Deposit

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Summary

There are two major ways to pay an attorney for legal services: (1) contingency, meaning sharing what is obtained from the opposition and (2) hourly compensation, meaning the client promises to pay a an amount of money computed as an hourly rate multiplied by the number of hours the attorney works.

This blog explains that when an attorney takes a deposit to ensure future payment of bills, the attorney regularly withdraws amounts that the attorney earns from that deposit and that has the effect of reducing the deposit. When the deposit falls below a certain amount stated on the attorney client agreement, the client must make an additional deposit of money to ensure future payments.

Two methods of paying your attorney: (1) contingency and (2) hourly rate multiplied by hours worked

There are two major ways to pay an attorney for legal services: (1) contingency and (2) hourly compensation.

Contingency means that the attorney and the client share money that actually gets recovered from the opposing side.

Hourly compensation means that the client agrees to pay the attorney an amount of money equal to an hourly rate multiplied by the number of hours the attorney works. For example, if the client agrees to pay $500 dollars per hour, and the attorney works two hours, the bill will be for $1,250.00 (2.5 hours x $500 per hour equals $1,250.00).

Timing of payment, before services are provided, or after

Hourly compensation agreement is paid either before the services are provided or after the services are provided.

Deposit, the client pays money that the attorney holds, as the attorney earns money by performing services, the attorney takes money from the deposit and thereby the amount on deposit declines

Often, when an attorney forms an agreement with a client, the agreement is that the client will pay a specific sum of money called a “deposit.” The deposit is an amount of money that the client pays before the attorney client agreement is formed, and the attorney holds while the attorney client agreement exists.

At any point in time, there is a specific amount of money on deposit. For example, at the beginning of the attorney client engagement, if the initial deposit is five thousand dollars ($5,000.00), the balance on deposit is five thousand dollars ($5,000.00).

However, as the attorney works and earns fees, then withdraws the amounts of money that the attorney earns, the balance on deposit gets lower.

For example, if the attorney works at five hundred dollars per hour ($500), and works three and an half hours (3.5 hours) during a month, the attorney earned one thousand seven hundred and fifty dollars ($1,750). The attorney will withdraw that one thousand seven hundred and fifty dollars ($1,750) from the initial balance of five thousand dollars ($5,000.00), and the remaining balance will be three thousand two hundred and fifty dollars ($3,250).

If the attorney works one hour the following month, that is $500 earned and withdrawn from the balance of three thousand two hundred and fifty dollars ($3,250), leaving two thousand and seven hundred and fifty dollars ($2,750).

This process continues until the attorney-client agreement terminates.

If the balance falls below an agreed-upon amount, the client must deposit more money

The attorney-client agreement will usually state that if the balance on deposit falls below a certain amount, the client must deposit additional money.

The reason for this is the same purpose as the original deposit, which is to ensure that the attorney gets paid.

The additional deposit is NOT owed at the start of the agreement, but must be paid, after amounts have been earned and withdrawn, and the deposit balance falls below a pre-agreed amount

Many clients misunderstand and think that the additional deposit is an additional amount of money that must be paid. However, that is not true. The additional deposit does not need to be paid when the attorney client agreement is formed.

Instead, the additional deposit must be paid within two days of the client being informed that the balance on deposit has fallen below a certain amount. At that time, the client must pay an additional amount to deposit, in order to keep the balance above the minimum agreed amount.

What happens if the client does not make the additional deposit

If the client does not make the additional deposit in the time required, that is a breach of contract and the attorney is entitled to terminate the attorney-client agreement.

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