A federal court recently ruled on issues relating to the source of fees, received in good faith. But it could make a trustee’s job more difficult.

It was illegal for a bankrupt businessman to transfer money from an offshore trust account into his wife’s personal checking account to pay the lawyers representing him in bankruptcy and other matters. But because the lawyers thought the money was coming from his well-to-do wife’s personal assets, they are entitled to keep it, a federal appeals court has decided.

The two New Jersey law firms who represented Andrew E. Bressman and his wife, Stefanie, in bankruptcy and criminal matters could keep their legal fees because they were good faith transferees of value within the meaning of the Bankruptcy Code, ruled the Philadelphia-based 3rd U.S. Circuit Court of Appeals. In Re Bressman No. 02-1725 (April 25).

When Bressman was facing charges from the Securities and Exchange Commission, his wife, Stefanie Bressman, enlisted the legal services of a New York City law firm, Newman, Schwartz & Greenberg. The law firms received money from Mrs. Bressman’s personal checking account. She told the attorneys the money came from her family.

Later, the bankruptcy court discovered that a year before his bankruptcy, Andrew Bressman had established a trust in the Cook Islands. Approximately $430,000 passed from the Cook Islands trust to the personal account of Mrs. Bressman, and these funds paid for the attorneys’ fees.

The court concluded that the firms came forward “with persuasive evidence that they knew they could not accept payment from estate assets, that they so advised their clients, that the clients committed to pay from nonestate assets, that the challenged payments came from nonestate sources, and that they were unaware of any connection between the payments and estate assets.”

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