Once Divorce is Entered Goforth and Enforce Your Lien
Goforth v. Goforth, (700 WDA 2024) is an enforcement action where the parties agreed to divide proceeds from a marital home sale but liens against one spouse corrupted the written settlement.
During their marriage the parties acquired a home together as tenants by the entireties. In July 2018 wife filed for divorce and in July 2020 they formed a written settlement agreement to sell the marital residence and divide the proceeds 60% to wife and 40% to husband. On August 19, 2020 the parties were divorce and, on the same day, they sold their home with $165,000 in proceeds. What came to light at the settlement was that husband had two judgments from 2019 entered against him for $525,000 and $150,000 respectively. The settlement was delayed during which time all parties agreed that husband’s 40% share should be held in escrow by his attorney while the liens were resolved. Otherwise, the husband’s creditors approved the sale and it closed in December 2020.
The husband’s creditors then agreed to divide the husband’s proceeds between themselves 75%/25%. Husband’s attorney interceded claiming that his involvement in the real estate transaction including the role of escrow agent made his lien for attorneys fees a priority over the two creditors. The trial court denied this request and husband appealed. In 2023, the Superior Court remanded the case demanding more clarity as to whether husband’s attorney had conflicted loyalty to his client once he became aware that the liens exceeded husband’s share of the house proceeds such that the legal fee lien (which the client had agreed to) was eclipsed by the 2019 judgments of $675,000. The Fayette County court considered the matter on remand and held that the legal fee lien did not supercede the two 2019 judgments. Husband again appealed.
Husband’s lead argument on this appeal was that the judgments of the creditors could not attach because the residence was in custodia legis. In essence, that doctrine holds that where a divorce is filed and marital property is identified, that property falls under the court’s protection (its custody) until the property is divided. The theory was that the residence came under the court’s jurisdiction once wife filed for divorce and remained there for the duration of the proceedings. This would mean the 2019 judgments of the creditors could not attach.
The Superior Court found that while the real estate might have been in custodia legis, the parties agreed to sell the home and divide the proceeds. That agreement produced a decree of divorce and pursuant to 23 Pa.C.S. 3507(a), the entry of the divorce decree took the property out of judicial protection and converted the tenancy by the entireties to a tenancy in common by operation of law. That event allowed the 2019 liens to attach to husband’s share of the house proceeds. Frantz. v. Frantz, 972 A.2d 525, 528 (Pa.S. 2009).
This case echoes a 1989 ruling of the Pennsylvania Superior Court in Klebach v. Mellon Bank, N.A., 565 A.2d 448 (Pa.S. 1989)In that case the parties owned a residence that was marital property. While the divorce was pending husband saw a judgment entered against him alone by Mellon Bank. In the divorce he assigned to his wife all right title and interest he might otherwise have had in the property. Once the divorce was concluded, former wife filed to have any lien of husband’s creditors declared unenforceable against the joint residence and the Superior Court agreed. Wife had not joined in the debt and the lien accrued against husband at a time when the property was under the court’s legal control.
In an interesting twist husband then argued that under 41 Pa.C.S. 407, the creditors had somehow waived the right to his share of the home proceeds because they had tried to execute on other assets. The Superior Court notes that this statute is intended to offer protections to residential real estate creditors who have confessed judgments entered against them. The thrust of the statute is to require a regular civil proceeding to force a sale of property rather than proceed on the basis of a judgment by confession alone. In this case, the husband’s creditors confessed judgment but took no action to force a sale of the residence. Rather, they relied upon their judgments which would ordinarily be collected as a matter of course when the real estate closed. It would seem that had Mr. Goforth assigned all of his interest in the residence to his former wife in the divorce, his creditors would have gotten nothing. But, then again, his $675,000 debt to the creditors would not have been reduced at all.
We should circle back because the case does amplify the subject of attorney liens. In this case, the husband’s agreement in 2018 with this attorney provided:
“You agree that any unpaid balance for legal fees and costs that you owe to the Firm shall constitute an equitable charging lien in the Firm’s favor on any assets generated on your behalf in connection with your case. … Additionally, you agree that if there is a balance due to the Firm at the time of the sale of any real estate owned by you, in whole or in part, or any entity in which you have an ownership interest, the Firm shall be entitled to collect any unpaid balance.”
The Superior Court notes that a charging lien is an equitable remedy a court may impose to protect attorneys who created a fund of assets. Courts must consider five factors before issuing a charging lien: (1) that there is a fund in court or otherwise applicable for distribution on equitable principles, (2) that the services of the attorney operated substantially or primarily to secure the fund out of which he seeks to be paid, (3) that it was agreed that counsel look to the fund rather than the client for his compensation, (4) that the lien claimed is limited to costs, fees or other disbursements incurred in the litigation by which the fund was raised and (5) that there are equitable considerations which necessitate the recognition and application of the charging lien. Id. at 764-65 (citation omitted). Austin v. Thyssenkrupp Elevator Corp., 254 A.3d 760, 766 (Pa. Super. 2021); see also Pa.R.P.C. 1.8(i)(1) (noting a lawyer may “acquire a lien authorized by law to secure the lawyer’s fee or expenses”).
The lesson here seems to be that as a divorce proceeding evolves; parties should be paying some attention to the debt each has accrued separately. Unsecured debt (aside from educational debt) is largely dischargeable in bankruptcy. But there are ways to “manage” the debt that may be more efficient.
