How Much Will My Divorce Cost? - Part 4 of 4

Whew!  You made it to part four.  Thanks for reading.  This part of How Much Will My Divorce Cost? is the hardest to think and write about.  This week, we're talking about fixed fees and value billing.  Why is this subject so difficult? There are a couple of reasons.  From the client's perspective, most of them have never been in the Trenches.  They have no idea of the value of legal services.  They all think that their case will be easier and take less time than other cases.  Plus, it seems like a lot of money to pony up.  From the attorney's perspective, they fear that without the hourly rate as a disincentive, clients will call them one million times a day, and monopolize their time, or (shudder) drop in unannounced multiple times a week.  It's also too much work to either figure out a fee that averages out to be reasonable or to sit down and have a deep conversation with the client about value and scope of service.

As we've done in the other parts of this series, let's start with definitions.  A fixed fee is a set amount of money that an attorney charges, either for set periods of the case being active or for discrete portions of the case, as opposed to a flat fee, which is a set fee for the entire case.  Let me give you more detail.  In a fixed fee, the attorney might charge the client $4000 for every 3 months the case is active, due and paid in full at the beginning of each period.  If you settle the case within the 3 month period,  then depending on the attorney and the length of time remaining in the time period, the client may or may not receive a refund of the pro rata unused portion.  An attorney might also charge a client per stage of the case, due and paid in full when that stage starts.  For example, the client might be charged for the initial litigation filings, then for discovery (information gathering), then for a hearing (which is generally a short court appearance), then for mediation, then for depositions, then for trial, and then post-judgment matters.  Each stage has its own fixed fee depending on how much time, skill and legal knowledge are required.  Fixed fees tend to apply across the board, with not a lot of customization.

Value billing is perhaps the most difficult of all the types of fees for the client to understand and the attorney to explain.  Value billing is simply that - deciding on a value to the case which adequately addresses the time and skill required of the attorney, and which the client believes is acceptable.  This kind of billing is difficult for a whole lot of reasons.  First, the client has to have a realistic vision of legal fees and the value of legal services.  That's difficult for most clients in the Trenches because the Trenches are usually the first and only time most people are ever involved in the legal system and have no concept of the reasonableness of a lawyer's fee.  Remember, part of reasonableness is the norms of the community, and they don't know what those are.  Second, The attorney has to assess the case in greater detail than they normally do in order to determine what the attorney thinks is reasonable. This assessment requires the attorney to do quite a bit of background work (at no remuneration) before setting the fee in order to determine the scope of the representation.  This second point is difficult on a couple of fronts: first, the client is usually anxious to hire counsel and may not want to wait to have an attorney under contract; second, the attorney may not want to put that kind of time into a lower dollar case. Third, the client and the attorney have to have an extremely detailed discussion of the extent and terms of the representation.  Having this kind of discussion when the client is emotional and overwhelmed is a challenge, but doable.

So I retain the format of the other posts, here are the pros and cons:

Fixed Fees

Pros

1.  The client knows what the representation will cost.  The attorney knows how much revenue the client will generate.
2.  The client can budget for the fee due dates.  The attorney has the certainty they will be paid and on time and their receivables will decrease.
3.  A fixed fee may be cheaper in the long run than an hourly rate.  The attorney has the incentive to be more efficient.
4. A fixed fee rewards the client who settles their case early. A fixed fee may mean the client is as motivated to settle as the attorney.
5. If the case turns out to be very complicated or time-consuming, the client doesn't need to worry it will increase fees.  The attorney can be creative without worrying if their creativity is costing the client too much money.
6. The client will feel free to share all important information with their attorney without concern for cost. The attorney will have all the information they need to best represent the client's interests.
7. The fee the client pays aligns with their need. The client may be willing to pay a premium for certainty.

Cons

1. The client may not have sufficient sources of cash or credit to pay a substantial fixed fee.  The attorney may lose clients who don't have the money up front, but who could pay over time.
2. A fixed fee may be more expensive than an hourly rate, depending on the complexity of the case and the length of time to completion.    
3. Knowing that there is another deadline for infusion of cash may cause a client to settle their case under unfavorable terms. Knowing a client lacks the funds to continue may also pressure the attorney to settle.
4. The client may cause compassion fatigue in the attorney by calling all the time.  Why won't the client stop calling?
5. This method may also inhibit creativity in order to get the case done before the next stage or installment of payment.  

