March 17, 2017 Top Story

Splitting a Referral Fee? Now, You Must Hold It in Trust

New formal opinion enhances protection to referring attorneys

By Andrew J. Kennedy

Lawyers who split their fees with outside lawyers now have more protection, thanks to a new opinion issued by the ABA Standing Committee on Ethics and Professional Responsibility. The opinion requires that referral fees must be held in a trust account and that the lawyer receiving the funds may be required to provide an accounting. Section leaders suggest that while these new obligations may not alter practice for many personal injury attorneys, who typically deposit personal injury settlements into trust accounts, it may affect lawyers who split flat fees. Model Rule 1.5(3).

Attorneys may split fees with attorneys outside the same firm, as long as they abide by Model Rule 1.5(e). That rule requires the division of the attorney fee be "in proportion to the services performed by each lawyer or each lawyer assumes joint responsibility for the representation." The rule also requires client consent and that the arrangement be confirmed in writing.

The rule does not address, however, how lawyers must treat those earned fees when they are received. That question arises when the attorney receives funds from a third person, perhaps by a settlement, and the other lawyer also has an interest in these funds.

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