Accounting for Family Law Firms

Welcome to Accountants Law Pod, where accounting professionals and law firms converge, hosted by Lynda Artesani, Sarah Prevost, and Stephen Libhart.

Welcome back to the podcast, everybody, and this week we're going to talk about accounting and bookkeeping for family law firms. So what are the nuances? What do you need to look for if you're a bookkeeper working with a family law firm? And Is there anything special above and beyond what we do normally for our attorney clients? And I'm going to toss it over to Steve because I know this is his favorite practice area, and I know that he would love to share all the things he loves about working with family law. Go ahead, Steve, tell us.

Thanks for putting me on the spot there on that one, Lynda. Oh gosh, I don't know. We have a family law firm that we're working with right now that I just love. Absolutely love them. See, lots of retainers. I think they, they tend to have a lot more stress as an attorney just because of the type of law they're practicing and the people that they're serving and the stories they must hear and the things they have to resolve.

Um, it's an emotional practice, right? It is a lot of emotions, high emotions. Yeah.

Sensitivities. A lot of sensitivities to it too. Like, You know, depending on if it's domestic violence, protective services, like all that makes your heart just go, oh.

Child, you know, the child custody can be another big part of it, which is hard. And then so they're taking that in their life all day long. It's almost like being that therapist carrying along. You're trying to do what's best for your client. It's a difficult practice. It's hard to— if you work with these type of attorneys, You're gonna find that they're very hard to nail down to get to talk to them about anything that has to do with their finances. It's kind of gonna be pre-scheduled. And, and I think the nice thing about Clio is we can see where they're at and try to figure out a good time to meet with them because it's hard to— they're always in court a lot of times too. So, and they're on call all the time. A lot of these attorneys share their cell phone number with their clients. So they don't really have—

Good point.

Yeah, they don't have an off switch. They, they can be called in the middle of the night. They can be called on the weekends. You know, those good attorneys, those are definitely part of it. I think also they tend to have a lot of matters, even if it's a small law firm, and you can have multiple matters under one client. So you want to make sure that you have that set up as such. I think you're going to see a lot of transactions of similar amounts. So you need to track that. It's a great place for custom fields if you're using like Clio, which a lot of them do use Clio because It's that all-in-one software so they can keep the documents, they keep the communication, they can keep their calendar, keep their fixed dates. There's a lot of templates that they could use. So if you're working with that client, I find a lot of times these attorneys will pick up the software because they heard, well, so-and-so uses it, or the bar gave me a discount, and they don't use the software to its fullest extent, that they're missing out on using it for some of the things that it can do for them to help it make things more automated. What do you think, Sarah?

Well, so many attorneys, no matter what software they pick, they just plug and play it and hope for the best.

They do. I think the accounting nuances sometimes is the confusion around what they consider a hard cost to a soft cost.

Oh, good one. Yeah.

How to get— how to recoup that correctly. Also, I feel like sometimes they can be an evergreen style or a subscription style retainer. Because it's just hard to know how much a case will be. Depends on— as those of us have been through family matters, it is hard to identify like, well, this is the best of intentions. This is what we'd like as the best outcome. But you don't know what that looks like in the end. You don't know where the fight's going to hit, especially in divorce or some sort of dispute. And then a lot of times they're repeats. So you're fine in a family case, it's settled, and bam, it's come back. And so you have that to contend with as well. So I feel like there's— it's a little bit tricky, like in a practice, a PI-style firm, but it's definitely more different date-driven sensitivity. Court dates can come upon you a little bit. Probably at a different speed, I'd imagine.

And the court dates can be really important too, right? Because they have to— I mean, that's something you really want in your practice management software. This is why having like Clio software would be really important because they— it's a software that has all the pieces, the inner pieces all bundled into one and easily obtainable, right?

I should know the answer to this, but I don't. But does Clio have docketing?

You mean like docketing of documents with the courts? There are apps that you can use.

There are. Okay. So it will link through those apps.

Okay.

That particular software. There might be a different software that other people are in, and it's probably the same thing. There's also people use things like Law— is it Toolbox?

Tools?

Oh, thank you. Yeah, that one. There's add-ons. The one thing that I know Lynda and I have really enjoyed about Clio is that as a practice software is that there's all these, it's the center and you have all these custom pieces you can attach to it to help do what you're doing.

