Understanding Legal Fees and other costs in Family Law cases

There are three basic types of legal fee arrangements; hourly fees, flat fees and contingency fees. Because contingency fees (a percentage of the client’s recovery) are not permitted in Family cases (and are usually applicable in personal injury cases), I will not waste your time discussing them.

A flat fee is a set price for the entire representation. It is seldom used in a domestic relations case (and is more commonly used in criminal cases or will drafting).  One thing you should remember about a flat fee is that the attorney is not allowed to spend any portion of the funds until the job is completed – unless the legal fees agreement explicitly states otherwise.

I believe that the flat fee arrangement creates an inherent conflict between the attorney and the client because the lawyer gets paid more for doing less.  If the flat fee is $2,000 then the attorney earns $1,000 per hour if he can resolve the case in two hours but he only earns $50 per hour if it takes him 40 hours.  The incentive is contrary to the client’s interests.  

In Family Law cases, almost all attorneys charge an hourly fee. (The current rate in the Washington, D.C. area for family law attorneys is between $250 and $450 per hour depending on the attorney’s location, experience and marketing skill. Often there are several lawyers at the same firm with different billing rates. You might interview the managing partner who charges $450 an hour for his time but much of the work on your case is delegated to an associate who charges $250 per hour. This is not a “bait and switch” but a delegation of duties that saves the client money and allows the more experienced attorney to work on matters that require his or her expertise.  

During the initial consultation, a lawyer tries to estimate the amount of legal fees and expenses that the representation will require. Based on this estimate, the attorney will ask for a Retainer Fee.  The Retainer Fee is not a flat fee, but a deposit based on the anticipated legal fees and expenses that the case will require.  The Retainer Fee is kept in a separate bank account called a “client escrow account.”   It assures the attorney that she will be paid if she performs work on the case.  Each month (or twice a month), the law firm should send each client a billing statement (as well as an escrow statement) showing the legal fees and expenses incurred and the amount withdrawn from the client’s escrow account to pay the bill as well as the amount remaining in the client’s escrow account.

At the end of the representation, if there is still money remaining in your client escrow account it is refunded to you (this is your money). If the legal fees and expenses in your case exceed the amount you provided as a Retainer Fee, then the client owes the difference.  It is important to get monthly statements showing the balance remaining in your escrow account and a clear description of all charges billed to you. You would be surprised how many lawyers don’t send out monthly statements.

If an attorney quotes you a small retainer fee, he probably is not planning on doing much work for you.  Ask yourself, how much work can a lawyer do with $500 if most lawyers in your area charge about $300 per hour?  If you have a complicated case, you should expect that it will require a great deal of work and the Retainer Fee will reflect that.

A lower initial Retainer Fee does not mean the attorney will charge you less money.  Often, a client will hear the Retainer Fee quoted and assume it is a flat fee.  Most Retainer Agreements state that when the Retainer Fee is used up, the client must deposit more money in the client’s escrow account. An attorney may ask for a small Retainer Fee at the beginning of the case with the intention of asking for more money later (or withdrawing from the case).  Ask what the attorney plans to do on your behalf and how many hours he or she estimates the entire representation will take.

i.  Hourly Billing Rates Analyzed:

Another important issue concerns how you will be billed for the lawyer’s time.  Not all hourly fees are the same. Ask is whether the law firm is going to bill you in quarterly-hour or 1/10 hour increments. The difference could be very expensive.  

For example, if two attorneys both charge $300 per hour but one bills in ¼ hour increments and the other bills in 1/10 hour increments their charges will differ wildly for the same amount of work. A five-minute telephone call will cost you $30 if the attorney charges you based on 1/10 hour increments and $75 if he rounds up to the nearest ¼ hour.  

A brief letter or e-mail that took him 18 minutes to write will cost you $90 (as 3/10 of an hour) or $150 when rounded up to ½ an hour. Now, imagine that every charge is rounded up to the nearest ¼ hour in this way.  A lawyer can go through a $2,500 retainer fee much quicker when he rounds up every charge to the next ¼ hour.

It’s a simple question, but you should ask: “do you bill in 1/10 hour increments?”

ii.  Financing the Retainer fee.

Some lawyers will allow you to finance the retainer fee. Because the retainer fee represents the estimated costs of the representation for the entire case, you may be able to negotiate a payment plan to finance the retainer agreement over a period of several months.

For example, if the attorney estimates your child custody case will cost approximately $10,000 and take about six months, he or she may be willing to accept $5,000 at the start of the representation and payments of $1,000 per month for the next five months.  You may have more leverage to negotiate a payment plan if you have long term employment (in the military or government service).  Your long term employment provides some assurance that the attorney will be paid each month.