The Ethical Duty to Keep Client Funds Separate: A Cornerstone of Legal Practice
Among the most fundamental ethical obligations for any attorney is the duty to safeguard client funds and maintain them separate from personal or firm funds. This principle lies at the heart of client trust, professional integrity, and compliance with legal ethics rules.
The Rule: Client Funds Must Be Kept in Trust
Under the Texas Disciplinary Rules of Professional Conduct Rule 1.14 (and comparable rules in other jurisdictions), lawyers are required to hold property belonging to clients or third parties in a separate account, typically known as an IOLTA (Interest on Lawyers Trust Account) or trust account.
The rule is clear:
- Client funds must never be commingled with the attorney’s personal or operating accounts.
- Personal or firm expenses may not be paid from a trust account under any circumstances.
- Each transaction must be documented, and accurate records must be maintained for a set number of years—five years in Texas.
Why This Obligation Exists
This strict separation protects clients from loss or misuse of their funds. Clients often entrust lawyers with retainers, settlements, or escrowed funds. Commingling or mismanagement can erode public confidence in the legal profession and may lead to disciplinary sanctions, disbarment, or even criminal charges.
Moreover, maintaining separate accounts also protects lawyers. By keeping client funds in a distinct trust account and maintaining meticulous records, attorneys demonstrate compliance, transparency, and integrity.
Best Practices for Lawyers
- Open a designated trust account specifically labeled as a client trust or IOLTA account.
- Deposit funds promptly and never use the account for firm operating expenses.
- Keep detailed ledgers for each client, documenting all deposits, disbursements, and balances.
- Reconcile monthly between client ledgers, the trust account checkbook, and bank statements.
- Return unearned funds immediately upon the end of representation.
The Consequences of Commingling
Even inadvertent misuse—such as paying office rent or using trust funds for anticipated fees—can constitute a violation. The State Bar views commingling as one of the most serious breaches of fiduciary duty because it undermines client confidence and the integrity of the profession.
Intentional misappropriation of client funds is often treated as professional misconduct that can result in disbarment or criminal prosecution for theft.
Conclusion
Keeping client funds separate from personal and firm funds is not merely an administrative formality—it is a sacred ethical duty. Every lawyer, from solo practitioners to large firms, must vigilantly maintain this boundary to uphold the public trust that defines the legal profession.
At David C. Barsalou, Attorney at Law, PLLC, we help clients navigate business, family, tax, estate planning, and real estate matters ranging from document drafting to litigation with clarity and confidence. If you’d like guidance on your situation, schedule a consultation today. Call us at (713) 397-4678, email barsalou.law@gmail.com, or reach us through our Contact Page. We’re here to help you take the next step.