My clients often suggest asset protection techniques that appear clever and effective at first glance, but will not work against an experienced creditor attorney. One such idea is for the debtor to pay his civil litigation attorneys large sums of money in advance of legal services defending the creditor’s collection efforts. The theory is that the debtor’s money is protected in their attorney’s hands under some variation of attorney-client protections. Another reason for this plan is to make sure the debtor can fund his legal defense against collection efforts. This plan is built on incorrect assumptions and will not protect the debtor’s money against a skilled collection attorney
Attorney client privilege is an evidentiary rule that protects your communications with your attorney and documents you provide to your attorney. Attorney client privilege does not protect money you give your attorney. Money held by your attorney in his trust account, or even in his operating account, which money the attorney is authorized to apply to future bills as services are provided is your (the client’s) money until it is earned. A judgment creditor can serve a writ of garnishment upon the debtor’s attorney. All of the debtor’s funds held by the attorney which have not been earned by the attorney for services rendered are subject to the writ of garnishment. After the writ is served the attorney cannot use the debtor’s funds to pay legal bills and cannot return the funds to the debtor/client. A writ of garnishment served on the debtor’s attorney are effective creditor tool to make it difficult for the debtor to pay for his legal defense.
The debtor’s alternative is to pre-pay his attorney under an arrangement whereby all money paid the attorney is non-refundable whether or not legal services are provided. Non-refundable fees should be considered to be the attorney’s asset.