Yeah, there's a lot of software. I mean, when we were at Clio Con, there were rows and rows and rows of vendors that people have created special software depending on practice area or different, use cases that they found something wasn't— was lacking, and they've created the software to automate the process, which is something I think is unique to Clio because I don't think many of the software— I mean, Clio has been around a long time, so I don't think a lot of the other software have any of those connections. They might have an open API, but they don't have these prebuilt things, which makes them really a powerful tool, especially in the day and age of automation, which is important. One of the other things I think you're going to see similar to like an immigration firm is sometimes Because these people are in crisis, they don't tend to have money. You're gonna find that they are gonna be— the client's gonna allow their client to pay by credit card, or they might have a payment plan, or they might have something like that in place that you're gonna have to navigate and understand. So communication with the client's gonna be important, and it's also gonna be difficult because they're so busy. So you really wanna grab as much information as possible. about their engagement with their client in the very, very beginning of your engagement with them. So you understand what's going on. And I think you should keep open dialogue with them too, because things can change. They might change something and you really need to know if it's changed. Also, one of the other things I think that's a nuance of family law is sometimes their payments bounce and that makes it messy accounting for us.

Mm-hmm.

If they paid money to a retainer or something like that, and then it doesn't go, you know, gets reversed because maybe the credit card rejects it or You know, and they're pushing it into Clio.

There is a higher incidence of that. Sure, sure.

Or having other family members pay to support them. So maybe they're not the ones paying, or collection. A lot of times they end up being that conduit of collection. So, you know, there's something that's kind of in the middle of the case that they've decided on. Well, the attorney has to collect on behalf of one family member for the other part of the case, and So there's all of those. Like, I could just see a chart of accounts listing under one matter for $1K. You know what I mean?

And it could be even a case of if there is a divorce, they're selling a house, and they might have to deal with the layers of that. And maybe the money's— they're taking money in an escrow at some point that gets pushed out to the individual owners, which was meant to have been the married couple. There's a lot of pieces there, and you'd really have to deal with. So it's not for the faint of heart, that's for sure. Um, they might have—

go ahead.

I was gonna say they might have different income streams too that they want you to track, that different parts to their practice that they want you to track that's not just straight up family law. They might want you to kind of break that down. It's another piece.

I think the psychology of working with them too is that they're very, um, they tend to be more to the point than, let's say, comparing them to a corporate attorney. You know, the family law, and to your point, Linda, how busy they are. You know, be prepared to have that information ready, and you know they're going to fire it at you quick, and you can't take a lot of it personally. You know, because they have switches that they're they're trying to turn on and off their business hat versus their attorney hat versus the emotional hat and all the things that are going on. And so, if you're prepared for that and and able to give them quick answers, and if you don't have the answer, you can be honest with them. You know, they're they're very intelligent people. I think that they're a cut above in, in the type of law that they practice and, and having to deal psychologically with their clients and creativity with getting through the casework and all of that. So, um, you know, being prepared and, and, um, not taking it personally when you're talking to them and they're firing those questions at you, you know, because you're, you're part of the team with them.

Mm-hmm.

And you create that safety with them that it's okay. You know, it's all right to be direct and to, you know, demand these things be done and we'll get them done. And if you know where you stand with them, it's a lot easier to work with them.

Yeah, for sure. And I think too, some family lawyers do an evergreen style of retainer, right? They get a fee upfront and then you just keep replenishing it. Some just bill, a lot of them bill at the end and they might bill mid- matter because these things sometimes take a year or 2 to finalize, and then they might be refunding the retainer that's left over. So you're gonna have to deal with refunds, make sure you check to make sure all the checks are cashed, that there's no outstanding— you know, we call them transactions in transit, but that there's nothing hanging that's been hanging for a few years that never was cashed in the trust account. So a lot of work in the trust accounts. There's a lot of transactions. There's a volume there. So price your work accordingly. Even for a small solo attorney, you might find that if they're just starting out, they don't have that much. But put that in your contract that you revisit it at 90 days and another 90 days, because you might find that it doesn't take long for that volume of transactions that you're trying to manage to, to grow, and, and you've got way more work on your plate.

Well, you know, trending too, in times like this where the economy is in flux, they tend to get busier in that type of a law firm because more people divorce each other during difficult financial times with the economy.

Well, the difference too, you'll have some family law will be in the area of adoption. They also support, like you'll see, they'll also support, you might have an attorney that's representing a child versus the parents. Right? Or vice versa. There'll be rights to— so there's beyond just the divorce proceedings, you're going to have some very complex pieces inside of it. And I feel like maybe that's what you're kind of saying, Steve, is that it's of all the practice areas, it's a high-touch, high-sensitivity, emotional state of being that they tend to—

Right.

