Editor's note: The "greedy lawyer" isn't just a stereotype. As self-made millionaire Mark Ford knows firsthand, some lawyers will steal your wealth. That's why you have to know how to pick a good one.
Mark is the founder of our corporate affiliate The Palm Beach Letter. He has spent a fortune in legal services over the years... most of which he found to be superfluous.
In today's edition of our weekend Masters Series – originally published December 2 in his free e-letter Creating Wealth – Mark shares some of the tactics lawyers use to make the most money from you. Knowing these tactics will help you prevent spending unnecessary dollars and give you some peace of mind.
He says to keep your costs low, you need to recognize one thing: You are the boss.
Thirty years ago, my partner and I were sued by the government. The charges, we believed, were ludicrous. The legal firm we hired to defend us agreed.
"Outrageous!" they said. "This will never hold up!"
Buoyed by their indignation, I wanted to go fight it out.
"Not a good idea," my partner/boss told me. "We'll spend a fortune in legal bills, and it will drag on forever."
So we agreed to an out-of-court settlement. At the beginning of the negotiations, the government offered us a deal. Our lawyers called it "insulting."
So we dug in and really negotiated. A year later, we finalized a deal. It was the very same offer the government had made in the first place. The only difference was that we had accumulated $500,000 in legal bills in the meantime.
A friend of mine, a real estate attorney, once "took over" his wife's divorce practice for six weeks while she had their first child.
"How did it go?" I asked him after his wife had gone back to work.
"Not good," he said.
"How so?" I asked.
What happened was that my friend told his wife's clients that they were wasting their time and money by all the legal fighting they were doing. Florida is a 50/50 state (requiring that the assets and debts of the marriage be divided equally), he explained. "Accept that and you'll save tens of thousands of dollars in legal fees."
This was good legal advice, but it was bad for business. The women he counseled were not at all happy to give up the fun of fighting with their exes. By the time his wife got back to work, half of her clients were gone.
"What kind of lawyer are you?" she asked him.
About a year ago, I decided to change the structure of one of my businesses. I knew a lawyer who had done the exact same thing for a colleague of mine, so I wanted to work with him. He told me it would take 60 days and cost me $15,000.
I gave the job to someone else who promised he'd do it for less. Since he wasn't an expert, he had to subcontract with two additional lawyers. It took me six months and cost me $25,000.
Lawyers (like brokers, bankers, and insurance agents) are service providers. We hire them to solve problems and achieve goals. If they do good work, they help us accumulate and protect wealth. If they do shoddy work, they can put us in financial danger. And when they charge us more than they should, they make us poorer.
There are basically two kinds of legal services you are likely to encounter: trial/litigation work and contract/commercial work.
The first two stories I told you at the top of this essay are about how you can waste money working with lawyers on trials and litigation. The third story shows you that you can waste money on contractual work as well.
Some lawyers steal your wealth. Knowing these tactics, as well as guidelines to identify good lawyers, will help you prevent spending unnecessary dollars and give you some peace of mind.
Trials and Litigation
Let's start with the scary issues: getting sued, getting divorced, getting arrested, etc. How do you get the help you need without paying more than you should?
The most important way to keep your costs down depends on you. You must understand that it is usually smarter and cheaper to settle litigation out of court. There are exceptions. But they are called exceptions for a reason: They are rare.
When you feel victimized by a lawsuit (as I did 30 years ago), you may want to go to battle. Lawyers benefit from battles: The longer the battle, the higher their billings. But a good lawyer doesn't need to prolong legal arguments, because he will have plenty of other clients bidding for his time. A good lawyer will let you know in advance that fighting is costly. He will encourage you to be realistic about your expectations.
It is impossible to predict with certainty how long out-of-court disputes will take to resolve. But an experienced lawyer should have a good idea. Don't be afraid to speak frankly to him about your desire to keep his tab to a minimum. He's supposed to be on your side. If he is, he will respect your wishes.
Remember, too, that legal fees are not set in stone. I used to assume that lawyers always received the hourly fees they quoted. But I've learned from experience that it is possible to negotiate. Negotiate not just their fee, but what they are charging you for their legal assistants and office work – such as photocopying and deliveries.
The very fact that you negotiate these terms upfront will send the right signal: "I'm not a pushover. I'm going to be watching." You can even negotiate a legal bill if you think it's too high. Little guys don't do this, but big clients do. All the time.
If you don't know the lawyer personally, don't assume you are his top priority. He may have a relationship with your opponent's lawyer or with the court itself that may take precedence over you. I've heard stories of lawyers sacrificing the interests of their smaller clients in order to benefit a larger client in some way. This is obviously illegal and unethical. But it happens. Be aware.
Finally, listen to your lawyer's advice, but recognize that – as with your broker and banker – you are the boss.
Commercial Transactions
When it comes to commercial transactions, be frugal but not foolish. Understand that most of what you need is going to be standard fare. But recognize that a specialist, even though his hourly fee may be higher than others, can save you money because he can get the work done faster.
I use two "transactional" lawyers for my business activities: one for my real estate transactions and another for my business activities.
My real estate attorney has been doing real estate law for 30 years. He knows the law. He understands the local regulations. He has the right business connections. His fee is $175 per hour, which is a bit more than I could get elsewhere, but it is actually a great deal. That's because he works well and quickly. He almost never spends more than an hour or two on any particular deal.
I get great service and fair pricing from him because he is a true expert. In his 30 years of experience, he's done it all. He has just about everything I need 90% prewritten. With some quick modifications, he can give me the service I need at a price I'm happy to pay.
The same is true of the woman who handles the contracts and agreements for my business ventures. She knows how to make deals. She knows how to protect me. I don't have to pay her to figure things out. She gets the work done well and quickly. She doesn't like to spend any more time on the legal stuff than I do. I'm more than happy to pay her the $350 she charges.
My take on commercial legal transactions is that you don't need to pay big dollars for 90% of what transactional lawyers do. Most of the work commercial lawyers perform can be done (and often is done) by their legal secretaries.
But that doesn't mean you can use anyone or – as a few friends of mine do – print contracts off the Internet.
In hiring a transactional lawyer, hire someone with experience and expertise. For most of what you want, you shouldn't pay more than $250 per hour. But the hourly rate, as I said, is not the most important thing. The overall cost per transaction is what matters.
When selecting a commercial lawyer, shop around. Interview two or three before you choose one. Look for someone who is candid and speaks in a language you understand. And when it comes to new work, don't be afraid to ask for a flat fee or a hard estimate for the work you want. For big jobs, negotiate, just as you would with litigation.
Estate Planning
Sooner or later, you will need a lawyer to handle the legal side of your estate planning. I'm talking not just about writing wills but about setting up trusts, family limited partnerships, etc.
Most of this kind of work is boilerplate. You can have simple wills and estate plans made for $2,500. If your estate is large, expect to pay twice that amount. Beyond that, negotiate.
Editor's note: Even if you are able to keep your legal costs low, there are many other "wealth stealers" out there... like taxes. Mark's business partner, Tom Dyson, recently found an investment opportunity that minimizes the amount you pay in taxes. His method can allow you to (legally) retire 100% tax-free. It's such a great opportunity, Tom says he has personally made it his largest investment. Click here for the full details.