What To Do When Your Favorite Clients Divorce, And What To Do To Anticipate The Possibility Or Reality Of Divorce

What To Do When Your Favorite Clients Divorce, And What To Do To Anticipate The Possibility (Or Reality) Of Divorce William R. “Butch” Korb, Jr. Jeffrey N. Myers Bourland, Wall & Wenzel, A Professional Corporation Attorneys and Counselors 301 Commerce Street, Suite 1500 Fort Worth, Texas (817) (817) (metro) (817) (facsimile) (website) ( ) ( ) Presented to DALLAS BAR ASSOCIATION PROBATE SECTION January 24, Ross Avenue Dallas, Texas 75201

I. PRE-DIVORCE PLANNING II. RESOLVING DISPUTES III. HANDLING LITIGATION IV. LAWYER AS WITNESS

Pre-Divorce Planning QUESTION #1 Client seeks to engage Lawyer to provide asset protection planning regarding a possible divorce in order to prevent Spouse from receiving control of or an interest in certain assets. How should Lawyer respond?

Pre-Divorce Planning Rule 1.02 (c) Lawyer may not assist in criminal or fraudulent act, but may discuss the legal consequences of proposed conduct. Rule 1.02 (d) When confidential information clearly establishes that Client is likely to commit criminal or fraudulent acts, Lawyer shall make reasonable efforts under the circumstances to dissuade Client.

Pre-Divorce Planning QUESTION #2 Client has already engaged Lawyer to prepare transfer documents for assets and, after execution by Client, Lawyer learns of Client’s fraudulent purpose. What should Lawyer do?

Pre-Divorce Planning Rule 1.02 (e) When Lawyer has confidential information clearly establishing that Client has committed a criminal or fraudulent act, of which the Lawyer’s services have been used, Lawyer shall make reasonable efforts under the circumstances to persuade Client to take corrective action.

Pre-Divorce Planning QUESTION #3 Client responds “You have been my Lawyer for 20 years and I have paid you hundreds of thousands of dollars. I expect you to help me!” How should Lawyer respond?

Pre-Divorce Planning Rule 1.02 (f) When Lawyer knows that Client expects representation not permitted by the Rules, Lawyer shall consult with Client regarding relevant limitations on Lawyer’s conduct.

Pre-Divorce Planning QUESTION #4 Both Rule 1.02 (d) and (e) deal with Lawyer having “confidential information”. What is does “confidential information” consist of?

Pre-Divorce Planning Rule 1.05 Confidential information = Privileged information, and Unprivileged Client information acquired by Lawyer in course of representation General Rule: Lawyer shall not disclose or use confidential information of Client “May” exceptions “Shall” exceptions

Pre-Divorce Planning QUESTION #5 Lawyer is asked by Client to assist in the preparation of financial disclosures in a divorce proceeding and Client asks that the information be knowingly misstated or withheld. What should Lawyer do?

Pre-Divorce Planning Rule 4.01 In the course of representing Client, Lawyer shall not knowingly: a.make a false statement of material fact or law to Third Person; or b.fail to disclose a material fact to Third Person when disclosure is necessary to avoid making Lawyer a party to a criminal act or knowingly assisting in a fraudulent act by Client. Rule 4.01 Comment 6 This Rule governs Lawyer’s conduct during the “course of representing Client”. If Lawyer has terminated representation prior to learning of Client’s intention to commit a criminal or fraudulent act, subpart (b) of this Rule does not apply. Fraud = purpose to deceive Compare Negligent Misrepresentation: a civil cause of action but not a violation of the Rules. McCamish, Martin, Brown & Loeffler v. F.E. Appling Interests, 991 SW2d 787 (Tex. 1999)

Pre-Divorce Planning Rule 1.05(c) Lawyer may reveal confidential information: (4) when Lawyer has reason to believe it is necessary to do so to comply with the Rules or other law. (7)when Lawyer has reason to believe it is necessary to prevent Client from committing criminal or fraudulent act. (8) to extent necessary to rectify the consequences of Client’s criminal or fraudulent act in commission of which Lawyer’s services have been used. COMMENT 14: Disclosure adverse to Client’s interest should be no greater than Lawyer believes necessary for the purpose.

Pre-Divorce Planning QUESTION #6 If Lawyer discloses privileged information, can Lawyer be sued by Client?

Pre-Divorce Planning Rule 1.05, Comment 12 (1) Lawyer may have been innocently involved in past conduct by Client that was criminal or fraudulent. (2) Since Lawyer’s services were made an instrument of Client’s crime or fraud, Lawyer has a legitimate interest in rectifying the consequences of such conduct and in avoiding charges that Lawyer’s participation was culpable. (3) Lawyer has discretion to reveal both the unprivileged and privileged information in order to serve those interests. (4) Per Rules of Evidence, rarely will such information be privileged (e.g. crime or fraud exception to attorney-client privilege).

Pre-Divorce Planning QUESTION #7 What if Client terminates the attorney-client relationship when Lawyer tries to dissuade Client from committing the conduct or to persuade Client to take corrective action?

Pre-Divorce Planning Rule 1.05 Comment 21 If disclosure during the relationship was permissive, disclosure thereafter remains permissive.

Resolving Disputes QUESTION #8 When Lawyer’s favorite Clients, Husband and Wife, are divorcing, what can Lawyer do?

Resolving Disputes Rule 1.06 (a) Lawyer shall not represent opposing parties to the same litigation.

Resolving Disputes QUESTION #9 What if Clients say they already have an agreement as to all matters?

