Search This Blog

Wednesday, December 24, 2008

French Prenuptial Agreement Adopting "Separation of Estates” Regime Constituted Waiver of Equitable Distribution.

Court of Appeals Holds French Prenuptial Agreement Opting out of “Community Property” Scheme in Favor of a “Separation of Estates” Regime Constituted Waiver of Equitable Distribution. Error to Preclude Recovery of Counsel Fees to Oppose Affirmative Defense Predicated on Prenuptial Agreement.


In Van Kipnis v Van Kipnis, --- N.Y.3d ----, 2008 WL 5244630 (N.Y.) the Court of Appeals held that the parties' foreign prenuptial agreement precluded the equitable distribution of certain property under New York law, affirming the courts below. Plaintiff wife and defendant husband were married in France in 1965. At the time of the parties' marriage, the wife was a Canadian citizen from Quebec studying at the Sorbonne and husband was a citizen of the United States, having recently completed college. Prior to the marriage ceremony, wife had a "Contrat de Mariage" drafted under the French Civil Code and arranged for legal counsel to explain the terms of the prenuptial agreement in English to husband. The agreement was executed by the parties on September 30, 1965. Under the provisions of the Contrat de Mariage, the parties opted out of the community property scheme (the governing custom in France) in favor of a separation of estates regime. In relevant part, the agreement provided: "The future spouses declare that they are adopting the marital property system of separation of estates, as established by the French Civil Code. "Consequently, each spouse shall retain ownership and possession of the chattels and real property that he/she may own at this time or may come to own subsequently by any means whatsoever. "They shall not be liable for each other's debts established before or during the marriage or encumbering the inheritances and gifts that they receive. "The wife shall have all the rights and powers over her assets accorded by law to women married under the separate-estates system without any restriction." After the wedding, the parties moved to New York where they resided during their38-year marriage. The Husband was employed in finance while wife worked as a professor at Cooper Union and later as a cultural counselor for the Quebec government. The Wife was also the primary caretaker of the parties' two children, now emancipated. Throughout their marriage, the parties maintained separate accounts and assets, with the exception of the joint ownership of their two homes--a $625,000 house in Massachusetts and a cooperative apartment in Manhattan valued at $1,825,000. In 2002, the wife commenced an action for divorce and ancillary relief. Before trial, Supreme Court granted husband's motion to amend his answer to assert the 1965 prenuptial agreement as a defense to wife's equitable distribution claims. Supreme Court appointed a Special Referee to conduct a hearing on the issues of equitable distribution, maintenance and counsel fees. The Referee determined that the French contract provided for the separate ownership of assets held in the parties' respective names during the course of the marriage. As a result, the husband retained his liquid assets of approximately $7 million and wife kept her assets ranging from $700,000 to $800,000. As to the jointly held properties, which the parties agreed were subject to equitable distribution, the Referee recommended that the wife be awarded the Manhattan apartment, together with $75,000 in reimbursement for repairs, and that the husband be awarded the country home in Massachusetts. The Referee proposed that the wife receive $7,500 per month in maintenance until either husband or wife dies or the wife remarries. The Referee concluded that legal fees expended in connection with wife's challenge to the prenuptial agreement were not compensable under Domestic Relations Law 237. After deducting that portion of wife's claim for counsel fees attributable to contesting the agreement, the Referee awarded wife $92,779.57 in attorneys' fees. Supreme Court confirmed the Referee's report. The Appellate Division affirmed , with one Justice dissenting. The Court of Appeals modified. The Court of Appeals rejected the wife’s contention that all of the parties' property should be subject to equitable distribution under Domestic Relations Law 236(B)(5) because the 1965 agreement, drafted and executed in France, was intended to apply to property ownership during the course of the marriage, but not to the distribution ofproperty in the event of a divorce. In her view, the primary purpose of theagreement was for each spouse to avoid liability for the other's debts. The Court of Appeals noted that it is well settled that duly executed prenuptial agreements are generally valid and enforceable given the "strong public policy favoring individuals ordering and deciding their own interests through contractual arrangements" (Bloomfield v Bloomfield, 97 N.Y.2d 188, 193 [2001]. Prenuptial agreements addressing the ownership, division or distribution of property must be read in conjunction with Domestic Relations Law 236(B), enacted in 1980 as part of New York's Equitable Distribution Law. The statute provides that, unless the parties agree otherwise in a validly executed prenuptial agreement pursuant to section 236(B)(3), upon dissolution of the marriage marital property must be distributed equitably between the parties while separate property shall remain separate. As relevant here, separate property is defined to include "property described as separate property by written agreement of the parties pursuant to subdivision three of this part" . Under the statute, a prenuptial agreement may include a "provision for the ownership, division or distribution of separate and marital property" and is valid and enforceable if it "is in writing, subscribed by the parties, and acknowledged or proven in the manner required to entitle a deed to be recorded" (Domestic Relations Law 236[B][3]. The Domestic Relations Law therefore contemplates two basic types of prenuptial agreement that affect the equitable distribution of property. First, parties may expressly waive or opt out of the statutory scheme governing equitable distribution. Second, parties may specifically designate as separate property assets that would ordinarily be defined as marital property subject to equitable distribution under Domestic Relations Law 236(B)(5). Such property would then remain separate property upon dissolution of the marriage. In either case, the intent of the parties "must be clearly evidenced by the writing" .(Tietjen v. Tietjen, 48 AD3d 789, 791 [2d Dept 2008] ). Here, the parties' written agreement, adopting a "separation of estates" scheme,fell within the second prenuptial agreement category. The agreement specifiedthat separate ownership of assets applies not only to the property that each partyhad acquired at the time of the marriage, but also to property that they "may cometo own subsequently by any means whatsoever." It further assures that "wife shallhave all the rights and powers over her assets accorded by law to women marriedunder the separate-estates system without any restriction." The Court held that contrary to wife's argument, the Domestic Relations Law contains no categorical requirement that a prenuptial agreement must set forth an express waiver of equitable distribution.When read together, Domestic Relations Law s 236(B)(1)(d)(4) and (B)(5)(b)provide that assets designated as separate property by a prenuptial agreement willremain separate after dissolution of the marriage. That was the case here. The Court of Appeals agreed with the courts below that the agreement constituted an unambiguous prenuptial contract that precluded equitable distribution of the parties' separate property, rendering it unnecessary to resort to extrinsic evidence.

