The Financial Consequences of a Lawsuit

by Emily Guy Birken · 5 comments

We all know that America is the land of the free, home of the brave, and homeland of the litigious. But despite the fact that we seem to hear about huge payouts from frivolous lawsuits on a daily basis, getting yourself entangled in the possibly years-long process of suing someone who has wronged you might not be great for your financial health. If you are contemplating a lawsuit and you agree that money is important, here is what you can expect financially:

1. The retainer. When you first hire an attorney to represent you, he or she will require a retainer — a cash advance of anywhere from $500 for a fairly small case to several thousand dollars or more for a more complicated one. This retainer will be drawn from for legal fees and expenses until it is exhausted, at which point you will have to pay another retainer for future fees and expenses. Even if you anticipate that you will win your case, you will need to have enough cash available to be able to pay the retainer for your lawyer, possibly more than once.

2. Legal fees. Lawyers will generally determine their fee based upon the number of hours worked on the case multiplied by a fixed hourly rate, which can be as high as $1,000 per hour, depending on the area of the country where you live and the amount of experience your lawyer has. This hourly rate can also change throughout the course of your lawsuit, as lawsuits can often take years to resolve and legal firms will periodically re-evaluate their team’s hourly rates based upon inflation and experience.

3. Contingency fee. In some cases, your lawyer will agree to be paid a percentage of the amount won through the lawsuit. You will often see lawyers on television offer contingency fees: “There’s no fee, unless we win.” While this option is less expensive on the front end of the lawsuit, it is important to remember that contingency fees will take anywhere from 25% to 50% of your recovered damages—and occasionally the percentage is even higher.

Some law firms will offer a blend of these two fee options, where you will pay a reduced hourly rate plus a contingency fee.

4. Losing. Generally, whichever party loses the court case is ordered by the judge to pay the other party’s legal fees. If you do not win your suit, you will be on the hook for your own legal fees as well as up to 2/3 of the defendant’s fees. And even if you do win, you cannot look forward to having your defendant pay for all of your fees, as the court very rarely orders the losing party to pay 100% of the winner’s legal costs.

The Bottom Line

Resolving a dispute is no longer as simple as stating your case before a wise King Solomon. While sometimes lawsuits are necessary to ensure fair treatment, they are certainly not an easy solution. If you have been wronged, consider negotiation and mediation before you take it to the courts. It will likely save you money in the long run.

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  • Alan Brady says:

    It’s true that lawyers can be expensive, but a bad settlement, could really cost you too. A bad negotiation could end up costing a lot more in the long run. It’s probably best to consult an attorney before filing a suit, and during the negotiation of large transactions.

  • dojo says:

    Uff, sometimes I’m angry that we don’t have your legal system in my country, but on the other hand it’s better. We could surely not afford all this hassle, since most people have small wages as it is. And, while attorneys there are not as expensive as in the US, thet still cost a lot.

  • Marbella says:

    Unfortunately, lawyers often want you to settlement before trial so they can get good money without having to work so hard in court with the judge, evidence and the opposing party. So always try to resolve a dispute without lawyers.

  • Shilpan says:

    My wife and her siblings are contemplating a lawsuit against the seller who sold them a strip center with unethical tactics. He leased several spots before selling and walked away right after the sell and declared bankruptcy. The real dilemma is that it will cost thousands to file a lawsuit. Attorney is asking $7500 as a retainer. So, go figure.

  • Wojo says:

    And as a a result, it seems that most cases go to settlement and the sued party ends up paying out money even if they’re not as fault. It’s one of the things that frustrates me most about the system.

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