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Shielding Retainer Fees Prior to Client's Bankruptcy
This article evaluates which type of retainer agreement gives attorneys the best chance to preemptively shield their retainer fees before a client ends up in bankruptcy or the Department of Justice seizes and forfeits the client's assets.
The scenario is this: A struggling business on the precipice of bankruptcy, or a criminal defendant whose property is subject to forfeiture, would like to hire you. The prospective client has funds available to pay its legal fees, but what if you and/or the client expect that bankruptcy trustees or the Department of Justice will soon claim those funds for themselves?
At the outset of an engagement, an attorney can structure his or her retainer agreement to protect the retainer to the greatest extent possible in the event the client's creditor comes knocking. New York law recognizes three types of retainers: "classic," "security," and "advance payment." And under New York law, a retainer fee is shielded from attachment so long as the client does not retain an interest in the funds. See, Gala Enterprises v. Hewlett Packard Co., 970 F. Supp. 212, 219 (S.D.N.Y. 1997). For this reason, described in more detail below, it is the "advance payment" retainer agreement that will likely provide the most protection.
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