THURMAN'S INSIDE TIPS:

Rule 4-100 and Duty of Divorce Attorneys to Place Retainers In Trust

Professional Rule 4-100 is very important for protecting the public. One cardinal sin of lawyers is to fail to deposit unearned fees into an attorney-client trust account. Unfortunately, I see that this happens all of the time. Many lawyers have a provision in their retainer agreement that says words to the effect of "the amount you have paid as a retainer shall be considered earned upon receipt." An unscrupulous lawyer then takes your money and places it into their general "office account" or, worse, into their pocket or purse and then they spend it. This is absolutely forbidden. Besides it being unethical (the money doesn't yet belong to them), the practical problem is that if you fire that attorney they may not have the ability to reimburse the unused portion so that you can hire your next attorney. Some lawyers won't volunteer to refund your monies unless you chase them down. A letter informing them that you intend to report them to the State Bar in seven days if your money isn't returned should get their attention.

In my opinion, the only reason why an attorney would take unearned fees is because they are broke or insolvent. An attorney who needs to do this probably has problems in their personal lives, even if it is only a matter of not properly managing their personal budgets. Often though it is a red flag for something way more serious, like a substance abuse or mental health problems. An attorney that needs to take unearned fees may be one who will overbill you, since they need the dough so badly. Thus, a conflict of interest develops the moment that take control of your funds. Feel free to ask your attorney to demonstrate that your monies are held in trust, and if they are not demand that they disgorge it. If they try to stand behind the provision in their contract that says they can do this, firmly advise them that this is not so. Any smart attorney will back down, since no lawyer wants to be audited by the State Bar - and the State Bar doesn't fool around. This is one behavior that gets lawyers suspended or disbarred regularly.

Rules of Professional Conduct

Rule 4-100 Preserving Identity of Funds and Property of a Client

(A) All funds received or held for the benefit of clients by a member or law firm, including advances for costs and expenses, shall be deposited in one or more identifiable bank accounts labelled "Trust Account," "Client's Funds Account" or words of similar import, maintained in the State of California, or, with written consent of the client, in any other jurisdiction where there is a substantial relationship between the client or the client's business and the other jurisdiction. No funds belonging to the member or the law firm shall be deposited therein or otherwise commingled therewith except as follows:

(1) Funds reasonably sufficient to pay bank charges.

(2) In the case of funds belonging in part to a client and in part presently or potentially to the member or the law firm, the portion belonging to the member or law firm must be withdrawn at the earliest reasonable time after the member's interest in that portion becomes fixed. However, when the right of the member or law firm to receive a portion of trust funds is disputed by the client, the disputed portion shall not be withdrawn until the dispute is finally resolved.

(B) A member shall:

(1) Promptly notify a client of the receipt of the client's funds, securities, or other properties.

(2) Identify and label securities and properties of a client promptly upon receipt and place them in a safe deposit box or other place of safekeeping as soon as practicable.

(3) Maintain complete records of all funds, securities, and other properties of a client coming into the possession of the member or law firm and render appropriate accounts to the client regarding them; preserve such records for a period of no less than five years after final appropriate distribution of such funds or properties; and comply with any order for an audit of such records issued pursuant to the Rules of Procedure of the State Bar.

(4) Promptly pay or deliver, as requested by the client, any funds, securities, or other properties in the possession of the member which the client is entitled to receive.

(C) The Board of Governors of the State Bar shall have the authority to formulate and adopt standards as to what "records" shall be maintained by members and law firms in accordance with subparagraph (B)(3). The standards formulated and adopted by the Board, as from time to time amended, shall be effective and binding on all members.

Standards:

Pursuant to rule 4-100(C) the Board of Governors of the State Bar adopted the following standards, effective January 1, 1993, as to what "records" shall be maintained by members and law firms in accordance with subparagraph (B)(3).

(1) A member shall, from the date of receipt of client funds through the period ending five years from the date of appropriate disbursement of such funds, maintain:

(2) A member shall, from the date of receipt of all securities and other properties held for the benefit of client through the period ending five years from the date of appropriate disbursement of such securities and other properties, maintain a written journal that specifies:

• (a) a written ledger for each client on whose behalf funds are held that sets forth:

  (b) a written journal for each bank account that sets forth:

  (c) all bank statements and cancelled checks for each bank account; and

  (d) each monthly reconciliation (balancing) of (a), (b), and (c).

  • (i) the name of such client,

    (ii) the date, amount and source of all funds received on behalf of such client,

    (iii) the date, amount, payee and purpose of each disbursement made on behalf of such client, and

    (iv) the current balance for such client;

    (i) the name of such account,

    (ii) the date, amount and client affected by each debit and credit, and

    (iii) the current balance in such account;

  (a) each item of security and property held;

  (b) the person on whose behalf the security or property is held;

  (c) the date of receipt of the security or property;

  (d) the date of distribution of the security or property; and

  (e) person to whom the security or property was distributed.