Release of Escrow Funds To pay Legal Fees
- November 2, 2014
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In the recent Appellate Division case, Meyers v. Meyers, the Defendant Andrew Meyers, appealed from a post-judgment Order that denied the release of funds held in escrow to pay his attorney fees and for personal use pursuant to his Final Divorce Judgment. The Appellate Division affirmed. The parties in this case were married in 1968, separated in 2005, and officially divorced in 2009. The parties have three children, of which have been emancipated. At the end of the marriage the husband earned approximately $140,000 a year and the wife $84,000. Their assets included a marital residence, a vacation home, and bank and retirement accounts. In 2007, while the parties’ divorce was proceeding, Mr. Meyers withdrew the entire balance of his 401K, totaling $335,000, which resulted in tax liabilities. It was also discovered at that time that the husband had not filed a tax return since 2004. The parties’ marital residence was sold before the completion of the divorce so that the proceeds could be used to pay certain debts. In addition, equal shares of $25,000 were distributed to each party to assist in the divorce expenses with the remainder being placed in escrow for equitable distribution. After a divorce trial, the Family Court ruled that the parties were to share equally in the proceeds resulting from the sale of the marital property. The court also ruled that Mr. Meyers’ was also responsible for all income tax and interest, as well as, all penalties that were due because he liquidated his retirement assets. Following this, the court created an escrow account in the amount of 40% of Mr. Meyers’ income in the years that he did not pay taxes in order to protect his ex-wife from being charged with tax liabilities. The court judgment provided for Mr. Meyers’ full portion of the escrow funds resulting from the sale of the marital home, totaling $94,921.47, to be transferred directly to another account held by his attorney for the sole purposing of paying for his income tax penalties. Subsequently, Mr. Meyers applied for a release of the escrowed funds to pay for $32,000 of his attorney’s fees and $43,000 for her personal use. The Family Court denied his Motion for these funds stating that the amount of taxes that he owed exceeded the amount held in escrow. Mr. Meyers appealed. The Appellate Division held the parties’ final divorce judgment specifically ordered the creation of the escrow account to pay for the tax debt that Mr. Meyers owed to the IRS and therefore the Family Court had the proper basis to order that the escrow account remain undisturbed until the tax issues were resolved. Mr. Meyers also argued that the escrowed funds should be released because his attorney had a valid lien against those funds according to N.J.S.A. 2A:13-5 and that the attorney’s lien took precedence over the tax lien. According to the Appellate Court, the New Jersey Attorney’s Lien Act, states that any attorney representing a party in an action “shall have a lien for compensation . . . which shall contain and attach to a verdict, report, decision, award, judgment or final order in his client’s favor, and the proceeds thereof in whose hands they may come.” Musikoff v. Jay Parrino’s The Mint, L.L.C., 172 N.J. 133, 139 (2002). In this case, the escrow funds were not part of a judgment or Order in Mr. Meyers’ favor. They were a conditional award as part of equitable distribution. Therefore, the Appellate Division affirmed the decision of the Family Court. If you anticipate that you may want to petition the court for a post-judgment modification of your divorce judgment it is imperative that you seek out the advice of an experienced attorney before moving forward. For more information about post-judgment modification, divorce, custody, parenting time, or other family law matters in New Jersey visit HeatherDarlingLawyer.com. This blog is for informational purposes and in no way is intended to replace the advice of an attorney.