Value Billing

Pros

1. The client is well-informed about the scope of the representation to be provided by the attorney.  The attorney has thought out the scope of representation and the intricacies of this particular case.
2. There are no surprises in the fee. Everyone knows what is expected of whom.
3. The client feels they are getting value for their money. The attorney knows the value the client places on their expertise.
4. The client sees the plan for the treatment of their case. The attorney develops the plan for the client's case early, before representation begins.
5. The client gets the best from the attorney because money is no longer a consideration.  The attorney can be as creative as they need to be without worry over cost to the client.
6. The client knows whether they can afford the attorney.  The attorney knows they're getting paid.
7. The representation begins with the client and attorney working as a team.  The client plays an active role and has a stake in the representation from the beginning.
8. It's the goal, not the fee that determines the cost.  It's the goal, not the fee that determines the cost.
9. The client doesn't have to worry about how much time the case takes. The case takes the time it takes.

Cons

1.   The client may lack the knowledge to adequately assess the value of the attorney's services.  The attorney may oversell the value of their services.
2. The client may not have sufficient sources of cash to pay the attorney.   The attorney may lose clients who don't have the money up front, but who could pay over time.
3. A fixed fee may be more expensive than an hourly rate, depending on the complexity of the case and the length of time to completion.  
4. The client may be too emotionally overwrought to decide whether a value-based fee is reasonable.  The attorney has to assess carefully the client's capacity to understand and make decisions.
5. The client can't hire the attorney or know the fee at the initial meeting. The attorney will have to put in significant time for no pay to decide the fee, with no guarantee they'll be hired.
6. Sometimes the lawyer may charge a wealthy client more than a client of more limited means for the same work.  

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.

How Much Will My Divorce Cost? Part Two of Four - The Hourly Rate

Thanks for wading through Part One of this series.  Gird your loins for Part Two.

There are four main ways an attorney in the Trenches can bill for services:  hourly rate, flat fee, capped fee, fixed fee/value billing.  There are also combinations of the two, such as an hourly rate with some items charged as a flat fee, but we're not going to be talking about those.

Most clients who enter the Trenches hire an attorney and pay an hourly rate.  What that means is that the attorney charges for the time it takes them and their staff to complete a task.  It has the benefit to the client that they know how much the attorney charges per hour.  It has the benefit to the attorney that they know that everything that they do for the client it quantified.  Beyond that, what are the pros and cons of using an hourly rate here in the Trenches?

Pros

1. The client knows that every time they call the attorney, they are going to be charged. The attorney knows that the client knows that every time they call, they'll be charged, so they won't call too much and monopolize the attorney's time.
2. The client knows exactly what they are going to be charged for the time the attorney spends on their case.  The attorney knows how much to charge for every task. because it all gets charged the same.
3. The client just has to be concerned with paying the monthly bill for their attorney's fees.  The attorney can spread out receipts because they're based on time, not the case.
4. The client doesn't have to come up with a large sum of money up front.  The attorney can get a client signed up for not a lot of money, so more people will retain the attorney.
5. A more expensive attorney probably takes less time to do a task, so they're no more expensive than a cheaper attorney who takes longer. A more experienced attorney can charge a higher rate.
6. The client can determine what is and is not important to them based on the fee.  The client has no knowledge of what is appropriate to do or not to do and so a decision on process based on the hourly rate for the services may not be informed. 

Cons

1. The client knows that every time they call the attorney, they are going to be charged, so they don't call the attorney.  The attorney doesn't know vital information because the client didn't want to be charged to provide it.
2. The client has no ability to budget for legal fees because they vary based on the amount of work done.  Because the client has no ability to budget, the attorney may not get paid in full each month.
3. The client has no control over the amount of fees charged in a month. The attorney controls the amount of fees charged in a month by the amount of time they spend on a case.
4. The client doesn't want the attorney to pursue an issue because they don't have the money.  An attorney may limit the issues they pursue if they know the client has limited means (it shouldn't happen, but sometimes it does).
5. Every task is worth the same, no matter if it involves high skill and creativity, or simply churning out a form.  Every task is worth the same, no matter if it involves high skill and creativity or simply churning out a form.
6. Because a client is charged for time spent by the attorney, time spent waiting for a hearing, waiting for a judge, waiting for the other side in mediation, all increase the client's cost because they're being charged for the waiting. The attorney feels pressure to do work for other clients while waiting so they don't charge the client they're waiting for, and miss an opportunity to connect and learn more about the case. 
7. The attorney has no incentive to be efficient; being inefficient is more profitable.
8. The client is surprised by the amount of the fee.  The attorney spends years collecting the fee.
9. The client doesn't appreciate the value of the legal advice and expertise. The attorney doesn't appreciate the value of their legal advice and expertise.
10. The client may run out of money and have to enter into a settlement they don't want because they can't afford to keep negotiating.  The attorney may not have the money to explore all avenues of settlement. 

