State Bar Ethics Committee Clarifies: Attorney Liens Allowed In Divorce Cases

Michigan family-law attorneys can place a lien on a client’s property to be awarded in a divorce proceeding as payment for legal services - as long as certain requirements are met, according to a State Bar of Michigan ethics opinion.

Ethics Opinion RI-376 states:

“A lawyer may ethically obtain a client’s agreement for a lien on real property to be awarded in the future to the client in a divorce proceeding if, at the time of the agreement:

1. the terms of the proposed lien are fully disclosed, fair and reasonable to the client and communicated in writing in a manner that can be reasonably understood by the client;

2. the client is given an opportunity to seek the advice of independent counsel before agreeing to the proposed lien; and

3. the client consents in writing to the proposed lien.”

Liens have always been available as a way to protect attorneys’ interests in getting paid for their legal services. But over the years, some uncertainty has developed about approving and enforcing these liens in divorce cases, especially when marital property is involved.

RI-376 is aimed at providing clarity in divorce cases. Basically, it says that attorney liens are enforceable in domestic relations proceedings as long at the prerequisites are satisfied.

RI-376 Analysis

According to the State Bar of Michigan Professional Ethics Committee, whether an attorney lien can be placed on a divorce client’s property to be awarded in the future implicates Michigan Rule of Professional Conduct (MRPC) 1.8(a) and MRPC 1.8(j).

MRPC 1.8(a) says:

“(a) A lawyer shall not enter into a business transaction with a client or knowingly acquire an ownership, possessory, security, or other pecuniary interest adverse to a client unless:

(1) the transaction and terms on which the lawyer acquires the interest are fair and reasonable to the client and are fully disclosed and transmitted in writing to the client in a manner that can be reasonably understood by the client;

(2) the client is given a reasonable opportunity to seek the advice of independent counsel in the transaction; and

(3) the client consents in writing thereto.”

MRPC 1.8(j) says, in part:

“(j) A lawyer shall not acquire a proprietary interest in the cause of action or subject matter of the litigation the lawyer is conducting for a client, except that the lawyer may:

(1) acquire a lien granted by law to secure the lawyer's fee or expenses.”

In its RI-376 analysis, the Ethics Committee referenced George v Gelman, 201 Mich App 474 (1993), which involved the scope of an attorney lien. According to the Gelman panel, an attorney lien “is an equitable right to have the fees and costs due for services secured out of the judgment or recovery in a particular suit. The attorney’s charging lien creates a lien on a judgment, settlement, or other money recovered as a result of the attorney’s services.

The Court of Appeals in Gelman ruled that an attorney lien attaches only to funds or other personal property recovered on behalf of the client and cannot be placed on real property, “even if the attorney has successfully prosecuted a suit to establish a client’s title or recover title or possession for the client, unless … the parties have an express agreement providing for a lien.”

“Based on Gelman, it appears … that family law practitioners began incorporating contractual lien provisions in fee agreements with clients,” the Ethics Committee said in its RI-376 analysis. “The Committee has previously opined that outside of the divorce proceeding context, it is permissible for a lawyer to obtain a consensual lien on real property of a client provided the above provisions of MRPC 1.8(a) are satisfied.”

However, the application of MRPC 1.8(j) “is a more difficult issue,” the Ethics Committee observed. The Committee pointed to Ethics Opinion RI-354, which focused on whether a family-law attorney could secure his fee through the conveyance of a warranty deed to the attorney for the sole asset of the marital estate: the marital home. According to RI-354, this amounted to the lawyer acquiring a proprietary interest in the subject matter of the representation, which implicated MRPC 1.8(j). And because the proposed transaction did not fit the exception in MRPC 1.8(j)(1) - that is, a lien granted by law to secure the attorney’s fee - the Committee found the transaction was disallowed under the ethics rules.

But the facts presented in RI-376 were different, the Ethics Committee noted. “Here, the lawyer will not acquire a proprietary interest in property that is the subject matter of the litigation; instead, the agreement authorizes a right to obtain a future lien to be granted by the court on property awarded to the client pursuant to a judgment of divorce,” the Committee said.

“The attorney’s lien rights arise upon entry of the judgment of divorce to the limited extent that the client has not paid the lawyer’s fees,” the Ethics Committee stated. “Thus, the agreement seeks to enhance the lawyer’s potential charging lien - a lien ‘granted by law to secure the lawyer’s fee or expenses’ within the meaning of MRPC 1.8(j)(1) - by reaching the client’s real, as well as personal, property. This enhancement is approved by Michigan case law, including Gelman, as long as the parties’ agreement expressly provides for such a right to obtain the lien. Thus, Rule 1.8(j)(1) is satisfied.”

Putting It In Perspective

Novi family law attorney James J. Harrington III recently told Michigan Lawyers Weekly that RI-376 clears up any confusion. He said that trial court judges have been “getting in the way” of attorney lien agreements in divorce cases.

“Even in consent judgments, judges were striking out lien language, even though in most circumstances a prudent attorney would have the lien agreement as part of their attorney client-plea agreement, and clients might even agree to that language,” Harrington told Michigan Lawyers Weekly.

Harrington explained that many family law attorneys already include lien language in prepared judgments. However, he said some lawyers record an interest in a client’s property without referencing it or including enforcement language in the judgment.

It is important to note that attorney liens are not only helpful to lawyers. Liens can also be beneficial to clients because, in many divorce cases, the parties do not have equal financial resources. Liens allow a financially strapped client to retain a qualified domestic relations attorney