Why Hourly Attorneys Are Better For Clients
This post was originally published in 2013. The below is an updated post. Over the past few years, my thoughts on the matter have evolved and an update to this post has been long overdue.
I am often asked “how much does it cost to get divorced?” In fact, I’d guess that I answer that question more often than any other. The truth is, I can’t give a definite answer because I charge an hourly rate. The best I can do is approximate the cost, based on available information, past experiences, and some guess work. It can be frustrating to some clients, who would like an estimate like they receive at a doctor’s office.
The point of this post is to explain why I charge by the hour and why I think it’s best for clients. To start, let’s talk about what flat fees are and how they’re priced.
What Are Flat Fees?
A flat fee is a single payment made to an attorney for representation. It is typically paid to handle a specific and finite legal issue (meaning, one that has a conclusion somewhere on the horizon). Unlike a security retainer, a flat fee is the attorneys’ money upon receipt.
Flat fees have some popularity in family law for “simple” divorces, as these matters are routine and largely handled outside of court. To that end, flat fee divorce attorneys often operate like flat fee real estate attorneys. The client fills out forms at the start of the case to provide the information needed for drafting, a paralegal puts the client’s information into standardized forms, and the attorney shows up at the one required court date for entry of the judgment. It’s quick and dirty, but it gets the client divorced and spares them the perceived risk of using un-vetted online forms.
To be clear, I do not operate like this and have never charged a flat fee.
How Are Flat Fee Divorce Prices Set?
Let’s say I divorced ten couples last month. Six of those cases came in at $3,000, two came in at $1,800, one came in at $7,000, and one came in at $20,000. All ten cases first came into the office as mostly or entirely uncontested. Unfortunately, one of them took longer than expected to resolve because one issue had to be litigated (let’s just say it was spousal support) and the last entirely fell apart because one spouse felt that the settlement offer was too lopsided.
For the purpose of this post, let’s say my hourly rate is $200 (which it is definitely not). Based on my hypothetical numbers from last month, the average fees for a divorce are:
[(6 x $3,000)+(2 x $1,800) + (1 x $7,000) + ($20,000)] = $4,860. If we exclude the outlier, we get an average fee of $3,177. At $200 an hour, that comes out to a little under 16 hours of work.
A client comes in the following month and asks for a flat fee divorce? What do I charge the client? I know that the average cost of a divorce is a little under $3,200. I also know my true average of $4,680 won’t cover either a slightly litigated, or fully litigated, case. $3,200 isn’t bulletproof either; I have the same likelihood of having the case cost less and as I do dramatically more. Nonetheless, odds are that $3,200 covers the case, so I quote $3,200.
Flat Fees Disincentivize Additional Work On A Case
I’ve now signed up to represent a client at $3,200 for the entirety of his or her case. However, if the case becomes contested, I will stand to lose a lot of money. You can think of it in one of two ways. First, every hour I spend over the 16th hour is uncompensated or, two, every hour over the 16th lowers my effective hourly rate. An effective hourly rate is the amount you were paid divided by the number of hours you work. If I am paid $3,200 and work 16 hours, my hourly rate is $200. If I work twice as many hours, my hourly rate is $100.
Why does the effective hourly rate matter? Because if I am able to sell that time at my regular hourly rate of $200, I have a $100/hour opportunity cost for working on that particular flat fee case. As you might imagine, losing a $100 each hour is not a enticing proposition.
So how do I, the hypothetical flat fee attorney, avoid losing money on a flat fee case? The answer is clear: I need to limit the amount of work I put into the case. All flat fee attorneys limit how much work they will put in a case. If you pay a price based on the average cost, you will get the average amount of time in the case.
How do I limit the amount of work I do? There are two ways. The first is that I explicitly tell the client that my representation is limited to X type of work. This is typically drafting all needed documents and appearing in court once to finalize the case. The second thing that I do is try to put as little time as possible into the work that I’ve agreed to do.
