Disgorgement of Divorce Attorney Fees

Published in Chicago Lawyer Magazine, February 2018
by Daniel R. Stefani

On November 30, 2017, the Illinois Supreme Court issued the opinion of In re the Marriage of Christine Goesel and Andrew Goesel, 2017 IL 122046. The Court held that attorney fees earned by a party’s lawyer in the normal course of representation for past services rendered are not “available funds” to be disgorged and paid to the opposing parties’ attorney within the meaning of Section 501(c-1)(3) of the Illinois Marriage and Dissolution of Marriage Act (“the Act”).

The statute does not use the term “disgorgement” but the term was adopted by courts to describe the process where a court orders the attorney for one party to turn over previously paid interim fees or retainers to the other party’s counsel so that each side’s attorneys have been paid in equal amounts or similar amounts.

In part, Section 501(c-1)(3) states that “if the Court finds that both parties lack financial ability or access to assets or income for reasonable attorney’s fees and costs, the Court 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 parody between the parties”.

This opinion helps reconcile the split between the First and Second Districts as to the issue of disgorgement of fees and when it’s appropriate. The Second District held that retainers or interim payments may be disgorged whether or not they had been earned by the attorney. According to the Second District, “available” as set forth is Section 501(c-1)(3) simply means that the funds exist “somewhere”. The First District rejected this view stating that the term “available” should be construed to mean those funds that had not yet been earned.

The Supreme Court here, in reviewing the Third District’s opinion, noted that the opinion extended the First District’s view by clarifying that the term “available funds” as those that have not yet been earned at the time they are given notice of the Petition for Interim Attorney’s Fees. This created a specific point in time whereby the Court could measure what has been earned and what has not been earned. The Supreme Court, while affirming the Third District opinion, stated that if the legislature meant something as technical and specific as that “available funds” means fees that have not been earned by an attorney prior to receiving due notice of a Petition for Interim Attorney’s Fees, it would have said that in the statute.

Therefore, it appears that the Third District’s further clarification as to when funds are “available” is not precedent for future cases absent an amendment to the statute. Throughout the opinion the Supreme Court urges the legislature to take another look at this section of the fee statute to make its intentions absolutely clear as to the definition of “available funds” and whether attorneys who are no longer in the case may also be ordered to disgorge fees and whether it is a defense to disgorgement that the attorney no longer has the money. Consequently, the take-away from the Supreme Court’s opinion is that fees that have been earned by an attorney are not subject to disgorgement, whether earned before or after receiving notice of a fee petition.

The Supreme Court also identified several policy concerns that would arise if earned fees were subject to disgorgement. The Court noted that lawyers who have already been granted leave to withdraw from a case can be called upon months or years later to write a check to opposing party’s counsel. This puts attorneys in a tough spot where they must decide to utilize their earned fees to pay business expenses, including their own salary, or hold a reserve of funds for a fear of disgorgement and place their businesses at unreasonable risk. Essentially, Illinois divorce lawyers would pay themselves at their own risk despite the fact it is their own money. Despite the Illinois Rules of Professional Conduct which allow attorneys to earn fees by transferring retainers from their client trust account to their general operating account, attorneys practicing in other areas do not act at their own risk when they pay themselves fees they have rightfully earned.

Next, the Act does not provide any defenses an attorney would have to a disgorgement order. There are also due process concerns about lawyers who forfeit their own property pursuant to the Act.

Additionally, once earned fees are deposited in the lawyers general operating account and comingled with fees from other cases, it would be difficult to say which funds actually emanated from which case. Finally, if disgorgement or earned fees would be allowed, the Act would provide for the attorneys to forfeit their own property, while the parties themselves would have no obligation to pay fees out of any of their own retirement accounts or from the sale of their home given the current status of case law.

Bottom line, hopefully the legislature can take another look at Section 501(c-1)(3) of the Act and make its intentions absolutely clear. For now, the Supreme Court has made a fair and equitable interpretation which avoids many absurd, inconvenient and unjust consequences when it comes to disgorgement of earned fees.