ARTICLES

Retainer Agreements and Your Lawyer

Lawyers are not hired, they are retained. The concept of retaining attorneys goes back to a time when there were only a few lawyers (like, two or three) in town. When folks saw a problem on the horizon and anticipated a possible lawsuit in their future, they’d run down to the lawyer’s office and retain him. By giving the lawyer a little money, a retainer, the client could prevent the opposing party from hiring the same lawyer (due to the obvious conflict of interest). The lawyer got to keep the retainer regardless of whether any litigation took place. If a lawsuit followed, the lawyer got paid by the hour for the work done in the case. The retainer was merely to ensure that the lawyer would be available in the event litigation was necessary.

It sounds like overkill, today, given so many lawyers in our society. Go back 100 years, however, and imagine that you were involved in a significant property dispute, you anticipated a lawsuit, and of the only two lawyers in town, one was named Abe Lincoln, or Clarence Darrow. What would you do?

The concept of attorney’s Retainer Agreements has transformed over time and, today, there are three types of Retainer Agreements: 1) the classic retainer, 2) the advance fee retainer, and 3) the security retainer.

The Classic Retainer: Is just that, just like it used to work 150 years ago. You pay the lawyer money to be available in the event of litigation. The lawyer gets to keep the money whether or not he ever does any work. It’s that simple.

The Advance Fee Retainer: This is the type of retainer most divorce attorneys, and our law firm, use today. You pay an advance fee to the attorney.  The payment becomes the property of the attorney for accounting and tax purposes. He can deposit it in his general business account and use it in the operation of his practice. He does the work and bills against the retainer amount. It is like when you order a product by mail or on-line— you send in your money and, later, you get the product. For example, if you paid a retainer of $3,500 and, in the first month the attorney did $750 worth of work, at the end of the month the retainer would be reduced to $2,750. You will receive a monthly statement showing the work done and how it affected the retainer balance. The lawyer keeps track of his time and applies his charges against the retainer each month. If the retainer is exhausted, the client may be asked to pay an additional, or continuing, retainer or may go on a pay-as-you-go plan (paying each monthly invoice as it comes due). If, however, the case is concluded or the lawyer is discharged before the retainer is exhausted, the attorney accounts for all the work done and charges made and refunds back to the client the unearned portion of the retainer.

The Security Retainer: This retainer remains the client’s property even after it is tendered to the attorney. This is like when you order a product, but find out it is on back-order. You send in your money, the merchant keeps your money, but you don’t get the product. All the while it is understood that the money is YOUR money, not the merchant’s. Eventually, if the product is shipped, the merchant claims the money. If the product cannot be found, you get your money back. In a law practice, the attorney places the money in a trust account. Each month, as the attorney works on the case, he sends a bill to the client and pays the bill by drawing money out of the trust account. The money only becomes the attorney’s property after he does the work and bills the client. The accounting and tax ramifications of this sort of retainer make it cumbersome and costly when applied in a family law practice. For these reasons, nearly all family law attorneys use the Advance Fee Retainer.

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