I imagine, like, it's probably similar to immigration because it can feel somewhat emotional. But, you know, criminal, it's different, right? That's a whole different ball of wax. Business litigation is different. That's just a different style of working. When you get to the heart of it, everyone in some form has a family disrupt. And how do you navigate it? And that's probably why they have to have such a different filter. to navigate. I'm going to get past all the stuff that I'm hearing. I need to get to the facts. I need to get to the heart of this, and we need to decide how we're going to proceed with something like this.

That's very well put. Yeah.

Yeah. I feel— I mean, I imagine too, depending on certain states, you probably have a lot of— if you have same-sex marriage, you have like you have a lot of things that you're planning that you need to plan ahead for, um, that, that might— that will fall into that category of, of family law. So it's to the dissolution, to the parenting rights, child custody, all that. And then there's some front-end work that also is a part of it. So there— I, I can't, um, I can't imagine if you are a high net earner and you have a certain— like, in my mind, there's got to be a certain credential criteria that meets a family law. When you see these case proceedings get thrown out in court on celebrity stuff, if you want to go into the fun space, like the court proceedings of what's Johnny Depp's big old marriage, right?

Oh, yeah.

Remember that whole thing? I mean, that's all family law craziness. So, yeah.

Well, I think the thing is they have great big hearts. They really want to help people.

But they have to be tough as nails too.

Right.

So that's the part of it. I don't think I would ever do well as a family lawyer. I don't think I could do it. It's just constant, like you said, high emotion, a lot of activity. I can just envision like a family law firm. like in a, in a town where people could walk in and they're in crisis. I don't know how much is done on Zoom today, but for a long time it was. I remember we had a family lawyer that we worked with, Sarah. I think we did a migration for her. And I remember her saying that COVID helped. The pandemic actually helped drive the business up because we're all locked down in the house together. If you can't stand your spouse and you have to be locked in all day, 24/7, it could sometimes lead to divorce. It kind of revealed that they were gonna be divorced. And it's Yeah. Remember her saying it made her business go way up, like 40% or something? It was amazing. Yeah.

And probably there's things like, for some, that would be postmarital, like post-agreements that will happen depending on where you are. Right. So I'm sure during COVID I mean, where were you going to go? It wasn't like y'all are buying new houses. You probably have some sort of situational thing. I'm sure it's gotten different with that. But of course, all the same things.

that we deal with, with our regular attorneys. The same thing you're dealing with trust accounting and the rules, and you should look at what the rules are for the local bar association. That's kind of the heading, heading out over your compliance work. You should do a 3-way bank reconciliation. And so because there's a lot of movement of funds with smaller amounts, you need to track that. You need to track it in a 3-way bank reconciliation. I mean, the typical things that you would do with any law firm. Or will it apply for family law? It's just going to be a different volume. I think that it's definitely one of the higher volume ones. And they're harder to pin down. So they're more likely to be the one that if you're providing a client financial reports and you really want to sit down and talk with them and they just keep not showing up to meetings, you might have to resort to using like a Loom video and creating a Loom video and walking your client through it. Because a lot of times, and you can see when they're, when they're opening up to watch it, but they might not be able to look at it other than like 10 o'clock at night. So that's their time to look at their financial stuff, and you really want to help them track that. A lot of times the family lawyers, if they're by themselves, small, they might be like a sole proprietor too. So you might want to look at how they're spending money and how you can kind of see where their expenses are. That's another piece of it, because there's a lot of expenses sometimes that they're upfronting, the advanced client costs. You got to track that. It's a lot of work working with a family law firm for sure. as opposed to any other particular law firm. That one's definitely on the higher list of— and some people just kind of naturally gravitate to it and they'll actually use this as a micro niche. So I work with attorneys, but I only work with family law firms. I'm sure that's going to be it. You could probably produce some pretty good workflows in that case. I would say.

Probably get the lingo down too of like how you want to look at revenue, whether it be in the accounting system or whether it be inside of The practice management, like you're saying, tagging, customizing things to see where the trend is too.

Yeah.

Probably like where you're gonna put— if you're gonna market grassroots marketing or, you know, PR, public marketing of any kind like of that. And there's a ton of stuff that's probably behind it too, like all the advertisements that they have to produce and state when they're doing certain cases.

So It's a lot. Anybody know how profitable this particular practice area is compared to others? I'm sure the Clio Trend Report has it, but anybody know off the top of your head how profitable?

We don't have an answer on that one.

No, I don't.

That's a good question. I'm going to find out.