The wife also argued that the courts below erred in precluding her recovery of legal fees under Domestic Relations Law 237 for services provided in opposing her husband's affirmative defense predicated on the prenuptial agreement. The Court of Appeals agreed with her. Neither party sought to set aside the prenuptial agreement. Instead, their dispute centered on whether the terms of the contract applied to the ownership of assets upon divorce. In this respect, her request was similar to the fee application inVentimiglia v. Ventimiglia (36 AD3d 899 [2d Dept 2007] ), where attorneys' feeswere awarded to a party who contested her spouse's affirmative defense based on anantenuptial agreement. It held that remittal to Supreme Court for reconsideration wasnecessary because this portion of wife's fee application should not have beenexcluded as a matter of law.

Friday, December 19, 2008

New Attorney Conduct Rules for New York

On December 17, 2008 Chief Judge Judith S. Kaye and the Presiding Justices of the Appellate Division announced a new set of attorney conduct rules for New York, effective April 1, 2009. The Rules of Professional Conduct, which will replace the existing Disciplinary Rules, introduce a number of important ethics changes for New York lawyers and are set forth in a new format and numbering system that are based on the ABA Model Rules.
Highlights of significant ethics changes contained in the new Rules of Professional Conduct are set forth below:
Adoption of ABA Model Rules Format This standardized format, used in 47 other states, is organized according to a lawyer’s role as litigator, counselor, negotiator, etc., and will facilitate a lawyer’s ability to assess specific ethical issues in context. It has generated a national body of ethics law that will ease ethical research and guidance by New York lawyers as well as out-of-state lawyers seeking to research and follow New York’s rules.
Scope of Representation and Allocation of Authority Between Client and Lawyer (Rule 1.2)
Rule 1.2 codifies a lawyer's obligation to abide by a client’s decisions regarding the objectives of representation, including whether to settle a civil matter or to enter a plea, waive a jury trial or testify in a criminal matter.
Fees and Division of Fees (Rule 1.5)
Rule 1.5(b) requires a lawyer to communicate fees and expenses to the client before or within a reasonable time after commencement of representation, thereby extending the current letter of engagement rule (22 NYCRR 1215), without the necessity of a writing, to all matters currently excepted under that rule.
Confidentiality of Information (Rule 1.6) and Conduct Before a Tribunal (Rule 3.3)
Rule 1.6(a)(2) permits disclosure of confidential client information impliedly authorized to advance the client’s best interests when it is reasonable or customary.
Rule 1.6(b) permits a lawyer to reveal or use confidential client information necessary to “prevent reasonably certain death or substantial bodily harm.”
Rule 1.6(b)(4) permits a lawyer to reveal confidential information to the extent necessary to secure legal advice about compliance with ethical rules or other laws.
Rule 3.3 requires a lawyer to correct a false statement of material fact or law previously made to the tribunal by the lawyer or the client and to take necessary remedial measures, including disclosure of confidential client information.
Rule 3.3 requires a lawyer who knows that a person intends to, is or has engaged in criminal or fraudulent conduct related to the proceeding to take reasonable remedial measures, including disclosure of confidential client information.
