You just signed up a bunch of new clients. January is good for divorce lawyers. Congratulations.
Those clients (I hope) either paid you a fixed fee or deposited funds into your trust account. Life is good.
A month or two from now, some of those clients will need to pay you some more. They’ll either need to replenish the trust account or pay some additional fixed fee if it becomes due.
What’s going to happen when it’s time for them to pay?
Some of them are going to tell you they can’t pay. You’re going to get some sad stories.
They’re going to explain that it’s difficult to come up with the required cash in the middle of a divorce. You’re very familiar with this particular tale of woe.
They’re going to explain that the equity line is tapped out or tied up. They’ll explain that their credit cards are maxed out and the 401(k) loan has reached its limit. They’ll tell you that their friends and family aren’t willing to step up and help and that they’ve visited their banker, who denied their request for a loan.
What will you do?
You’re faced with clients who clearly aren’t credit worthy. These clients would have obtained the funds from someone else if anyone else trusted them enough to make the loan.
I’m sure there will be some story, like “the bank won’t loan me the money on the house without the signature of my spouse and, of course, I can’t get the signature of my spouse.” Baloney! The bank will happily lend money to people when the risk factors and interest rates make sense. If the bank says no, there’s probably a good reason.
So what will you do when faced with walking away from the case or extending credit?
Don’t extend the credit. Walk away. That’s the right thing to do if the rules of professional responsibility allow you to get out. Don’t get sucked in.
Those lenders and family members that refused to loan the money know more than you do. Trust them rather than getting stuck for the money. There’s a reason they said no. You might not ever understand their thinking, but they are probably right.
Divorce lawyers across the country talk to me about their receivables. They complain about writing them off as a loss. I’ve never talked to a family law attorney who felt good about their receivables.
You’re a lawyer, not a banker. Don’t loan your clients money.
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Lee Rosen has practiced family law for more than twenty years. With three offices, 