Legal Fees, Dissipation of Marital Funds

DIVORCE IN MARYLAND: PAYMENT TO YOUR DIVORCE LAWYER OUT OF MARITAL FUNDS DOES NOT CONSTITUTE DISSIPATION OF MARITAL ASSETS

In a case of first impression in 2004, the Court of Special Appeals of Maryland decided that a spouse who pays reasonable attorney’s fees connected with a divorce proceeding out of marital funds cannot be found to be dissipating marital funds. Allison v. Allison, 160 Md. App. 331 (2004.)

Citing a law review article, the Court of Special Appeals concurred that as the law permits divorce, it should permit parties to spend funds for legal services in divorce proceedings from marital assets. Spouses do not often have their own separate funds to pay their lawyers. In Maryland, as income earned during separation is also marital property, it would be difficult to pay legal fees without spending marital funds.

Dissipation of marital assets was defined in a previous case in McCleary v. McCleary, 150 Md. App. 448, 462-63 (2002) where the Court said:

“Dissipation may be found where one spouse uses marital property for his or her own benefit for a purpose unrelated to the marriage at a time where the marriage is undergoing an irreconcilable breakdown.” Citing Sharp v. Sharp, 58 Md. App. 386, 401, 473 A.2d 499 (1984). The Court stated “[W]e have defined dissipation as expending marital assets “for the principal purpose of reducing the funds available for equitable distribution.” Citing Jeffcoat v. Jeffcoat, 102 Md. App. 301, 311, 649 A.2d 1137 (1994).

In the Allison case, the Court found that the husband’s attorney’s fees of $13,665.71 did not meet the definition of “dissipation as set forth in the Jeffcoat case viz: expenditures of marital funds “for the principle purpose of reducing funds available for equitable distribution.” The Court of Special Appeals found that the amount of attorney fees that the husband paid appear to be entirely reasonable, and there was no indication that his expenditures were made with the goal of reducing the amount of monies available for a monetary award. Mr. Allison, after the separation, lived modestly, but after paying his wife $1,400 per month in pendente lite alimony and making mortgage payments of over $1,300 monthly on the house where his wife lived lived, he had little left over from his net monthly income of $4,911.09 to pay for his own everyday expenses. Unless he sold his personal belongings or was willing to pay a large tax bill for early liquidation of a non-marital IRA worth $18,779.48, Mr. Allison had no choice but to pay his attorney’s fees (and those of his wife’s that the court ordered) out of marital property. The same is true with many other couples that divorce.

The Allison Court noted that the obvious purposes for expending the funds for legal services were two: (1) to avoid representing himself in a case where his spouse sought, among other things, an award of indefinite alimony and (2) to obey a lawful order to pay a portion of his wife’s attorney’s fees. Thus, the Court concluded that Mr. Allison’s $13,665.31 expenditure did not meet the definition of “dissipation” set forth (and as stated above) in Jeffcoat v. Jeffcoat, 102 Md. App. 301, 311 (1994), and reaffirmed recently in McCleary, supra, 150 Md. App. at 462-63.