Let’s go back to our discussion on effective hourly rates. If I can do the case in 8 hours instead of 16, I’ve doubled my hourly rate to $400 ($3,200/8). How do I do that? A few ways:
- I limit how much I communicate with my client. That means no check-ins, few, if any answered questions, and virtually no contact until the final court date.
- I use boilerplate forms that I barely modify for the client (and refer to the client as “Husband” or “Wife” and their children as “Children”). The forms do not contain any unique provisions and are as brief as possible.
- I don’t issue discovery. I have little knowledge of the assets in the case, and that knowledge is limited to what my client tells me. I ask that my client sign a broad discovery waiver, not holding me liable for not looking into the debts and assets in the marital estate. If my client has incomplete information, it harms him or her, but I am not liable.
- I don’t negotiate. I write up what I’m told. I avoid pushing my client to take a critical eye to the arrangement and we never discuss where an agreement can be approved upon.
- Not only do I not litigate, I lose the ability to threaten to litigate. This means that the other attorney or party knows that I will not push any issue to court. Hardball negotiations tactics are more effective if I’m unable to call someone on their bluff. This is no small issue, as I explain later on.
Flat Fees Do Not Protect Clients In The Event Of Litigation
As stated above, flat fees are often limited to specific work. In divorce, it’s almost always to draft documents and appear at a prove-up (the uncontested hearing where a divorce is finalized).
So, what happens when a deal breaks down? So does the flat fee.
No one can litigate on a flat fee. Discovery requests, motion practice, and frequent court appearances are all very expensive. Once the case goes outside of the flat fee, the attorney will either request to move to an hourly rate or ask for more money (a larger flat fee). The former puts the client in the position he or she initially sought to avoid while the latter puts the client in the unenviable position of working with an attorney who is still trying to limit his or her work.
A few readers are probably thinking “I don’t want to go to trial, I want an uncontested divorce.” I don’t blame you, but a flat fee agreement has done more than eliminate the prospect of trial, it’s also eliminated the threat of trial and the threat of gathering information in advance of trial. Trial is expensive and nasty. Most people seek to avoid it like the plague. However, if a client is unable to say “forget this, we’ll have the judge decide,” he or she has little leverage in a negotiation. There’s no option aside from the negotiating table.
Flat Fees Overcharge Some Clients
Let’s go back to our list of divorce cases. Remember, last month I finished ten cases. Six of those cases came in at $3,000, two came in at $1800, one came in at $6,000, and one came in at $20,000. Based on that, I am charging $3,200 for a flat fee divorce.
You know who loses in this deal? Those two cases that only cost $1,800. If 20% of my cases come in at that mark (which, by the way, they do not), then each one of those cases is overpaying for my services in the amount of $1,400. That’s a significant amount of money. However, even though I would theoretically make more off that case than I would off a case costing my average, the economic incentives to limit the amount of work I do still exist. That is to say, the people paying $1,800 are still working with an attorney who makes more money by putting in less work.
The Issue Is Not The Price Of An Hour, But How Hours Are Billed
I cannot overstate this. An hourly rate does not tell you how much a case will cost. I’ve seen attorneys with low hourly rates charge for everything from making photocopies to listening to voicemails to spending hours (yes hours) preparing an oral motion. I hate saying it, but a lot of attorneys inflate their bills. I also know plenty of attorneys with high hourly rates who are careful about what they bill and what they credit to the client.
The issue is not whether an hour of an attorney’s time costs, say, $400, but rather how that attorney will record his or her time. What, if anything, is routinely credited to the client? Do they have associates or support staff to handle simple questions and routine matters? If the total cost of a case is fees x hours, be sure to talk to the attorney about his or her billing practices.
Look, I’m sure flat fee divorces work for plenty of clients and I’m sure there are plenty of great attorneys who offer them. It’s simply not what I do. I hope this post explains why. As always, feel free to contact me with any questions you have.