J.K.C. v. T.W.C.

Citation39 Misc.3d 899,2013 N.Y. Slip Op. 23060,966 N.Y.S.2d 812
PartiesJ.K.C., Plaintiff, v. T.W.C., Defendant.
Decision Date28 February 2013
CourtUnited States State Supreme Court (New York)

39 Misc.3d 899
966 N.Y.S.2d 812
2013 N.Y. Slip Op. 23060

J.K.C., Plaintiff,
T.W.C., Defendant.

Supreme Court, Monroe County, New York.

Feb. 28, 2013.

[966 N.Y.S.2d 814]

Maurice J. Verrillo, Esq., Rochester, Attorney for Plaintiff.

Maureen Pineau, Esq., Rochester, Attorney for Defendant.

Angelo T. Calleri, Esq., Rochester, Attorney, Applicant.


[39 Misc.3d 901]In this matter, an attorney seeks to enforce a charging lien against his former client's IRA, which was funded through a roll-over of her marital share of the husband's IRA. This application requires the court to determine if a charging lien under the broad language of Section 475 of the Judiciary Law can be asserted against an IRA, which is otherwise exempt from creditor's claims pursuant to CPLR § 5205. The clash between these two statutory commands, with competing legislative policy objectives, appears to be an issue of first impression in New York.

The attorney represented the wife in a divorce action.1 In the retainer agreement,

[966 N.Y.S.2d 815]

the attorney noted that if fees were due and owing at the time of his discharge, the attorney had the right to seek a charging lien which the agreement described as “a lien upon the property that was awarded to you as a result of equitable distribution in the final order or judgment in the case.” The client also signed a “statement of client's rights and responsibilities” which stated that a court could give the attorney a charging lien which “entitled your attorney to payment for services already rendered at the end of the case out of the proceeds of the final order or judgment.” The retainer agreement further provided that if a dispute over fees arose, the client had a right to seek arbitration of the fee dispute. This right is triggered by the attorney sending a notice, and the client would have 30 days to seek binding arbitration of the contested fees.

After a trial of the divorce action, the referee directed that the husband's IRA account was marital property subject to equitable distribution. When the coverture fraction was applied [39 Misc.3d 902]under Majauskas v. Majauskas,2 the wife received 38.6% of the account which was to be distributed according to a qualified domestic relations order (QDRO). Pursuant to the judgment of divorce, the court later signed a QDRO which provided, in pertinent part:

the plaintiff's (wife's) share ... shall be transferred to the plaintiff ... by way of a trustee to trustee transfer to an individual retirement account ... this instrument is designed to satisfy, and this court deems it to satisfy, the definition of a qualified domestic relations order as that term is defined in Internal Revenue Code of 1986, the Retirement Equity Act of 1984 and the Retirement Income Security Act of 1974.
The QDRO permitted a roll-over of the wife's marital share into an IRA in her name.
While the total amount transferred pursuant to the QDRO is unknown, the wife, in May 2012, told her attorney that she had $72,000 still held in her IRA account.

At the end of the divorce, the wife and her attorney discussed paying the bill, but when all was said and done, she owed him $26,874.58, for which the attorney, in his application before this court, now seeks a charging lien.3 The wife, in opposition, contests the amount of fees owed and whether either a retaining lien or a charging lien can be asserted against the IRA. The court heard oral argument and reserved decision subject to arbitration.4 The amount of any fees is subject to

[966 N.Y.S.2d 816]

arbitration. 22 NYCRR 137.0; [39 Misc.3d 903]Eiseman Levine Lehrhaupt & Kakoyiannis, P.C. v. Torino Jewelers, 44 A.D.3d 581, 844 N.Y.S.2d 242 (1st Dept.2007). The retainer agreement required the attorney to give his client 30 days notice of her right to elect the arbitration process. There is no evidence before the court indicating that such notice was given. Therefore, the client's right to seek arbitration still exists and the mandatory fee arbitration under the court rules should occur. Mahler v. Campagna, 60 A.D.3d 1009, 1011–1012, 876 N.Y.S.2d 143 (2nd Dept.2009) (fee arbitration in matrimonial case); Lousissiant v. DePaolo, 2010 N.Y.Misc LEXIS 5418 (Sup.Ct. Queens Cty 2010) (if no 30–day notice is given, the attorney may not recover a fee in matrimonial matter). However, the fee dispute does not preclude enforcement of the charging lien. Moody v. Sorokina, 50 A.D.3d 1522, 1523–1524, 856 N.Y.S.2d 755 (4th Dept.2008).