How Much Will My Divorce Cost? Part One of Four

The questions, "How Much Will it Cost,"  is the question most lawyers here in the Trenches dread.  The answer is usually, "It depends."  We know that's not what clients want to hear.  Heck, when I was a client, it wasn't what I wanted to hear.  It's also an unsatisfying answer for those of us here in the Trenches.  Let's do a deep dive.

You know that I was not only one who toils here in the Trenches, but I was also a client.  I hated being a client.  I hated my first attorney.  Why?  Two reasons.  First, that attorney didn't listen to me.  I knew my ex-husband better than anyone, and I knew how he would conduct himself.  My attorney wouldn't change the way they did things to match it.  They also gave me legal advice that I knew was wrong, (did I mention I'm a family law attorney?), but that's another story for another day.  I despised being treated as though I had nothing useful to add to the conversation and that my opinion didn't matter.  Second, I hated not knowing how much money I would have to pay my attorney each month.  If I were not a professional here in the Trenches, I wouldn't have known if they were over-charging me or if they were charging me for unnecessary things.  I knew, however, that I hated opening that monthly envelope with my bill and not knowing how much money I would have to gather to pay them.  I hated that it seemed that they were more interested in billing me that in helping me.  I hated that they were being rewarded for taking more time.

When I got to my second (and last) attorney, I had a very different experience.  First, I was treated as someone with helpful information to share.  Second, this attorney capped my bill.  He didn't quote me a flat fee, but he did tell me that once my bill reached a certain amount, that was it (Of course my bill reached that amount.).  I have to tell you, that knowledge made me relax because  I knew how much money I needed in order to complete my case.  I could plan ahead.  I could budget for it.  I could concentrate on worrying about the case itself instead of also fretting about paying my lawyer.

Here's the difference between me as a client and my clients.  I know how much legal representation can cost.  I know how expensive even a run of the mill contested case can be.  I chair the fee dispute committee of my local bar association.  I am the ultimate educated consumer of legal services.  Most of my clients are not.  Most of my clients have no clue as to how much legal representation can or should cost.  Most of my clients are uninformed about the process.  Most of my clients are too scared/angry/overwrought to think clearly, just as I was (which is why I stayed with the wrong attorney a billing cycle too long).  That means in any discussion about process or about fees, my clients are lost.  They have no benchmark - for anything.  It's no good telling them to ask lots of questions because they don't know what questions to ask and they don't know what's a good answer.  They don't know what's a reasonable fee.  It's sort of like when my grandpa used to go into the grocery store. He never did the grocery shopping, so every time he entered a store, he was shocked at how high the prices were because he had no frame of reference.  Everything was way too expensive for him.  Everything is far more expensive than a client thinks it's going to be when they set out to hire a lawyer.

I struggle with how to set a fee that's fair.  Right now, like almost every other lawyer I know, I charge by the hour.  It upsets me to do it.  Why?  Because it's not time I'm selling.  I am selling my expertise, my knowledge, and advice.  I'm giving the clients the benefit of my legal knowledge and my 30 years of experience.  The question should not be how long will it take me to resolve your issue, but how much it is worth to you to have it resolved in a way that is acceptable to you.  Unfortunately, the only way that conversation can be productive is if the client has a realistic view of the value of legal services, and most ordinary consumers do not.   They're like my grandpa in the grocery store.  So, rather than have an in-depth conversation on value, especially with overwrought people, most lawyers default to the hourly rate.  It's just easier - for all of us.  Or is it?  More to come.  Here in the Trenches.