My client's ex-spouse is shortchanging her on stock options owed under their marital settlement agreement, and she wants me to sue him on a contingency-fee basis. Can I take that case on contingency, and does it matter if she also wants to reopen the divorce over concealment?

Plain-English summary

The inquiring attorney had represented Wife (W) in her divorce. Under the marital settlement agreement (MSA), W was to receive one-half the value of stock options owned by Husband (H), some of which were still vesting when the MSA was signed. After the divorce, H's employer was acquired, immediately vesting all of H's options; H exercised them for about $500,000 but paid W only about $50,000, contending he owed her only half the options' value as of the MSA's signing date. W disputed that reading of the MSA and also contended H had intentionally withheld inside information about the sale and its effect on vesting. W asked the attorney, with co-counsel, to represent her on a contingency-fee basis against H for breach of the MSA.

The panel quoted Rule 1.5(d)(1), which bars a contingent fee in a domestic relations matter where the fee is contingent on securing a divorce or on the amount of alimony, support, or property settlement. Citing its own prior Rhode Island Supreme Court Ethics Advisory Op. 91-78 (1991), the panel noted contingent fees are proper to collect past-due alimony or child support but not to obtain increased alimony or child support. The panel concluded a contingent fee is proper in this post-divorce contract action on the MSA over the disputed value of the stock, citing a Kansas ethics opinion permitting a contingency arrangement in an independent post-divorce action on the value of corporate stock from a divorce. However, the panel held a contingent fee would not be permissible if the divorce action were instead reopened based on W's claim that H misrepresented or withheld facts during the divorce proceedings.

In practice

The opinion holds that, under the Rhode Island rules as they stood at the time of the opinion, Rule 1.5(d)(1)'s bar on contingent fees in domestic relations matters does not reach an independent post-divorce contract action to enforce or interpret a marital settlement agreement's property terms, such as a dispute over the value of stock options owed under the agreement. The opinion also holds that the same contingent fee would not be permissible if the underlying divorce action were reopened based on a claim of misrepresentation or concealment during the divorce, since that would again make the fee contingent on the divorce proceeding itself.

Common questions

Q: Can I charge a contingent fee to collect what my client is owed under her divorce settlement agreement?

A: According to this opinion, yes, when the dispute is a post-divorce contract action over the value or amount owed under the agreement, distinct from securing the divorce or setting alimony or support.

Q: Does it matter whether the underlying claim is about stock options specifically?

A: The panel treated the stock-option value dispute as a post-divorce contract claim on the MSA, citing an out-of-state opinion permitting a contingency fee in an independent post-divorce action over stock value from a divorce; the analysis turns on the post-divorce contract nature of the claim, not the specific asset type.

Q: What changes if my client wants to reopen the divorce itself over concealment, instead of just enforcing the settlement agreement?

A: The panel held that if the divorce action is reopened on the claim that the other spouse misrepresented or withheld facts during the divorce, a contingent fee would not be permissible, because Rule 1.5(d)(1) bars fees contingent on securing a divorce.

Background and rules framework

The opinion applies Rule 1.5(d)(1) (Fees), the Model Rule counterpart of the same number, quoted in full, which bars a lawyer from entering into an arrangement for, charging, or collecting any fee in a domestic relations matter contingent upon securing a divorce, or upon the amount of alimony, support, or property settlement in lieu thereof. The panel's analysis draws the line between fees contingent on the divorce proceeding itself and fees for a later, independent contract action to enforce a settlement agreement's terms.

Citations and references

Rules of Professional Conduct:

• MR 1.5(d)(1) (Fees) / RI Rule 1.5(d)(1)

Other opinions cited:

• Rhode Island Supreme Court Ethics Advisory Op. 91-78 (1991): contingent fees proper to collect past-due alimony or child support, not to obtain increased alimony or child support
• Kansas Bar Assoc. Prof. Ethics Comm., Op. LEO 97-4 (1997): permitting a contingency fee in an independent post-divorce action on the value of corporate stock acquired from divorce

See also

• ISBA Ethics Op. 95-16: Fee for Post-Judgment Dissolution of Marriage Matters
• Alabama State Bar Op. 1996-01: A Lawyer May Not Charge Contingent Fee in Domestic Relations Matter

Source

• Landing page: https://www.courts.ri.gov/attorney-resources/Pages/Ethics-Advisory-Panel-default.aspx
• Original PDF: https://www.courts.ri.gov/Opinions/EAP%202006-03.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

Final

                Rhode Island Supreme Court Ethics Advisory Panel
                     Opinion No. 2006-03 Request No. 918
                            Issued October 12, 2006

FACTS:

   The inquiring attorney represented Wife (W) in a divorce. Pursuant to the marital

settlement agreement (MSA), W was to receive one-half of the value of certain stock
options owned by Husband (H). At the time the MSA was signed, there were a number of
stock options, and H was at various stages of vesting for the options.

    Subsequent to the final divorce decree, H's employer was purchased by a large

company, resulting in an immediate vesting of all H's stock options. H exercised the
options realizing about $500,000. However, H only paid W about $50,000, claiming that
he was only required to pay W one-half of the value of the options as of the date the MSA
was signed. W contends that the MSA requires H to pay her one-half of $500,000, the
value of the stock on the date H exercised the options. W further contends that H
intentionally withheld inside information regarding the sale of H's employer and the effect
of the sale on H's vesting.

     W has requested that the inquiring attorney, together with co-counsel, represent her

in this dispute. The inquiring attorney proposes to represent W on a contingency-fee basis
against H for H's alleged breach of the MSA.

ISSUE PRESENTED:

    May the inquiring attorney represent W on a contingency-fee basis in a dispute

between W and H about the value of stock options to which W is entitled under the MSA,
and in the collection of amounts W contends she is owed?

OPINION:

   A contingent fee is proper in a post-divorce action in which the value of the stock

to which W is entitled pursuant to the MSA, is in dispute. However, a contingency fee
would not be permissible if the divorce action is re-opened on the basis of W's claim that
H misrepresented or withheld facts during the divorce proceedings.
Final 2006-03
Page 2

REASONING:

   Rule 1.5(d)(1) is applicable to this inquiry. It states:

            (d)  A lawyer shall not enter into an arrangement for, charge, or collect:
            (1)  any fee in a domestic relations matter, the payment
                 or amount of which is contingent upon the securing
                 of a divorce or upon the original amount of alimony
                 or support, or property settlement in lieu thereof;
                                         ***
    The Panel has stated that contingent fee arrangements are proper in regard to the

collection of past due alimony as well as past due child support, but that such arrangements
are not permitted when seeking to obtain increased alimony or increased child support.
Rhode Island Supreme Court Ethics Advisory Op. 91-78 (1991).

    The Panel concludes that in the instant inquiry, a contingent fee would be proper in

a post-divorce action on the contract in which the value of stock to which W is entitled
pursuant to the MSA is in dispute. See Kansas Bar Assoc. Prof. Ethics Comm., Op. LEO
97-4 (1997)(permitting contingency fee arrangement in independent post-divorce action on
value of corporate stock acquired from divorce.) However, a contingency fee would not
be permissible if the divorce action is re-opened on the basis of W's claim that H
misrepresented or withheld facts during the divorce proceedings.