You wanted to make sure you placed your assets somewhere they’d be safe. That’s why you gave them to your attorney and told them you wanted to open a trust. You did all the paperwork, and you expected everything to be fine.
A year or two later, you went back to the firm and asked to change your revocable trust. The trust was there, but it had never been funded. The attorney you were working with said that they forgot to move the money over from their account, but that drew up an important question in your mind: Why did they have it in their account in the first place?
The Colorado legal malpractice lawyers at The Viorst Law Offices, P.C., have seen cases like this before.
What is commingling?
Commingling is when your attorney combines funds that are not theirs with their own personal accounts. For example, if you give your attorney $10,000 to put into a trust but the attorney holds that money in a personal account, then that is an example of commingling. The money that you give an attorney to hold or use for your benefit should never end up in an attorney’s personal bank account.
If an attorney does commingle funds, then they are subject to discipline through the Rules of Professional Conduct.
Why is commingling so bad? Isn’t the money still there when you need it?
Commingling is bad for many different reasons. With commingling, an attorney could:
- Use the money received from you, the client, for their own personal needs
- Mix up your funds with their own in their personal accounts
- Transfer money between their account and a business account, making it difficult to track where your money is going
- Using your assets to fund their own purchases, such as putting a down payment on a home
With commingling, one of the challenges is that it makes it hard to see where your money is going and what it’s being used on. That means that your attorney could essentially waste your money and intend to “reimburse you” later with their own funds. They could use your money and hope you simply don’t notice. It’s bad news all around.
Colorado rules require attorneys to create trust accounts
Whether an attorney has temporary responsibility for the funds of someone they represent, they cannot commingle those monies with their own personal or business accounts. Likewise, lawyers and firms may not earn interest on assets they are handling for their clients. Attorneys can create a barrier to commingling by establishing a separate, interest-bearing account for a particular client. In some cases however, the amount held in trust might not be large enough, or the expected timeframe might not be long enough, to justify the cost of opening a distinct account.
Rule of Professional Conduct 1.15 addresses this situation by requiring law firms in the state to create one or more Colorado Lawyer Trust Account Foundation (COLTAF) accounts. Some specific elements of these accounts set forth in the RPC include the following:
- Establishment – Attorneys can open COLTAF accounts through state-certified banks and credit unions, which frequently waive or reduce maintenance fees. Except for nominal amounts used to cover fees and minimum-balance requirements, lawyers cannot deposit other assets.
- Interest accrual – The financial institutions pool COLTAF funds and interest generated by them goes to support legal initiatives that benefit the public. Other jurisdictions have similar rules governing what are generally referred to as Interest on Lawyers’ Trust Account (IOLTA) programs.
- Separation of funds – Whether the funds in question stem from a delayed settlement, assets directed toward a client’s trust, an escrow payment, retainer fee or some other reason, your lawyer has a fiduciary duty to keep assets separate. Even a flat fee paid in advance should go into a COLTAF account until the work provided in exchange for that payment is done.
Don’t be misled by assurances that the financial details will “square up” in the end, or that the outcome of your case is such a certainty that you’ll get back what your lawyer is taking up front.
At any time, your attorney must be able to provide documentation regarding your funds and any transactions involving them pursuant to RPC 1.15D. If answers are not forthcoming, that could be a sign of possible legal malpractice. Likewise, if a settlement payment you expect to receive, or the unearned portion of a retainer fee, is not in a COLTAF account or a trust account exclusively established for you, we can assess if a serious ethical violation has occurred. Our firm is committed to holding attorneys accountable when they violate clients’ trust.
What should you do if you think you’ve been a victim of commingling?
Commingling is a kind of legal malpractice, and it should not take place in any kind of legitimate law firm. The first thing you’ll want to do is to collect evidence of the commingling of your funds with the attorney or attorneys’ accounts. Then, you will want to find an attorney who specializes in legal malpractice to start building a case against the law firm or individual who misappropriated your funds. It’s important to do this as soon as possible to have a better chance of getting your money back from those who violated your rights.
The Denver legal malpractice lawyers at The Viorst Law Offices, P.C., can help. Call today at 303-872-5712.