Yeah, I'm just thinking about it because is this a profitable, comparable to other firms? Obviously, if they have, they probably have to have a pretty hefty staff. Even if they're by themselves, they'd most likely need a paralegal, maybe a legal assistant. Sometimes a receptionist if they have an office. So their overhead might be a little bit higher in the wage department because they have to have a larger staff to handle all that goes on, because you're apt to have that client walk in the door at any given time. If they're upset about something, they might not just call you. They might actually show up because they want to talk to that attorney. Yeah, I mean, those are things you think about that I'm just envisioning what would happen as you sit there as a family law firm, what the things you would run into more than like an estate planning firm or corporate lawyer where it's a little bit more contained and concise. And I don't wanna say boring, but more scheduled kind of work, you know, that you can more regular work. And certainly you would be When court date comes would be a lot more high on the emotional track for them. And like you said, it doesn't always mean divorce, but that's what you think of when you think of a family lawyer. It could be just custody.

Even think about it. It is expensive because no one said divorce is easy. There's why there's so many prenups, you know, or, you know, post-agreements or child agreements. Child— I don't even want to say it's not— sometimes a parent might lose complete rights, but there has to be child agreements on maybe they're young and the other parent has to know about what's going on, or I want to move out of my state to a different state. What does that look like? I mean, there's so many detailed pieces that go with it. I'm imagining that it's not a cheap— you're not sitting in the cheap seats.

I'm going to guess that they probably— I would like to see what you guys think about this, but I bet that they probably have to have a higher volume of clients than, say, if we're comparing them against a corporate firm. You know, maybe a 1 or 2 attorney house setup would have to have a lot more clients than a 1 or 2 size law firm in the corporate world, just because of the cash flow and how much, how much longer it takes to get it done.

Mm-hmm.

You can turn a corporate case pretty fast. You can bill it monthly and you can turn on and off the faucet depending on how they pay and all those sort of things a lot easier than I think you could in family law. I wonder how often a family law attorney too has to, with, you know, make the decision to try to withdraw from a case because of certain things compared to other types of lawyers.

Yeah, no, these are all such really good points. It's interesting. I think it also plays into what we've talked about as the accounting professional is you can service the legal community and you could micro-niche into it to what Lynda has talked about previously is you could get into one segment and realize you're going to get a little deeper into a different one. So yeah.

Well, according to Google, family law and divorce lawyers' revenue has been increasing at a rate of 0.2% over the past 5 years, including an estimated 1.4% in the current year and expected to total $12.8 billion in 2023.

Billion.

Billion. Yep. With profits set to drop 20.5%.

I wonder why.

So those Las Vegas weddings, how do those work?

You can get out of those pretty quick, can't you?

I'm just like, well, and also probably what plays into it is the high net worth earners. We have more and more of those. That is huge.

Where do family lawyers make the most money? Washington. The state of Washington. As an attorney, you can make— your annual salary can be $112,000. Wow.

Okay.

I would not have picked that. I would have thought it was California, but California comes in 4th.

I would have thought New York.

New York, 2nd, $109,000. But why Washington? Isn't that weird?

That is, uh, yeah. Yep.

That's it. And that's not a bad practice area if you're going in as just the attorney and have to be the business owner, I guess. But you still got to work real hard at that. You still have to work hard. And yeah, it's not for the faint of heart for sure. I think that that's the thing with family law is you have to have the right personality traits for that practice area and you have to work really, really hard and you're going to be I have a question because my cat just walked in here and is yelling at me.

So in family law, is this where the pets are too when you're fighting over the pets?

Oh yeah, I bet it is. I get the cats. You can ignore that cat. We can't hear him, but, um, no, he's been yelling at you all morning.

All morning.

It must be time to end because when Walter comes in, that's it. Usually he's got a bed. Maybe that's why he's mad at you, is that there's a couch behind you.

That's like— it's interesting to me, just, I just didn't think, because there are so many cases of custody over the pets.

For sure, the pets. Yeah.

Um, so yeah, but okay, well, that's a funny note to end on in the we are family with the furries and everything else in the mix.

Mine are quiet at the moment, which is amazing. Knock on wood. Yeah. So if you are working with a family lawyer, I would say know that you need to really look at this data set, find out the last time the trust was balanced and go from there. But know that it's going to be a lot more work with a lot more transactions, almost in the e-commerce level. Maybe not as bad, but you're looking at a lot of volume and a lot of similar amounts because they might charge a lot. They might have a menu where a divorce is $10,000 up to so many hours. You have to track that too, which is where your software is going to come into play. So I would really highly recommend if you find one that doesn't have software to kind of encourage them to move to some kind of a software. It's going to be your best friend, especially because of the trust accounting side.

Such a good point, Lynda. Really. I mean, that's some good piece of advice for sure.

Well, we nailed this topic, so we'll let our lovely Tiara take us away.

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Awesome.

Thank you.

That was great.

Thank you, everybody.

So until next week, bye everybody.