McDermott v. McDermott

• Decision Date: 11 March 1999
• Docket Number: No. 98-1169,98-1169
• Citation: 336 Ark. 557,986 S.W.2d 843
• Parties: Harry McDERMOTT, Appellant, v. Rhonda McDERMOTT, Appellee.
• Court: Arkansas Supreme Court

Page 843

986 S.W.2d 843

336 Ark. 557

Harry McDERMOTT, Appellant, v. Rhonda McDERMOTT, Appellee.

No. 98-1169.

Supreme Court of Arkansas.

March 11, 1999.

Lee Linzay, Fayetteville, for appellant.

Thomas J. Olmstead, Thomas B. Burke, Fayetteville, for appellee.

IMBER, Justice.

In this divorce case the central issue is whether an attorney's contingency-fee agreements entered into during marriage are marital property under Ark.Code Ann. § 9-12-315 (Repl.1998). The appellant, Mr. Harry McDermott, contends the trial court erred when it declared that certain contingency-fee agreements secured in conjunction with his law practice were marital property. We affirm the trial court's decision as modified.

The parties were married in 1993 and separated in January 1998. At all relevant times, Mr. McDermott has been an attorney actively engaged in the practice of law, with his practice primarily sustained through contingency-fee agreements. Mrs. McDermott has been a professor at the University of Arkansas at Fayetteville. Mr. McDermott testified that he had approximately twelve contingency-fee cases pending at the time of the divorce. Two of those cases had been reduced to judgment, but there had been no recovery on those judgments at the time of the divorce. ¹ All twelve of the contingency fee agreements were in writing, and each agreement specified the percentage of any recovery Mr. McDermott was to receive as his fee should the case be resolved in favor of his client. Mr. McDermott's percentage was to be one-third of any recovery in nine of the cases; one-half of any recovery in two of the cases; and one-fourth of any recovery in the remaining case. Finally, Mr. McDermott testified that he was obligated to pay all expenses in the two cases where his percentage was one-half of any recovery. However, he was uncertain whether any of the other contracts obligated him to pay all expenses.

The trial court held that the contingency-fee agreements constituted marital property under Ark.Code Ann. § 9-12-315, and that Mrs. McDermott was therefore entitled to a marital share of any compensation received by Mr. McDermott under the contingency-fee agreements. ² The trial court further held that it would retain jurisdiction of the cause for the purpose of assigning the marital share to each party as fees earned under the contingency agreements are received. The trial court directed Mr. McDermott to deposit fifty percent of any fees earned in an interest-bearing account where the funds were to be held in trust pending a final determination of the marital share by the court. Mr. McDermott appeals the trial court's decision and contends that the contingency-fee contracts are not marital property.

Arkansas Code Annotated § 9-12-315 (Repl.1998) defines "marital property"as "all property acquired by either spouse subsequent to the marriage," subject to certain exceptions which are inapplicable here. There is a presumption that all property acquired during a marriage is marital property. Layman v. Layman, 292 Ark. 539, 731 S.W.2d 771 (1987); Boggs v. Boggs, 26 Ark.App. 188, 761 S.W.2d 956 (1988). Whether or not property is marital does not depend upon when the property is received, but rather depends upon when the right to the property is acquired. Bunt v. Bunt, 294 Ark. 507, 744 S.W.2d 718 (1988); Liles v. Liles, 289 Ark. 159, 711 S.W.2d 447 (1986); Dunn v. Dunn, 35 Ark.App. 89, 811 S.W.2d 336 (1991). To the extent that any party to the marriage acquires an enforceable right during the marriage, they acquire marital property. See, e.g., Bunt, supra.

In 1984, we realized that we had inadvertently failed to recognize the new concept of "marital property" created by Act 705 of 1979, which defined marital property as all property acquired by either spouse subsequent to the marriage, subject to certain exceptions. See Day v. Day, 281 Ark. 261, 663 S.W.2d 719 (1984). In Day, we held that pension plan benefits were marital property to the extent that a spouse had a vested interest in those benefits. Id. This decision represented a shift away from our previous case law, which had held that such benefits, even if vested, were not marital property until they became due and payable. See Sweeney v. Sweeney, 267 Ark. 595, 593 S.W.2d 21 (1980) (decided under prior statute); Knopf v. Knopf, 264 Ark. 946, 576 S.W.2d 193 (1979). In Day, Mr. Day had used family funds to purchase pension plan benefits. Day, supra. Mrs. Day had contributed to those funds by service as a homemaker and by bearing and raising the couple's children. Id. We held that Mr. Day's vested pension benefits were marital property under the new statutory concept of marital property. Id. We reasoned that benefits should be considered "vested," or more than a mere expectancy, once they cannot be unilaterally terminated by the employer without also terminating the employment relationship. Id. In support of this conclusion, we quoted with approval the Supreme Court of California in In Re Marriage of Brown, 15 Cal.3d 838, 126 Cal.Rptr. 633, 544 P.2d 561 (1976):

