A New Jersey lawyer has been disbarred for holding money a client wanted to keep away from his divorcing spouse and then dipping into it for personal use, though ethics authorities were sharply divided about the nature and severity of the offense.

Though the Disciplinary Review Board would have only suspended Neil Malvone for three years, the state Supreme Court voted 4-3 to disbar him, finding he “knowingly misappropriated marital funds in which the client and his spouse had an interest.”

The court’s Oct. 16 order listed violations of Rules of Professional Conduct 1.15(a) and 8.4(c) and cited In re Wilson, 81 N.J. 451 (1979), which mandates disbarment for misfeasance of client funds.

In 2007, the client, Michael King, transferred $11,000 to Malvone via three checks, purportedly for “legal fees” and a fantasy football league in which the two were involved. Malvone deposited the checks in his personal savings account. It was later disputed whether the money was to be put into the trust account of his firm, Lombardi & Lombardi in Edison.

King’s divorce was finalized in a property settlement agreement Malvone prepared. King, required to pay his wife $5,000, repeatedly asked Malvone to use the $11,000 he was holding but Malvone stalled and became unreachable. King ended up using retirement funds to pay.

King later met with firm partner Michael Lombardi, who said Malvone had been fired after admitting a series of mistakes and dishonest conduct, including fabrication of a $27,000 settlement.

Lombardi had acquired Malvone’s savings account statement in litigation and showed King that the checks were deposited there, not in the firm’s trust account.

King then filed a grievance.

An investigator from the Office of Attorney Ethics discovered that Malvone had drawn large sums from his personal account after depositing King’s checks.

Malvone contended that use of the funds was part of the fraud’s concealment. He repaid the $11,000 and pointed to depression and other personal issues as mitigating factors.

A special master, Bernard Shihar, deemed it unclear whether the funds were transferred under a legitimate attorney-client relationship and urged a one-year suspension.

The OAE pushed for disbarment, but five of the DRB’s eight members recommended a three-year suspension. The other three voted for disbarment.

Malvone “was guilty of theft from the [money's] true owner, but not of knowing misappropriation,” the DRB majority said. “The difference between knowing misappropriation and theft is critical because not every theft committed by attorneys results in disbarment.”

The OAE sought Supreme Court review. When the case was argued last February, both the OAE and the court focused on the harm to King’s wife and the fraud on the divorce court, according to the attorneys who argued.

The divided court issued no opinion. Justices Barry Albin and Helen Hoens and Judges Mary Cuff and Ariel Rodriguez were for disbarment, while Chief Justice Stuart Rabner and Justices Jaynee LaVecchia and Anne Patterson favored suspension.

“Tough cases make bad law,” says Marc Garfinkle, a Morristown lawyer not involved in the case, whose practice focuses on professional discipline.

“The lesson going forward is…misappropriation is going to be broadly construed when attorneys have custody of a client’s asset,” Garfinkle adds.

“There was a nefarious scheme going on, but it wasn’t to steal the money. The troubling part is, there wasn’t clear…evidence about what he was supposed to do with the money in the interim.”

Malvone did not return a call.

“He shouldn’t have done it and he knows it,” says his lawyer, Milltown solo James Curran. “Lawyers should not get involved in any unscrupulous activity, because you’re going to get disbarred,” Curran says, adding that whether or not pilfered funds are held in trust or a personal account makes no difference.

Deputy Ethics Counsel Melissa Czartoryski says she changed strategy for the Supreme Court arguments. “I wanted the court to focus not on the client and his funds,” but on the client’s wife, she says.

Czartoryski says it’s unusual for the court to let months pass from argument and then not issue an opinion.

Up until the disbarment, Malvone had been practicing solo, part time and under a proctor’s supervision.