Resolving Disputes Rule 1.06 Comment 2 “Opposing parties” contemplates a situation where a judgment favorable to one would directly impact unfavorably upon the other.

Resolving Disputes QUESTION #10 Prior to divorce litigation, can Lawyer represent Clients in negotiations concerning the division of their assets?

Resolving Disputes Rule 1.06(b)(1) Lawyer shall not represent a person if representation of that person involves a substantially related matter in which that person’s interests are materially and directly adverse to the interest of another Client. UNLESS (c) (1) Lawyer reasonably believes the representation of each Client will not be materially affected, and (2) each Client consents under full disclosure.

Resolving Disputes QUESTION #11 What does “directly adverse” mean?

Resolving Disputes Rule 1.06 Comment 6 When Lawyer’s independent judgment on behalf of Client or Lawyer’s ability or willingness to consider, recommend or carry out a course of action will be or is reasonably likely to be adversely affected by Lawyer’s representation of, or responsibilities to, the other Client; OR If Lawyer is called upon to espouse adverse positions in the same matter or a related matter.

Resolving Disputes QUESTION #12 If joint representation is not recommended or viable in a divorce situation, can Lawyer act as an intermediary?

Resolving Disputes Rule 1.07(d) Intermediary = when Lawyer represents two or more parties with potentially conflicting interests. Comment 9: Where Lawyer is intermediary, Clients ordinarily must assume greater responsibility for decisions than when each Client is independently represented. Rule 1.07 (a) Lawyer shall not act as intermediary between Clients unless: (1) Lawyer consults with each Client concerning the common representation and obtains each Client’s written consent; (2) Lawyer believes matter can be resolved without necessity of contested litigation on terms compatible with Clients’ best interests, that each will be able to make adequately informed decisions and that there is little risk of material prejudice if intermediation is unsuccessful; and (3) Lawyer reasonably believes common representation can be undertaken impartially and without improper effect to any Client.

Resolving Disputes QUESTION #13 When must Lawyer cease intermediary representation?

Resolving Disputes Rule 1.07(c) Lawyer shall withdraw if any of the Clients request or if any condition in subpart (a) is no longer satisfied. Comment 4: (1) Lawyer cannot undertake intermediary representation of Clients between whom contested litigation is reasonably expected or who contemplate contentious negotiations. (2) If the relationship between the parties has already assumed definite antagonism, the possibility that Clients’ interests can be adjusted by intermediation ordinarily is not very good.

Handling Litigation QUESTION #14 One Client terminates attorney-client relationship. Can Lawyer represent the other in the divorce?

Handling Litigation Rule 1.09 Without prior consent, Lawyer shall not represent another person in a matter adverse to the former Client: (1) in which such person questions the validity of Lawyer’s services or work product; (2) if the representation in reasonable probability would involve inappropriate disclosure or use of confidential information of former Client; or (3) if it is the same or substantially related matter.

Handling Litigation QUESTION #15 Is a divorce “the same or a substantially related matter” to prior estate or business planning performed for former Client?

Handling Litigation Rule 1.09 Comment 4A: “same” = this divorce proceeding Comment 4B: “substantially related” = situations where Lawyer could have acquired confidential information concerning a prior Client that could be used either to prior Client’s disadvantage or for the advantage of Lawyer’s current Client or some other persons. Comment 8: “Substantial relationship” test used by courts for purposes of disqualification of counsel in litigation.

Lawyer as Witness QUESTION #16 If Lawyer expects to be a witness in a divorce, can Lawyer represent the Client in the proceeding?

Lawyer as Witness Rule 3.08 (a) Lawyer shall not accept or continue employment as an advocate before a tribunal in a contemplated or pending proceeding if Lawyer knows or believes that Lawyer is or may be a witness necessary to establish an essential fact on behalf of Client, unless: (1) uncontested issue (2) solely a matter of formality/no opposition (3) as to nature and value of legal services (4) Lawyer is a party and acting pro se (5) Lawyer promptly notified opposing counsel and disqualification would work substantial hardship on Client. (b) Lawyer shall not continue as advocate if Lawyer believes that Lawyer will be compelled to furnish testimony substantially adverse to Client, unless Client consents after full disclosure.

Lawyer as Witness QUESTION #17 Lawyer accepts engagement to represent one spouse. Lawyer’s Firm thereafter receives discovery request. How should Firm respond?

Lawyer as Witness Discovery request to Firm: (1) All of Wife’s files (former Client) (2) All of Husband’s files (current Client) (3) All of Entity, Inc.’s files (Husband’s corporation). Issues (1) Privileges: identity of Clients of Lawyer (2) Multiple clients: open or closed relationship (3) Entitlement to Client’s own files (Rule 115(d)) (4) Rule 1.09 considerations (5) Rule 3.08 considerations

Lawyer as Witness QUESTION #18 Firm receives a notice of deposition. How should Firm respond?

Lawyer as Witness Notice of Deposition to Firm Subjects covered: (1)Characterization of all assets and/or liabilities of Husband and Wife (2)All planning related to business opportunities Husband invested in through his separate estate. (3)All irrevocable intervivos trust and/or charitable or non-charitable gift planning entered into by Husband using community property. (4)All planning related to accumulation of income in trusts and/or partnerships which are Husband’s separate property. (5)All planning related to expenditures and/or exhaustion of community estate. (6)All planning related to compensation of Husband from his separate property entities. Issues (1) Privileges: identity of Clients of Lawyer (2) Multiple clients: open or closed relationship (3) Entitlement to Client’s own files (Rule 115(d)) (4) Rule 1.09 considerations (5) Rule 3.08 considerations