December 2, 2005
Case Law Development: Assisting Both Spouses to Form a Family Limited Partnership In Spite of Marital Discord States a Claim for Breach of Attorney's Fiduciary Duty
Most state rules of professional conduct expressly prohibit representing both husband and wife in a divorce proceeding. This case from the South Carolina Court of Appeals provides notice that joint representation of couples in estate or tax planning may also be ethically risky if the attorney does not inquire as to whether there is family conflict, particularly where one spouse has significantly greater wealth or is controlling the planning process.
In this case, husband and wife weren't getting along and had failed in their attempts to use marital counseling to repair their relationship. During this period, Husband turned to Attorney, who had represented Husband substantially in the past, and began plans to set up a family limited partnership. Attorney represented both Husband and Wife but never inquired regarding family conflict, nor did he inform Wife of the ramifications of the family limited partnership in the event of a divorce (specifically that such a device can be used to "freeze out" a spouse from assets). The Court of Appeals reversed the trial court's grant of summary judgment, holding that these facts, while insufficient to state a claim for civil conspiracy or fraud, did state a claims for breach of fiduciary duty.
Smith v. Hastie, 2005 S.C. App. LEXIS 273 (November 28, 2005)
Opinion on the web at http://www.judicial.state.sc.us/opinions/displayOpinion.cfm?caseNo=4052 (last visited December 1, 2005 bgf)