Spiralling Family Law Costs and How Clients Can Keep Costs Down

Inflation, Hourly rates and how solicitors renumeration traditionally works

Inflationary pressures in the general economy have grown considerably since the pandemic, the legal industry is not immune to these general factors.

In 2015, most central London partners were charging in the region of £400-450 per hour. Some of these firms are now charging over £1000 per hour.

It’s important that clients understand the model upon which lawyers are traditionally paid. Law firms have traditionally worked on a 1/3rd rule with fee earners, i.e. the lawyer is paid 1/3 of the revenue they generate, the costs of the fee earner (NI, office space, insurance, support functions etc) constitute another 1/3rd and the profit for the firm is deemed to be 1/3rd.

In the following example an Associate lawyer in London being charged out at £300 per hour should generate fee income of about £330k. Often, they will receive a bonus of 10-20% of any additional fee income (the low figure being justified by the firm offering the carrot of equity partnership down the line). The base salary of the lawyer would be £110k, the likely other costs to the firm of the lawyer will be nowhere near £110k, more likely £60k per annum. If the lawyer exceeds their target for the year and generates revenue of £360k the breakdown looks like this:-

£110k lawyer salary;

£6k lawyer bonus for exceeding target (based on 20% of exceeded target);

£60k firm costs of employing and supporting lawyer;

£184k law firm profit.

One other factor not considered by many non-family law colleagues is that family law clients pay VAT for their legal services, and they cannot claim this back like companies can. A £500 per hour lawyer costs the individual £600 per hour.

How to keep costs under control

1. In my experience it is very important to decide what type of lawyer you want to instruct. Some lawyers are known for being hyper aggressive (and will almost always commence court proceedings), some are known for keeping matters out of court and other as a mix. There can be pros and cons with each type but in my experience the lawyer who is a mixture tends to get the better results and will also as a rule tend to be more costs conscious;
2. Ensuring that you know who is doing what in your legal team. It can be very easy to lose control of costs when there are multiple people working on your file. I have been on multiple cases where there is a team of 4-5 fee earners working on the file, be it paralegals, trainees, assistant solicitors, associates or partners. At times it can provide a sense of security to a client knowing there is a big team working on the case but carefully check that there is not too much duplication of effort. Also ensure that your “team” does not have too many attending at court on your behalf – on the whole along with counsel there is not normally a need for more than two other lawyers to be present;
3. Double, triple (or even quadruple) charging can happen and it’s important that you know who is adding genuine value to your case and at what cost. Many legal secretaries have been replaced by paralegals, so many of the tasks they used to undertake are now undertaken by someone whose time is being charged to you. The point of higher charge out rates for more experienced lawyers is that, in theory, they should take less time to undertake tasks than less experienced lawyers. Be careful to ensure that multiple people are not charging for the same work to be amended.
4. Are court proceedings necessary? One thing should be clear – once you are in the cycle of contentious court proceedings then both parties costs will increase exponentially – unless it’s clear from the outset that the other side are going to be unreasonable or that the issues are so intractable that court is going to be a panacea – costs, timelines and tensions can escalate very quickly. Be wary of any lawyer who is itching to start court proceedings from the outset. Conversely, it can increase costs if you negotiate too long and then ultimately must issue court proceedings anyway – a good lawyer will have a high level of intuition as to where a case is going (although in some cases it’s just impossible to predict).
5. Proportionality. This word is particularly important in family law proceedings where rational thought can sometimes be replaced by emotions and (at times) vindictiveness. Court can be very expensive but correspondence on side issues can also increase costs disproportionately. There are numerous instances in family law of costs becoming entirely disproportionate to the issues in hand, this can be for a diverse range of subjects for example chattels disputes, minor valuation disputes or very small issues relating to the children. A good solicitor and a practical client should always be alive to not wasting legal fees in such a manner.

Beware of what I refer to as “pump and dump” law firms. In my experience I have also encountered firms who build costs on files, often without regard or respect for the client. I have had a case with a firm where we offered to voluntarily exchange disclosure, but after no response for 6 weeks we chased them up, only to be told that they had issued proceedings at court – this was entirely lawyer led and ramped up costs and tension no end. I have had another case where we offered to exchange voluntary disclosure, only to be told that the other side’s solicitors required £100,000 on account of costs to begin discussions.

Conclusion

The traditional model of charging by law firms is in my opinion not always in the best interests of clients. Fixed fees aren't always the answer either, as the scope of work can change quickly, and potential costs can escalate. There is nothing wrong with profit, lawyers are highly skilled and experienced - but particularly where we are dealing with individuals, profit margins should not be excessive.

New agile firms with different income models can offer clients more value for money and a more personable and tailored service level, especially where most clients are directly referred.

If you are looking for experienced, pragmatic and cost-effective advice on a family law matter please contact Aziz Malik: azizmalik@bexleybeaumont.com  |  07966 375115