In his February 26, 2013 decision in J.K.C. v T.W.C., Monroe County Supreme Court Justice Richard A. Dollinger held that an attorney could not have a charging lien under Section 475 of the Judiciary Law against the IRA received by his former client (the wife) as her marital share of the husband’s IRA. IRAs, generally, are exempt from creditor’s claims pursuant to CPLR §5205(c)(2).
The attorney had represented the wife in a divorce action. In the retainer agreement, 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.”
Justice Dollinger recognized several facts as pertinent to his analysis:
- There was no evidence that the wife ever contested her attorney’s charges until after the judgment of divorce;
- There was no allegation before the court that the wife ever agreed to pay the attorney’s fees specifically from the IRA account;
- There was no evidence that the wife possesses any other assets, distributed under the divorce judgment, available to satisfy the charging lien; and
- There was 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.
Holding that a charging lien could not be asserted against an IRA, Justice Dolinger also considered:
- The federal tax consequences on any withdrawal;
- The penalty imposed when an unqualified withdrawals is made;
- The actual ownership of the trust funds by the trustee;
- The “anti-alienation” provisions of ERISA;
- The wife’s never having “available cash proceeds” during the trustee-to-trustee transfer of the funds from the husband’s IRA to her own;
- The broad language protecting IRA roll-overs from the reach of creditors in CPLR §5205;
- The lack of express direction in Section 475 in the Judiciary Law to permit a charging lien against retirement funds; and
- The lack of any provisions relating to a charging lien for attorneys fees under New York’s Domestic Relations Law.