Husband and wives rarely retain separate attorneys when creating an estate plan. When the spouses sign a conflict waiver, and if they have an actual conflict, is it waivable?

Kevin Mohr, in “Unwaivable Conflicts of lnterests” (Los Angeles County Bar Association, County Bar Update, August 2012 Vol. 32, No.7), points out five unwaivable conflicts, number four of which is: “the lawyer is precluded by duties to one client from making sufficient disclosure to the other, rendering the latter’s informed consent unobtainable.”

Where a couple comes to an estate planning attorney to create a joint revocable trust, assume they present the attorney with deeds showing that they bought a piece of real estate together and that it was subsequently deeded from husband and wife to “husband, a married man as his sole and separate property.” The attorney suggests that the couple transfer their joint assets into a joint trust and transfer this particular real property into a trust of which only the husband is the settlor, trustee and beneficiary. The wife quickly says that she was taken off of title during a refinance only because her credit was bad and that both of them want the attorney to help them deed the property back to their community property before it is transferred to the new joint revocable trust. The attorney asks the husband if this is correct, and the husband (quietly) says yes.

If the attorney is uncomfortable discussing the consequences of deeding the property and of waiving the Family Code Section 2640 reimbursement right, or if the attorney is afraid to disclose divorce ramifications in his conflict waiver, he should decline the representation. (Section 2640(b): “In the division of the community estate under this division, unless a party has made a written waiver of the right to reimbursement or has signed a writing that has the effect of a waiver, the party shall be reimbursed for the party’s contributions to the acquisition of property of the community property estate to the extent the party traces the contributions to a separate property source. The amount reimbursed shall be without interest or adjustment for change in monetary values and may not exceed the net value of the property at the time of division.”)

But are discussing and disclosing enough?

The clients have not told the attorney that the original 30 percent down payment came from the husband’s separate property. The husband is afraid to reveal this to the attorney because he thinks his wife would think he is thinking about divorcing her (which for sake of argument he is not).

New California Rule of Professional Conduct 1.7(b) requires informed written consent “”if there is a significant risk the lawyer’s representation of the client will be materially limited by the lawyer’s responsibilities to or relationships with another client.” And New Rule 1.7(d)(1) provides the additional requirement of competent and diligent representation to each affected client (“The lawyer reasonably believes that the lawyer will be able to provide competent and diligent representation to each affected client”).

Due to the additional requirement of subparagraph (d): “There are some matters in which the conflicts are such that even informed written consent may not suffice to permit representations.” See Comment 8 to New Rule 1.7, citing Woods v. Superior Court, 149 Cal. App. 3d 931 (1983); Klemm v Superior Court, 75 Cal. App. 3d 893 (1977); Ishmael v. Mulligan, 241 Cal. App. 2d 520 (1966).

Suppose the attorney’s conflict waiver states that the attorney has urged the husband to obtain separate representation, that the husband has declined, and that the husband acknowledges being informed that had he obtained a separate attorney, he would have a chance to express all of his reservations about the transmutation in an environment where his wife was not in the same room with him, and that the husband still refused and declined to do this.

If this husband and wife later divorce, the husband’s divorce attorney may tell the husband that he should never have transmuted the real estate without the estate planning attorney insisting that the husband retain separate counsel. The husband’s divorce attorney may further tell him that because of the statute of limitations, the husband has a limited time within which to sue his estate planning attorney. The husband’s divorce attorney or the husband’s malpractice attorney may contend that the estate planning attorney’s conflict of interest is non-waivable and that even if it were waivable, that the actual waiver contained an insufficient disclosure.

The California Supreme Court ruling in Sheppard, Mullin, Richter & Hampton, LLP v. J-M Manufacturing Company, Inc., 2018 DJDAR 8765, held a conflict waiver to be unenforceable as against public policy when the law firm failed to disclose a known conflict with a current client because “An attorney or law firm that knowingly withholds material information about a conflict has not earned the confidence and trust the rule is designed to protect.” In our fact situation, the attorney has not knowingly failed to disclose anything. The attorney cannot make a disclosure regarding the husband’s separate property down payment because his clients have not disclosed this to him. Should the estate planning attorney have known that the husband would have had reservations which would prevent the attorney from obtaining the very information needed for obtaining informed consent?

One idea would be for the estate planning attorney to tell both clients that he is neutral on the issue of their deeding the property back to community property and that he is neutral on the issue of the husband waiving his Family Code Section 2640 reimbursement right, but that he is willing to give the husband and wife the names of two family law attorneys so that each spouse could be represented by a separate attorney in deciding whether or not to transmute.

It is likely, because of people’s aversion to incurring legal fees, that this couple would not have gone to separate attorneys. The couple may alternatively decide on their own to have the transmutation handled by a mediator, by a paralegal, or by an escrow in order to incur lower fees. It would be safer for the estate planning attorney not to endorse any course of action other than the couple obtaining separate lawyers.

Has the estate planning attorney provided competent legal representation to the husband when the attorney cannot determine whether the husband has shared his true feelings with the attorney because the wife is sitting in the same room? Alternatively, if the estate planning attorney vigorously explained the negative divorce ramifications to the husband, has the estate planning attorney provided competent legal representation to the wife? Would the wife contend that the attorney had no business trying to talk the husband out of the transmutation?

Does this fact situation provide an illustration of what Kevin Mohr listed as unwaivable conflict number four? The point is not that there is a clear answer. The point is that the estate planning attorney should consider the possibility that his conflict is unwaivable. Deciding whether or not to represent any client always involves line-drawing, but an attorney cannot determine whether or not he has crossed a line if he doesn’t see the line itself.

Randy Spiro is an attorney in Los Angeles.

About randyspiro

I am a super lawyer in California with dual specialization in Estate Planning and Taxation.
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