Current Clients: Specific Conflict of Interest Rules (Rule 1.8) Rule 1.8(c) prohibits a lawyer from soliciting any gift from a client, including a testamentary gift, for the benefit of the lawyer or a person related to the lawyer; or from preparing on a client’s behalf an instrument giving a gift to the lawyer or a person related to the lawyer, unless the lawyer or recipient of the gift is related to the client and a reasonable lawyer would find the transaction fair and reasonable. In a business transaction between lawyer and client, Rule 1.8(a) requires the lawyer to advise the client in writing to seek the advice of independent counsel and to give the client a reasonable opportunity to do so; and the client must give informed written consent that addresses the lawyer’s role in the transaction and whether the lawyer is representing the client in the transaction. Special Conflicts of Interest for Former and Current Government Officers and Employees (Rule 1.11) Rule 1.11 governs the lawyer’s obligations based on conflicts presented when a lawyer moves from government to private employment and vice versa, and provides that such conflicts may be waived by the government entity upon informed consent. Duties to Prospective Clients (Rule 1.18) Rule 1.18 governs a lawyer’s duties to a prospective client when that person and the lawyer ultimately do not form an attorney-client relationship. It applies the same duty of confidentiality owed to former clients. However, a lawyer or law firm may nonetheless oppose a former prospective client if the lawyer’s current client and former prospective client give informed written consent, or the law firm may do so if certain conditions are met, including timely screening of the disqualified lawyer and prompt written notice to the former prospective client. The protections of Rule 1.18 are expressly denied to a prospective client who communicates with a lawyer in order to disqualify the lawyer from handling a materially adverse representation in the same or a substantially related matter. Voluntary Pro Bono Service (Rule 6.1) Though not enforceable through the disciplinary process, Rule 6.1 reaffirms a lawyer’s responsibilities to provide at least 20 hours of pro bono legal services each year to poor persons, and to contribute financially to organizations that provide legal services to poor persons. Other Noteworthy Developments Rule1.3 (Diligence) mandates that a lawyer "shall not neglect" a legal matter and obliges a lawyer to “act with diligence and promptness” in representing a client. Rule 1.4 (Communication) codifies a lawyer’s duty to communicate effectively with the client, including keeping the client reasonably informed about the status of the matter promptly complying with a reasonable request for information. Rule 1.12 applies conflicts rules to arbitrators and mediators, other third-party neutrals and law clerks. Rule 1.14 provides guidance to a lawyer whose client has diminished capacity. It allows the lawyer to take action to protect the client from substantial physical and financial harm, and permits disclosure of confidential client information to the extent reasonably necessary to protect the client’s interests. Rule 2.4 deals with lawyers serving as third-party neutrals, such as arbitrators and mediators, and sets forth their obligations with respect to unrepresented parties. Rule 3.2 prohibits a lawyer from using means that have no substantial purpose other than to delay or prolong a proceeding or cause needless expense. Rule 3.9 requires a lawyer to alert legislators and administrative agencies as to when the lawyer is speaking as a paid advocate rather than a public citizen. Rule 4.3 sets forth a lawyer’s obligations when dealing, on behalf of a client, with a person who is not represented by counsel. Rule 6.4 sets forth a lawyer’s duties when participating in law reform activities that may affect the interests of the lawyer’s clients. Rule 8.2 expands the prohibition against false statements of fact regarding “qualifications” of judges or judicial candidates to include false statements about “conduct or integrity.” The new Rules of Professional Conduct are available at http://www.nycourts.gov/rules/jointappellate/ (Source: http://www.nycourts.gov/press/pr2008_7.shtml) (Last accessed: December 18, 2008)