Learn Attorney Lingo: Retainer
Mar 20, 2023When you begin working with law firms and attorneys, you may notice they have their own code language. This code is similar to the one used by other professionals consisting mainly of acronyms. This week's word is "retainer."
What is a retainer?
The attorney may mention retainers when discussing their fees. A retainer is an upfront payment the client makes to secure the attorney's expertise on an ongoing case or matter. With accounting, this is an upfront deposit.
The retainer fee amount will vary depending on the law firm's practice area and the severity of the case. Once the retainer fee is paid, the attorney will begin working on the client's case. Personal injury attorneys typically do not charge a retainer fee; they work on a contingency basis, meaning they pay for all expenses related to the case out of their law firm's pocket and only receive a payment if they win the case.
I found this description on the web. According to the Fitzgerald Law firm:
"Benefits of having your attorney on retainer"
Perhaps the most apparent benefit of establishing a retainer agreement with an attorney is having the comfort of immediate legal advice at your fingertips. If you deal with legal issues frequently, a retainer agreement keeps a close line between you and your attorney if questions arise that require immediate attention."
How do we enter this into QuickBooks?
These funds will land in an account we create, a sub-liability account, or a trust type of liability. We are tracking these funds to ensure the separation from the law firm. The monies are placed inside a trust or IOLTA bank account. The journal entry transaction would look like this
Debit trust bank account: Increases the trust bank account
Credit client trust liability account: establishes attorney is safekeeping the client funds until earned or returned
These monies are not the law firm's money. This money belongs to the client, and the attorney holds it until they have earned these funds or reimbursed to the client.
We wouldn't do a journal entry to enter this. It's unnecessary, and we avoid using journal entries in QuickBooks unless necessary. As you can see in the picture below, your entry would look quite simply like this:
If you use software to manage your billing, like LeanLaw, MyCase, or Clio, your books will look different. The attorney will record the trust request (if using LeanLaw), or you will record the entry in the billing software, and then it will sync over to QuickBooks. This entry may look something like this:
Conclusion
You may think of a retainer as a client prepaying for their fees. But the purpose of a retainer is to secure that attorney's services. It's nothing more than that. The main thing to remember is that it's the attorney's funds once earned. They can't use it beforehand, or there are severe ramifications.
Do you want to learn more about legal accounting? We have a course for that! It's called Fast Track Legal Accounting, and you can find it here. You can also join our mastermind group called the Accountant's Law Lab. We meet every Friday and discuss topics just like this. We hope you join us!
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