Lawyers provide a valuable service to their clients, the judicial system and the community at-large. In exchange for their knowledge and hard work, attorneys usually charge clients legal fees. A lawyer should not, though, mix his or her own money with client funds. While doing so is typically an ethical breach, it may also constitute legal malpractice.
California’s Rules of Professional Conduct expressly prohibit lawyers from commingling funds. To avoid this error, many attorneys establish trust accounts. Correctly administering these accounts requires complying with a complex set of rules. As such, even lawyers with good intentions sometimes run afoul of their ethical and legal obligations. Here are three common examples of commingling funds:
1. Putting legal fees and filing fees into one account
If an attorney has a retainer, he or she eventually owns the legal fees a client pays. After finishing the work, the lawyer may move legal fees from the trust account into the operating one. Filing fees never belong to the attorney. Instead, they pay administrative costs associated with legal work. Therefore, filing fees and legal fees should never go into the same account.
2. Depositing personal funds in a client trust account
A lawyer’s trust account holds client money. His or her business and personal accounts hold money that does not belong to the client. There must be a firm separation between these types of accounts. Just as depositing unearned client money into the lawyer’s account is a violation of ethical rules, depositing personal funds into a client trust account is also off limits.
3. Failing to account for client money
If a lawyer has possession of client funds, he or she must keep a detailed accounting of all money in the trust account. Failing to keep a comprehensive ledger that accounts for every penny of a client’s money is not only bad business, but it also violates ethical rules.
Commingling funds is one of the fastest ways for attorneys to jeopardize their careers. As such, every lawyer must take steps to safeguard client money. Unfortunately, if an attorney fails to do so, his or her clients may suffer irreparable harm.