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Wife Goes After Lawyer Husband’s Personal Injury Case Income, New York Appellate Court Agrees

A couple from New York commenced a matrimonial action on April 2000. The parties were married on September 9, 1974, currently physically separated and they never had any children. The complainant husband is an attorney whose practice consists almost exclusively of his personal injury cases. The accused wife works part time at a Home Depot store.

At the time of their marriage, the husband was a high school teacher. During the course of the marriage he attended law school, graduated in 1978 and began practice thereafter. Since 1985, he has been in a partnership with a law firm in White Plains, New York. No written partnership agreement was made.

A New York Injury Lawyer said the separated couple have stipulated on a number of issues. One of the issues includes an annual payment of the husband to the wife as maintenance until she reaches the age of 65. Agreements on division of the marital home, stock, the cars and marital debt was also reached.

The parties retained a law firm and a certified public accountant to assess the husband’s partnership interest in his practice of law. It was found that half of the net tangible asset value of the firm was assigned to the husband. The accountant also valued the husband’s law license which was obtained during the course of the marriage. The parties agreed they would take the average of the two figures for the purpose of computation. The accountant also concluded the husband’s annualized net pretax earnings as an attorney and his net base line earnings had he remained a teacher.

The major area where the parties are not in agreement concerns the valuation and the equitable distribution of the husband’s personal injury cases. A Queens Personal Injury Lawyer said that the parties agree that pending in the husband’s office at the commencement of the action were 146 personal injury cases, all in different stages of preparation. The parties also agree that the cases constitute marital property. The value of these cases is to be determined and what portion of the ultimate recovery in each is for the husband’s benefit.

The parties have agreed to submit the issue on papers. They have even agreed on a listing of the pending cases including the type of case, the retainer agreement, if there was a referral fee and so forth. The cases have been categorized by the husband as either retained and/or subject to investigation; pleadings having been prepared and/or served; bill of particulars served; request for judicial intervention filed; and cases on the trial calendar with a note of issue having been filed. It was further agreed that the cases that were already resolved and the fees received at the time of the commencement of the action would be held in a written agreement while the determination of the issue is pending.

The parties have also agreed to resolve the question of tax impacting by making a one-third adjustment on all fees recovered and any recovery will be first adjusted for any fees owed to a referring attorney. All disbursements incurred before the commencement of the action will not be part of any calculation in distributing a fee. Any disbursements incurred after commencement of the action and subject to recovery will be calculated as part of the fee.

Before the court addresses the wife’s interest in the personal injury cases, there are related issues to be addressed. One is whether there should be a downward adjustment on any recovery for the wife for overhead expenses attributable to the husband’s law firm incurred subsequent to the commencement of the divorce. The husband wants to deduct the said overhead. The wife claims that her husband is not entitled to deduct the said overhead. The court agrees with the wife.

The husband’s argument is that since the wife would be receiving a percentage of the fees obtained by the husband from contingency fee cases then she should also have to contribute towards the overhead costs that were incurred in the operation of the law office such overhead expenses which were necessary to help generate the contingency fees. The husband argues that not to do such would give the wife a greater percentage of the fees as her marital share than the husband.

First of all, the court is not satisfied with the numbers for overhead that were given to the accountant. A review of his report shows an extremely high percentage for overhead which seriously brings into question the accuracy of the expenses for a personal injury law practice. The wife’s recovery will be based on the value of the cases as of the commencement of the action and she will not get the percentage based on the full value at the end of the cases therefore she should not pay for a deduction for expenses incurred after commencement of the action.

In support of her position that the recovery should not be adjusted for overhead, the wife submitted a letter from a Financial Appraisal Services. A Brooklyn Personal Injury Lawyer said in response to the written question of should there be an adjustment for overhead expenses in the recovery of contingency fees, the appraisal services stated that one must recognize that accounts receivable, and work in process represent work that has already been done in a matter at a specific point in time. The expense of the firm in completing work to that point in time has been recognized. Allocating the amount of work in process of a contingency fee case is no different. One is assigning the fees to be recognized to the off balance sheet asset, as of a specific date. One can argue that the firm will incur expenses to collect funds however the argument has been traditionally dismissed.

It is interesting to note that the appraisal services officer treats the contingency fee cases as accounts receivable where at the date of commencement of the matrimonial the overhead has already been fully incurred by the firm. The court disagrees. The cases cannot be deemed accounts receivable because it is contingent in nature and an express value cannot be put on the cases unless and until a recovery is obtained.

Notwithstanding the disagreement, the court still cannot accept the husband’s reasoning that a set amount for overhead expenses should be deducted before the wife’s fee is determined. As stated, the court cannot accept the high percentage for overhead sought by the husband in the first place. It should be noted that even the accountant stated that some of the money was given back for personal use by the husband and his partner. There is also no clear way to determine how much overhead was actually incurred for the particular cases which are the subject of the action and how much for the general operation of the office including other matters such as real estate files. Furthermore, much of overhead expenses can be used as a business expense which can be deducted on behalf of the husband and for which the wife gets no benefit, especially since the husband will be submitting individual tax returns subsequent to the completion of the matrimonial action.

In short the court does not see the basis why the wife should have to have a reduction in the fees payable to her as a result of the expenses.

Any injury that a person may experience has a corresponding legal action that one may pursue to get compensated for the pain and suffering it caused. If your injury was due to a truck accident , car accident or Construction Accident, speak to Stephen Bilkis and Associates for advice and a free consultation.

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