Understanding Legal Fees

Feb 13, 2008

One of the most important things to understand when working with a lawyer (and one of the major deterrents in hiring a lawyer) is legal fees. Before hiring a lawyer it is important to understand the fee structure that is used, how much money is required upfront (also known as the retainer), what is covered by the lawyer’s fees, what the extra costs are, what you will be charged for, how those charges are determined, how you will be billed and when you will be expected to pay.

The most common fee structures are hourly, flat (or fixed) fee, and contingency.

  • Hourly – The “default” method. You pay $X per hour for the lawyer’s time. In an hourly fee structure, you are charged for all time spent on your case. You should know how the lawyer tracks time and if there are any minimal time increments (a common approach is to keep time in 1/10 of an hour, and there may be a minimum of 2/10 an hour). Besides legal fees, you will also pay for costs such as filing fees.
  • Flat (or fixed) Fee The “you pay $X” method. Flat fees are typically used in routine, uncontested, matters such as simple wills or uncontested divorces. The flat fee may not include costs such as filing fees.
  • Contingency – Used in personal injury and other civil lawsuits where a monetary award is expected, this is the “you don’t pay unless you win” method. The lawyer will receive a percentage of your settlement or judgment. You may be responsible for costs such as filing fees and copy costs.

A retainer is the money required upfront by the lawyer. As required by attorney ethical rules, the retainer is deposited into a lawyer’s trust account. The lawyer will then withdraw funds as they are earned. It is important to know if the retainer (or a portion of it) is refundable or not. Some lawyers may require you pay another lump sum to put in trust when the entire retainer is spent. This is especially true when your case is approaching trial and the lawyer knows he or she will be spending a lot of time working on your case.

Knowing what is covered by the lawyer’s fees from the start can prevent sticker shock later in the game. One of the big extra expense can be filing fees. For a divorce in Minnesota filing fees are approxiamtely $330. Depending on your case, you may need to hire experts to prepare a report or testify in court, which could mean spending a few thousand. Other costs could include charges for copying and faxes. Ask the lawyer what extra expenses you can anticipate and what their general office policy is.

Not only do you want to know how you will be charged and what you will be charged for, but it is also important to know when you will be charged. Be sure to ask about the office billing policy. You should receive regular invoices (usually monthly) letting you know what work has been done on your case and what costs have been incurred. If you have paid a retainer fee, the common practice is for the lawyer to deduct fees from the retainer until it is depleted. Once the retainer is depleted, you may be required to pay an additional retainer or you may by required to pay your bill monthly. However, some lawyers use a retainer like a deposit and you will be expected to pay your bill monthly and will then receive the retainer amounts back after the conclusion of your case. If you will be billed, you should know when to expect the bill and how long you will have to pay it.

Before hiring a lawyer, make sure you understand the anticipated legal fees. Ask the lawyer questions. Get the fee agreement in writing. Don’t let the unknown of legal fees deter you from seeking assistance, and don’t find yourself in shock over your first legal bill.