What You Should Know About Retainer Fees
The money you pay when you hire a lawyer is called a "retainer". But what it buys (if anything) depends on the lawyer. Here are some things you should be aware of before you sign on the dotted line.
Most people hiring a lawyer seem to think that the retainer is the amount that their case will cost. This usually is not true. The attorney fee for your case will almost always depend on how much time the lawyer ends up working.
The dollar amount of the retainer is not as important as what it covers.
There are three primary ways that retainers work: as a non-refundable fee (bad for you), as a non-refundable minimum fee (not quite as bad) or a refundable deposit (good).
Depending on whether your retainer is refundable, the effective hourly rate for the attorney can be much higher than you may have thought.
The Non-Refundable Retainer Fee (Bad!!):
An attorney can charge you a fee for the privilege of hiring that attorney. The theory is that an attorney can only handle so many cases at once; the attorney is too busy to take all the cases people want the attorney to take; if the attorney takes you, he can't take the other person; so you should pay extra for the privilege of hiring this particular attorney. You are more likely to encounter this fee when the attorney also charges a high hourly rate. Higher fees usually indicate a high demand for the attorney's time (or, at least, the attorney wants to create that impression).
This fee is considered to be "earned" when paid. It is not refundable if you change your mind.
The attorney will then start to charge you for the work he does based on his hourly rate, with no credit for the money you just paid.
The Non-Refundable Minimum Fee (Not Quite As Bad!):
This retainer is also not refundable. However, the attorney gives you a credit toward the work about to be performed. This credit may, or may not, be a full credit against the work he will do at the regular hourly rate. If the hourly rate is $250, the retainer fee is $2500, and it covers the first 10 hours, you are getting credit at the normal hourly rate. If if only covers 5 hours, you are not getting full credit. If it covers 20 hours, you are getting a bargain (if the case really takes that long).
- The attorney works 5 hours. Your fee is $2500; the attorney made $500/hr.
- The attorney works 10 hours. Your fee is $2500; the attorney made $250/hr.
- The attorney works 20 hours. 10 hours were covered, you must pay for another 10 hours. Your fee is 10 hours x $200 = $2000 + $2500 = $4500. The attorney made $225/hr.
- The attorney works 20 hours. 12.5 hours were covered by the retainer. You pay for an additional 7.5 hours. Your fee is 7.5 x $200 = $1500 + $2500 = $4000. The attorney made $200/hr (the same rate you were quoted).
The Refundable Retainer Deposit (GOOD!)
I treat the retainer as a deposit, not a fee. This is probably how most divorce lawyers in Michigan will treat the retainer.
The retainer is a refundable deposit, not a fee. You do not pay extra just to retain me. I won't be billing you for more time than your case actually takes.
I have not earned anything when you give me the retainer. It still belongs to you. I deposit it to a bank account where I keep money that belongs to my clients, called a "client retainer trust account" (also called an "IOLTA account", "retainer account" or "trust account"). When I file your case, I pay your filing fee from the retainer deposit. If there are other out of pocket expenses, they come out of the retainer account.
I bill you for the time spent on the case on a month to month basis. When I prepare your bill, I write a check to myself from your retainer account to pay that month's attorney fee. You deposit additional money to the account to cover next month's bill. When we get to the end of the case, you receive a refund of whatever is left over. If I go over the deposit, you receive a final bill.
For the following examples, the retainer deposit is $1500 and hourly rate is $220. (Your specific fees will depend on your case; this is only an example.)
Read the Retainer Agreement
Most attorneys have a written retainer agreement that explains what happens to your retainer. Make sure you understand whether the retainer is a refundable deposit, a non-refundable minimum fee, or non-refundable fee that did not buy any actual work.