If you’re facing a legal issue, you’ve probably got more than money on your mind. But anyone looking to hire a lawyer needs to recognize that the practice of law is a business. In most jurisdictions and with most kinds of cases, a lawyer in private practice is going to charge what the market will bear, with the expectation of earning a profit. The economic impact of having a lawyer represent you starts with a basic understanding of the financial side of legal services.
How Lawyers Charge
There are a variety of different methods through which a lawyer might charge for legal services, and usually the type of case dictates the type of fee agreement. Let’s look at the most common of these methods, and the kinds of cases that might fall under each.
This is probably the most common payment arrangement between an attorney and client. Here, the attorney gets paid an agreed-upon rate for time spent working on all aspects of the client's case, until it's resolved. The big question here is, “What hourly rate can I expect?” And the unsurprising answer is that it depends on many of the factors discussed in the next section, with a particular emphasis on geographic area (rural area versus big city) and the lawyer’s experience and expertise.
Hourly rates may vary anywhere from $150 an hour on the low end to $1,000 or more for high profile firms in major metropolitan areas. Think of it in terms of how professional athletes are paid: all of them are paid pretty well, but some make millions more than others.
Almost any kind of case can be governed by an hourly fee agreement, including contested divorces, contract litigation, and personal injury defense.
Many lawyers are willing to charge competitive flat fees for certain types of legal work where the process is transactional or somewhat uniform, including: business formation (incorporation, LLC formation), lease preparation, estate planning (wills, trusts, etc.), property transfer, trademark application, and uncontested divorce.
A retainer is perhaps best defined as an advance payment for legal services. In certain instances, the retainer may translate into a fixed fee paid on a periodic basis (for example, monthly or annually) to represent a client on routine matters. As an example, a corporation may pay a monthly retainer to a lawyer to attend board meetings and to provide advice on day-to-day legal issues that come up. The lawyer might prepare a written memorandum offering an opinion on a business issue that has legal implications, and the corporation would take that opinion under advisement in its business dealings.
A retainer may also take the form of a flat fee to represent a client on a specific matter, regardless of how much time or effort is involved in the representation. This type of arrangement is typical in criminal defense cases.
A retainer may also be paid as an advance against future fees and costs, which may or may not be refundable if not all of the money is used.
The lawyer typically places the retainer into a special trust account and deducts for the cost of services as they accrue. Learn more about Attorney Responsibility for Client Funds.
In a contingency fee agreement, the lawyer is paid nothing up-front, and only collects a fee for legal services if the client receives a positive monetary outcome, via settlement or court-awarded money judgment. Contingency fees are usually, but not always, calculated as a percentage of the recovery, and the standard percentage (at least in personal injury and medical malpractice cases, where contingency fees are the most common) is 33 percent. But keep in mind that the fee agreement may allow for a higher percentage for cases that go to trial (i.e. 40 percent or 45 percent). This is called a "sliding scale" contingency fee agreement.
Finally, it's important for any contingency fee agreement to spell out how costs will be treated -- specifically, whether the client will pay those expenses, and if so, when? For example, if the lawyer is able to collect a settlement on behalf of the client, will the attorney take his or her percentage before or after costs are deducted from the total? And what if the case is unsuccessful? Is the client still on the hook for costs?
Factors Impacting Lawyers' Fees
So, what are the most important indicators of how much you can expect to pay for legal services? The most influential factors -- especially when it comes to a lawyer’s hourly rate -- are:
- Geographic location - lawyers in urban and major metropolitan areas tend to charge a lot more when compared with lawyers in rural areas or small towns.
- Degree of difficulty - the cost of representation will be higher if the case is particularly complex or time-consuming; for example, if there are a large number of documents to review, many witnesses to depose, and numerous procedural hoops to jump through, the case is going to wind up costing you more (that's regardless of other factors like the lawyer's level of experience).
- Experience and reputation - a more experienced, higher-profile lawyer is going to charge more, but absorbing this higher cost at the outset may make more sense than hiring a less expensive lawyer who will take time (read: billable hours) to come up to speed on unfamiliar legal and procedural issues.
- Overhead - the costs associated with the firm's support network (paralegals, clerks, assistants), document preparation, consultants, research, and other expenses.