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To Commingle or Not To Commingle- Is It Really A Question?

A common misconception when it comes to legal accounting is that every single lawyer needs to establish a trust account. While it is a sound legal accounting strategy, it isn’t always required. Some states do not require that attorneys establish a trust account, and they can even accept client fee advances into business operating accounts.

In most states attorneys are required to establish a trust account. These accounts are established to ensure client funds that attorneys have yet to earn are not commingled with funds in the attorney’s operating account. In addition to this, any funds that belong partly to the attorney and partly to the client, such as a personal-injury settlement. Any funds in which a third person, such as a medical provider, has an interest are also placed in a trust account.

Commingling Of Funds Inside Trust Accounts

In most states where the establishment of a trust fund account is required, commingling of funds can still occur. In a situation where an attorney is working with multiple clients, funds from all of these clients will reside in one account.

It is important that your firm does not allow these client funds to commingle. This means that if you are to release funds from this account, you must be sure that there are sufficient funds in this account associated with the client you are dealing with. If there is not your firm runs the risk of violating compliance requirements.

Commingling Of Funds In Business Accounts

As stated earlier in this post not all states require attorneys to establish trust accounts. In some instances attorneys can even accept fee advances into their business accounts. With less legal accounting regulations commingling of client funds and operating funds may be less risky as far as remaining compliant, but is it really the best thing for your firm?

Why Commingle If It’s So Easy Not To?

Firms across the country have been implementing the CosmoLex law practice management software to help them manage their business. A large reason for this is the legal accounting features. CosmoLex has the ability to apply every transaction to a client- preventing the commingling of funds. Whether it is because you are required or not, your firm will benefit greatly by eliminating the commingling of client funds. In situations where you are remaining compliant with the laws in your state, avoiding disbarment is an obvious reason to avoid the commingling of funds. But when it isn’t required it still makes good business sense to understand where funds are coming from, and where they are going.

Rick Kabra

Dr. Rick Kabra is President of CosmoLex Cloud, creator of cutting-edge technology solutions to help solo and small law firms law firms. Rick has a Ph.D. in Electrical Engineering from NJIT and has over 10 years of experience in the legal software industry catering to the specialized technology needs of small to mid-sized law firms. Rick has given numerous seminars and published articles on legal technologies such as law practice technology management, cloud computing, and legal billing, business & trust accounting compliance.