The term expectancy describes the interest of a person who merely foresees that he might receive a future beneficence, such as the interest of an heir apparent ... or a beneficiary designated by a living insured who has a right to change the beneficiary.... As these examples demonstrate, the defining characteristic of an expectancy is that its holder has no enforceable right to his beneficence.

Day, supra. We concluded that the enforceable right to pension benefits constituted marital property. Id. In doing so, we held that earnings or other property acquired by a spouse subsequent to a marriage must be included as marital property unless it fell within certain statutory exceptions, and that neither party could deprive the other of any interest in such property by putting it temporarily beyond his or her control through some device for postponing full enjoyment of the property. Id.

Our cases since Day have continued to focus on enforceable rights acquired subsequent to marriage. In Gentry v. Gentry, 282 Ark. 413, 668 S.W.2d 947 (1984), we held that a husband's civil service retirement benefits were marital property subject to distribution. In Morrison v. Morrison, 286 Ark. 353, 692 S.W.2d 601 (1985), we held that disability retirement benefits were marital property even though such benefits are awarded for personal injury to one's own body. Our rationale was that such benefits come from an annuity purchased during the marriage and, thus, there was no discernable distinction between an annuity payable upon disability and one payable upon longevity. Id.

In 1985 we held for the first time that a workers' compensation claim for an injury suffered during the marriage was marital property subject to distribution. Goode v. Goode, 286 Ark. 463, 692 S.W.2d 757 (1985). At the time of the divorce, Mr. Goode's claim had not yet been adjudicated, though he had received and refused an offer of settlement. Id. We noted that although Mr. Goode's claim was unliquidated at the time of the divorce, he still possessed an enforceable right to workers' compensation benefits. Id. Because that right accrued to him subsequent to his marriage and prior to his divorce, it was marital property. Id.

In Goode we acknowledged our previous decision in Lowrey v. Lowrey, 260 Ark. 128, 538 S.W.2d 36 (1976), in which we held that an unliquidated personal injury claim was not personal property for the purpose of property division. However, we declined to follow Lowrey because it was decided under the former marital property statute. Goode, supra. We reasoned that a rule which invites workers' compensation claimants to protract arbitration so as to shield an award from equitable division should not be condoned. Id. Furthermore, the fact that such claims do not involve contributions is not relevant, because Ark.Code Ann. § 9-12-315 makes no general distinction as to the manner in which the item of property is acquired. Id. As workers' compensation claims were not among the exceptions enumerated in the statute at that time, we held that such claims were marital property. Id.

In 1986 we applied the reasoning of Goode to a Jones Act personal injury claim. Liles v. Liles, 289 Ark. 159, 711 S.W.2d 447 (1986). In Liles, the claim was liquidated, although part of the judgment was to be received in the future pursuant to a structured settlement. Id. We held that the personal injury claim was marital property insofar as it was acquired by one spouse subsequent to the marriage and was not specifically excepted by Ark.Code Ann. § 9-12-315. Id. The appellant in Liles had also received a remittitur of attorney's fees from his Jones Act judgment after the divorce. Id. The appellant claimed that the returned fees belonged solely to him, as they were no more than a "contingent claim during the marriage and not to be considered marital property." Id. In support of this proposition, the appellant cited Potter v. Potter, 280 Ark. 38, 655 S.W.2d 382 (1983), in which we held that fees earned by an attorney during marriage but not collected until after the divorce were not marital property. We responded to appellant's argument by noting that the Potter decision preceded Day, supra, and that, given the same situation, we might reach a different conclusion. Liles, supra. We concluded that the fees were a part of the judgment and thus were marital property. Id.

Subsequent to our decisions in Goode and Liles, the General Assembly added an exception to the definition of "marital property" as follows: "Benefits received or to he received from a Workers Compensation claim or personal injury claim when such benefits are for any degree of permanent disability or future medical expenses." Ark.Code Ann. § 9-12-315(b)(6)(Supp.1987). By limiting the exception to portions of personal injury and workers' compensation claims for permanent disability or future medical expenses, the General...