Divorce for Lawyers: What Happens to My Law Firm?
A law firm interest can be valued and accounted for in a divorce, and a non-lawyer spouse cannot end up owning a piece of it, because a rule of professional conduct forbids it outright.
That makes divorce for lawyers different from a physician’s case or an accountant’s in one specific respect worth understanding early, and it is the reason a buyout is almost always the mechanism rather than a transfer of the interest itself.
Can a Non Lawyer Spouse Own Part of My Firm?
Missouri Rule 4-5.4 says a lawyer shall not practice in a professional corporation if a non lawyer owns any interest in it, and the only exception is for a deceased lawyer’s estate.
Rule 4-5.4(d) provides that “a lawyer shall not practice with or in the form of a professional corporation or association authorized to practice law for a profit if,” and then lists three disqualifying conditions.
- “A nonlawyer owns any interest therein, except that a fiduciary representative of the estate of a lawyer may hold the stock or interest of the lawyer for a reasonable time during administration”
- “A nonlawyer is a corporate director or officer thereof or occupies the position of similar responsibility in any form of association other than a corporation”
- “A nonlawyer has the right to direct or control the professional judgment of a lawyer”
Read the exception in the first item. It covers a fiduciary representative of a deceased lawyer’s estate. It does not mention a spouse, a former spouse, or a transfer under a divorce decree.
Rule 4-5.4(b) adds that “a lawyer shall not form a partnership with a nonlawyer if any of the activities of the partnership consist of the practice of law.”
Is There a Tension With the Corporation Statute?
There appears to be, and Missouri courts have not squarely resolved it.
This is worth knowing rather than glossing over, because it is the one place where divorce for lawyers runs into two rulebooks that do not quite agree.
Section 356.111.3 RSMo voids transfers of professional corporation shares to unqualified holders, “except that, nothing contained in this subsection shall prohibit the transfer of shares of a professional corporation by operation of law or court decree.”
Section 356.141.1 RSMo then contemplates shares “transferred by operation of law or court decree to a disqualified person” and gives a six month window for purchase, redemption or transfer before the shares cancel automatically under Section 356.141.6. Section 356.151 RSMo strips a disqualified holder of office, professional service, dividends and votes in the meantime.
So the corporation statute tolerates a temporary disqualified holder after a decree. Rule 4-5.4(d)(1) contains no such window for a divorcing spouse.
Section 356.191 RSMo provides that nothing in the professional corporation law “shall restrict or limit in any manner the authority and duty of any licensing authority,” and Section 356.111.2 allows a licensing authority to further restrict a professional corporation’s authority to issue shares. We could not find authority resolving which controls in a divorce, and we are not going to tell you it is settled. What we will say is that nobody should plan on a spouse lawfully holding law firm stock after a decree, even briefly.
The practical consequence is the useful part. In divorce for lawyers the question is almost never who holds the interest. It is what the interest is worth and how the other spouse gets paid.
How Is a Law Firm Interest Valued?
Under the same Missouri goodwill rule that applies to any professional practice, and it is a favorable rule.
In Hanson v. Hanson, 738 S.W.2d 429 (Mo. banc 1987), the Supreme Court of Missouri defined divisible goodwill “within a professional setting to mean the value of the practice which exceeds its tangible assets and which is the result of the tendency of clients/patients to return to and recommend the practice irrespective of the reputation of the individual practitioner.”
For a law practice that distinction does a great deal of work. Clients who return because of the firm’s name, its systems, its institutional relationships and its files are one thing. Clients who follow a particular lawyer wherever that lawyer goes are another, and in many practices the second describes most of the book.
Hanson also holds that “professional goodwill may not be confused with future earning capacity. We have not declared future earning capacity to be marital property. We do not now do so.”
What Proof Does the Other Side Need?
Market evidence, in one of three forms only.
Hanson holds that goodwill “is shown only when there is evidence of a recent actual sale of a similarly situated professional practice, an offer to purchase such a practice, or expert testimony and testimony of members of the subject profession as to the existence of goodwill in a similar practice in the relevant geographic and professional market.”
Note the two witness structure and the local, professional comparison. Note also that the court rejected “the use of capitalization formulae as a substitute for fair market value evidence of the value of goodwill in a professional practice,” while footnote 2 preserves a capitalization rate embedded inside genuine market evidence.
That proof rule is the strongest procedural position available in a divorce for lawyers, and it is frequently the thing nobody raises until after the appraisal is written.
What About Contingency Fee Cases?
An unresolved contingency case is a real question and one Missouri has not addressed as squarely as most practitioners would like.
The problem is easy to see. Work performed during the marriage may produce a fee years after a judgment, on a case whose outcome nobody can predict. Treating it as a present asset requires valuing something contingent. Ignoring it means marital effort produces a payment that arrives entirely on one side of the line.