Several facts are pertinent to this court's analysis. First, there is no evidence that the wife ever contested her attorney's charges until after the judgment of divorce. Second, there is no allegation before the court that the wife ever agreed to pay the attorney's fees specifically from the IRA account. Third, there is no evidence that the wife possesses any other assets, distributed under the divorce judgment, available to satisfy the charging lien. Finally, there is no allegation that the client, in the divorce judgment, engaged in any collusive or other improper behavior to thwart the attorney's recovery of his fees.

Before reviewing the law in this matter, it is important to recognize several factors regarding the QDRO and the roll-over of the IRA from the husband to the wife. First, there is no dispute that the wife's account, created when her marital share was rolled-over by the plan administrator, qualifies as an IRA under the Internal Revenue Code. 26 U.S.C. § 408(a) (2000 ed. and Supp. II). The wife, as the designated beneficiary, has a nonforfeitable right to the balance held in the rolled-over IRA account.

Second, the roll-over of the marital share from the husband's IRA to the wife's IRA was properly done by the QDRO, which “creates or recognizes the existence of an alternate payee's right to ... receive all or a portion of the benefits payable with respect to a participant under a plan.” Duhamel v. Duhamel, 4 A.D.3d 739, 772 N.Y.S.2d 437 (4th Dept.2004). Pursuant to the QDRO, the transfer of funds occurs between trustees and the recipient does not, during the transfer, have access to, or outright ownership, of the trust funds. See Boggs v. Boggs, 520 U.S. 833, 846, 117 S.Ct. 1754, 138 L.Ed.2d 45 (1997) (a QDRO is a type of domestic relations order which creates or recognizes an alternate payee's right to, or assigns to an alternate payee the right to, a portion of the benefits payable [39 Misc.3d 904]with respect to a participant under a plan). The QDRO in this case specifically refers to a “ trustee-to-trustee” transfer of the IRA funds. The “trustee-to-trustee” roll-over preserves the tax-free nature of the transaction. Anonymous v. Anonymous, 27 Employee Benefits Cas. 1293 (S.D.N.Y.2001) (QDRO is an statutory exception to ERISA's general bar on the assignment of plan benefits, and is a mechanism whereby a qualified individual, known as an “alternate payee,” can serve certain domestic relation orders on the administrator of another person's without any immediate tax impact); Cadet v. Cadet, 216 N.Y.L.J. 113 (Sup.Ct. Rockland Cty.1996) (a QDRO permits a roll over to

[966 N.Y.S.2d 817]

be effected from defendant's account to plaintiff's account in a manner which will result in a tax-free transaction); see also Waggener v. Waggener, 51 P.3d 379, 2002 Haw.App. LEXIS 136, p. 8 (Hi.Ct.App.2002) (all or any portion of the interest in a qualified plan that is awarded to a spouse by a QDRO may be rolled over tax free to an IRA or to another qualified plan, subject to the same rules that apply in the case of a distribution to a participant, citingInternal Revenue Code § 402[c] and [e][1][B] ); Rodoni v. Commissioner, 105 T.C. 29, 34 (Tax Ct.1995), (Section 402[a][6][F] of the Code provides an exception to the general rule for certain rollovers by recipients of distributions made pursuant to a QDRO, if the recipient transfers, or rolls over, the distributed property into an IRA or other qualified plan).

