delayed payments that gives the recipient negotiating power when resolving their case or ammunition to argue to the court to provide some form of security.
Reprinted from California Family Law Monthly with permission. Copyright 2016 Matthew Bender & Company, Inc., a LexisNexis company. All rights reserved.