We are not going to tell you how a Missouri court would come out on any particular file. What we can say is that this is a question to raise deliberately and early, with the case list and the fee agreements in front of everyone, rather than one to discover after a judgment is final.
Section 452.330.5 RSMo makes the property division “a final order not subject to modification,” so an item nobody raised is generally an item nobody revisits.
Are Client Names Discoverable?
That is a live problem and it should be handled at the outset.
A valuation of a law practice runs on the book of business, and the book of business is a list of clients and matters.
Confidentiality obligations do not switch off because the lawyer is a party rather than counsel. Rule 4-1.6(a) provides that “a lawyer shall not reveal information relating to the representation of a client unless the client gives informed consent, the disclosure is impliedly authorized in order to carry out the representation, or the disclosure is permitted by Rule 4-1.6(b).”
Protective orders, aggregated data, in camera review and agreed sampling are the ordinary tools, and they work better when raised before discovery is served than after.
Where a case is mediated, Rule 88.08 treats mediation proceedings “as settlement proceedings” and makes communications made during the mediation confidential, subject to stated exceptions. Our page on mediation confidentiality in Missouri covers what that does and does not protect, which is narrower than most people assume.
Is My Law Degree or License Marital Property?
No.
In Riaz v. Riaz, 789 S.W.2d 224 (Mo. App. E.D. 1990), the Eastern District stated that “Missouri courts have not recognized that an educational degree, or a professional license secured as a result of such education, constitutes marital property subject to division by the court in a dissolution proceeding.”
The qualification, from Sullivan v. Sullivan, 159 S.W.3d 529 (Mo. App. W.D. 2005), is that a spouse’s contribution toward the other obtaining a professional degree may be considered in an equitable division, and where warranted “the contributing spouse may be awarded a higher percentage of the property that is properly classified as marital.”
So a spouse who worked while you were in law school does not own a share of your license. That spouse does have a recognized argument about the share of what is divisible, and about spousal maintenance.
What About Fee Sharing?
Rule 4-5.4(a) provides that a lawyer or law firm shall not share legal fees with a non lawyer, with five exceptions, none of which is a divorce.
The exceptions cover a firm agreement providing for payments to a deceased lawyer’s estate over a reasonable period, a lawyer completing a deceased lawyer’s unfinished business, a purchase of a deceased or disabled lawyer’s practice under Rule 4-1.17, which permits a lawyer or firm to “sell or purchase a law practice, or an area of practice, including good will” on stated conditions, non lawyer employees in a compensation or retirement plan, and sharing court awarded fees with a qualifying nonprofit.
Worth knowing that Missouri’s list is one longer than the ABA Model Rule’s, which has four. Anyone reasoning from the Model Rule is reasoning from a different text.
The practical effect is the same as on ownership. A settlement structured as a share of future fees is a different object from a settlement structured as a fixed obligation with a payment schedule, and the second is the one that does not run into the rule.
What Should the Settlement Look Like?
An offset or a fixed buyout, secured, rather than anything that leaves a former spouse holding an interest.
- An offset against other assets where the estate is large enough. Cleanest, and it ends the relationship
- A fixed sum payable on a schedule, with an interest rate, acceleration terms, security and life insurance where it runs for years
- Not a percentage of firm income, and not a continuing interest in the entity
- Deal with the partnership agreement’s own terms, since capital accounts, unbilled work in progress and withdrawal provisions frequently decide what the interest is actually worth
Most divorce for lawyers settlements land on one of those four. Our FAQ on dividing marital property covers the standard a court applies if none of that gets agreed.
Who Can Help With Divorce for Lawyers in St. Louis?
A lawyer’s case has one structural constraint most professionals do not, and the useful conversations are about value and mechanism rather than about ownership.
Bardol Law Firm practices only family law and handles property and asset division for attorneys and other professionals in St. Louis County, St. Louis City, St. Charles County and Jefferson County. We are also frequently on the other side of the table from a spouse’s own firm, and we understand why that changes how a case gets run. You can read more about high net worth divorce, about divorce for business owners, about property and asset division, and the rest of our family law questions and answers.
You should not have to chase your attorney for basic updates. Every client here has a named paralegal on the file, and we generally return calls within one business day.
Family Law, Simplified.
Discretion matters more in these cases than in almost any other, and we treat it that way. Contact Bardol Law Firm or call 314.918.0100.
This page is general information about Missouri law and is not legal advice, and it is not advice about a lawyer’s own professional responsibility obligations. Bardol Law Firm practices family law only. Every case turns on its own facts. The choice of a lawyer is an important decision and should not be based solely upon advertisements.