Client funds go into your trust account. Your funds go into your operating account.
As simple as that sounds, the devil is in the details and, all too often, lawyers inadvertently commingle the two, or leave earned fees in trust too long. This is known as "commingling." Given the need to separately safeguard client funds, it is strictly prohibited.
Even when we know the right account to use, mistakes are easy to make while multi-tasking in a busy law office. Grab the wrong deposit slip and, without realizing it, you are putting your own money into escrow or your client's money into your operating account. Your month-end reconciliations may catch the mistake, but the safest policy is to keep deposit slips, checks and other materials pertaining to your trust account in a separate location from those pertaining to your operating account. This lessens the likelihood that you'll confuse the two.
When you receive funds, you must first determine who the money belongs to, complete the correct deposit slip, and place them in the right account:
|Nature of Deposit||Belongs To?||Account to Deposit?|
|Payment of Fees for Services Rendered||Attorney||Firm Operating|
|Reimbursement of Expenses Incurred for Client||Attorney||Firm Operating|
|"Retainers" to Cover Future Legal Fees/Expenses||Client||Client Trust|
|Settlement Checks||Multiple Persons - until specific payees identified and accounted for||Client Trust|
|Disputed Fees||To Be Determined||Leave Disputed Amount in Trust Until Dispute Resolved|
When a client pays you for legal services that you have already rendered, these earned fees should go into your operating account. But if a client pays you for services you have yet to provide, such deposits or "retainers" must be deposited into a separate trust account. This is even true if you charge a "flat fee" for the services you embark upon. There's no such thing as a fee "deemed earned upon receipt," or one that is "non-refundable." You can only earn fees by completing the work. Until then, hold the client's money in escrow.
The same is true for funds that you receive from others on behalf of your client. For example, if you settle an accident case for $30,000, these proceeds must first be deposited into escrow. Once you pay off any medical liens and other case expenses on behalf of the client and issue a check for the client's net recovery and provide your client with a full written accounting of all receipts and disbursements, you must then write yourself a check to pay your contingency fee. Don't just leave your money sitting in the trust account, as that will amount to unlawful commingling.