How Much Will My Divorce Cost? - Part 3 of 4 - Flat and Capped Fees

Not all attorneys charge strictly by the hour.  Some of them offer a flat or a capped fee.  What are they, and what are their Pros and Cons?

For purposes of this post, I'm going to define a flat fee as an all-inclusive, one-time fee that covers your case, soup to nuts, no matter the facts.  For example, some attorneys charge a flat fee for an uncontested divorce.  That fee covers preparation of the pleadings, necessary orders, and court appearance. If any other issues come up, say that the divorce isn't really uncontested, that is not covered, and many times the attorney defaults to an hourly rate.  Some attorneys charge a flat fee for a contested divorce, or for drafting a separation agreement.

A capped fee is when the attorney says that they will charge their hourly rate, but if the total bill reaches a certain dollar amount, they will stop charging.  So, if the attorney agrees to cap the bill at $20,000, once the hourly billings hit $20,000, the client doesn't owe any more money.

What are the pros and cons of each?

Flat Fee Pros

1. The client knows exactly how much they will be charged.  The attorney knows exactly how much to charge the client.
2. The client knows up front whether they can afford the attorney.  The attorney knows up front if the client can afford them.
3. The client pays up front and then they're done paying.   The attorney gets paid in full before starting work.
4. If the work is simple, then the fee represents the value of the work performed.  The work performed in a flat fee arrangement is usually work the attorney has done many times, so they aren't taking any risk and are probably making money.

Flat Fee Cons

1. The client doesn't always know what their case entails at the start of the representation.  The attorney may find there are unforeseen facts or circumstances that make a flat fee impossible or impracticable.
2. An unforeseen circumstance may cause the case to be more expensive than the flat fee.  The attorney may end up having an uncollectible fee if the cost exceeds the flat fee.
3. The client doesn't understand how the fee was set because it wasn't set with them in mind.  The attorney is resentful because the fee turned out to be too low for the amount of time and effort expended.
4. If the fee is set too low, the client may feel that the attorney isn't giving their case the attention it needs.  If the fee is set too low, the attorney may not give the case the attention it needs.
5. If the fee is set too high, the client may feel taken advantage.  If the fee is set too high, the attorney may gain a windfall.
6. The client and the attorney need to have a frank and detailed discussion about the scope of work, but they don't  The attorney and the client need to have a frank and detailed discussion about the scope of the work, but they don't.

Capped Fee Pros

1. The client knows the maximum amount they will be charged.  The attorney knows the maximum amount the case is worth.
2. Well, that's it for the pros.

Capped Fee Cons

1. This is the worst of all worlds, for both the client and the lawyer because it is essentially an hourly rate in which the lawyer simply doesn't get paid for their time if it exceeds the cap.  Why is this bad?
2. The client doesn't really get a windfall, because if the fees exceed the cap, there is a real risk the attorney may put the work on the back burner.  The attorney has no incentive to make that client a priority once they reach the cap.
3. There is no personalization of the fee to the client. There is no personalization of the fee to the client.
4. Just like hourly fees, there is no discussion about expectations and scope of work.  The attorney has no idea if they're making money, and in all likelihood, they are losing money.
5. Because the only upside of a capped fee is for the client, the attorney who offers this kind of fee is either a friend or a relative of the client, or really insecure about the reasonableness of their fee.  The client doesn't want an attorney who has no confidence in the reasonableness of their fee.