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Greedy Tip of the Week: Deduct Contingency Fees Before Costs

Do you like making money? Then unless there's a law in your jurisdiction that says you cannot deduct attorney fees before deducting costs, you need to make sure you are, especially if you were fronting those costs as well. If you don't know, go check your retainer agreements now!

For lawyers that typically work on a contingency, this may be simply obvious advice. However, for new lawyers, or those that are really no good at math, it might need to be repeated a few times. Deduct contingency fees before costs.

Need an Example?

Let's say the total recovery is $1,000. Your contingency fee is 20%. And there were $100 in costs. If you deduct your contingency after costs, you make less than if you deduct it before ($180 vs $200). Yes, it is not as good a deal for the client, but, yes, you are also a lawyer trying to run, or be part of, a legal business. Every time you run the numbers, so long as there are any costs, you will always make more money if you deduct your contingency before costs.

Include Fees Before Costs in Retainer

In your retainer agreement, in the section that spells out how the contingency fee will be paid, it should be clearly explained that your fee is deducted before costs are deducted. Put it in plain language, consider underlining or highlighting it, too.

Also, after you've dealt with enough clients trying to tell you they thought costs were deducted first, you will want to add a full signature line below that clause so that you can point them to it when they do ask. (Protip: this same idea of making the client sign this clause also goes for lien clauses).

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