In order to preserve the tax-free roll-over of these funds, the wife, while the beneficiary of the IRA account, is not the titled owner of the funds transferred into her IRA. See Winter v. Boskin, 181 A.D.2d 1000, 582 N.Y.S.2d 573 (4th Dept.1992) (discussing the tax impact of certain roll-overs); Fleischmann v. Fleischmann, 24 Misc.3d 1225(A), 2009 WL 2217384 (Sup.Ct. Westchester Cty 2009) (discussing tax and other questions relating to an IRA rollover, including that the IRA is “set up for the benefit of the plaintiff” and further that the plaintiff is not the titled owner of the funds). Finally, any withdrawal from wife's IRA, after the roll-over, does have tax impacts. Under the Internal Revenue Code, there are two types of withdrawals from IRAs—qualified and unqualified. When the account owner withdraws money from the IRA upon reaching a certain age or for specified purposes relating to retirement, the contributions, together with whatever amounts those contributions had [39 Misc.3d 905]earned, are considered a “qualified withdrawal” and are taxed as part of gross income. 26 USCS § 408(d)(1); Kitt v. United States, 288 F.3d 1355, 1356 (Fed.Cir.2002); Swanton v. Comm'r, 99 T.C.M. (CCH) 1576, T.C. Memo 2010–140, p. 9 (Tax Ct.2010) (withdrawals from IRAs were taxed as part of gross income under Section 72 of the IRC). Congress also provided that an IRA account holder who makes an unqualified withdrawal from the account (i.e., before reaching the specified age or for a non-retirement related purpose) would find his taxable gross income increased by an amount equal to 10 percent of the portion of such amount. 26 USCS § 72(t).5Kitt v. United States, 288 F.3d at 1356;see generally Rousey v. Jacoway, 544 U.S. 320, 125 S.Ct. 1561, 161 L.Ed.2d 563 (2005).6 Against this federally-painted landscape governing the roll-over and taxation of IRAs, two New York statutes create a seeming conflict between the rights of IRA holders to be immune

[966 N.Y.S.2d 818]

from claims of creditors, and the rights of...

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  • Lundon v. Lundon, 2013-01322
    • United States
    • New York Supreme Court Appellate Division
    • September 24, 2014
    ...since the attorney does not qualify as an “alternate payee” (26 U.S.C. § 414 [p][8]; 29 U.S.C. § 1056 [d][3][K]; see J.K.C. v. T.W.C., 39 Misc.3d 899, 913, 966 N.Y.S.2d 812 [Sup.Ct., Monroe County] ; cf. Adler v. Adler, 224 A.D.2d at 282–283, 638 N.Y.S.2d 29 ).The defendant's remaining cont......
  • Lundon v. Lundon
    • United States
    • New York Supreme Court Appellate Division
    • September 24, 2014
    ...since the attorney does not qualify as an “alternate payee” (26 U.S.C. § 414[p][8]; 29 U.S.C. § 1056[d][3][K]; see J.K.C. v. T.W.C., 39 Misc.3d 899, 913, 966 N.Y.S.2d 812 [Sup.Ct., Monroe County]; cf. Adler v. Adler, 224 A.D.2d at 282–283, 638 N.Y.S.2d 29). The defendant's remaining content......
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    • United States
    • New York Supreme Court Appellate Division
    • July 30, 2014
    ...856 N.Y.S.2d 755, quoting Zelman v. Zelman, 15 Misc.3d 372, 375, 833 N.Y.S.2d 375 [Sup. Ct., New York County]; cf. J.K.C. v. T.W. C., 39 Misc.3d 899, 908, 966 N.Y.S.2d 812 [Sup. Ct., Monroe County] ). Here, the law firm established its prima facie entitlement to a charging lien in the sum o......
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    • November 30, 2017
    ...856 N.Y.S.2d 755, quoting Zelman v. Zelman, 15 Misc.3d 372, 375, 833 N.Y.S.2d 375 [Sup.Ct., New York County] ; cf. J.K.C. v. T.W.C., 39 Misc.3d 899, 908, 966 N.Y.S.2d 812 [Sup.Ct., Monroe County]" ( Wasserman v. Wasserman, supra, at 933, 990 N.Y.S.2d 571 )."It is well settled that as a matt......
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