Client funds at the firm: separate account, written authorisation and no offsetting of fees

It is a scene that can happen in any small firm. An insurer pays the agreed compensation, the money lands in the lawyer's account and the client still owes part of the fees. The temptation is to deduct them and transfer the rest. Interpretative Circular 2/2025 of the General Council of the Spanish Legal Profession makes clear that, without express authorisation, this cannot be done.

The circular interprets Article 19 of the Code of Ethics, on third-party funds, and links it to the infringements of the General Statute of the Spanish Legal Profession. It also relies on Organic Law 5/2024, on the Right of Defence, which gives the General Council the power to issue interpretative circulars. Like any circular, it guides: it is the institutional reading of rules that are binding.

The basic rules

1. Separate account

Funds of clients or third parties must be held in a separate account, immediately available, distinct from the firm's own and with an accounting record. Ideally the funds of each matter can be identified, for example through sub-accounts.

2. No use without authorisation

Those funds cannot be used without a legal provision, a court order or the client's express consent. This includes deducting your own fees, unless there is express written authorisation.

3. No retention

Funds cannot be held longer than strictly necessary, even if the client owes fees. Offsetting and collecting by one's own hand are prohibited.

4. Offsetting requires a document

Offsetting fees is not possible without a fee note or equivalent document authorising it. Nor is it possible when there is a clear disproportion between the services provided and the amounts retained.

5. A power of attorney is not enough

A general power of attorney for litigation with power to collect does not by itself authorise offsetting, retaining, diverting or appropriating what was collected.

When the infringement is committed

According to the circular, the infringement occurs at the moment the funds are used without authorisation or returned late without justified cause. Returning them afterwards does not erase it.

In addition, the limitation period does not start to run while the funds remain retained or appropriated, or until the client receives a correct statement of account.

The possible penalties

The circular distinguishes two levels, according to the General Statute:

In the most serious cases, the bar association can refer the facts to the Public Prosecutor, and the disciplinary procedure can be suspended until the criminal one ends.

Good practice for the solo firm

The circular recommends a set of practices any self-employed lawyer can apply at no great cost:

1. A written engagement letter from the start, with the fees and the form of payment. The Organic Law on the Right of Defence allows the client to demand it, as we explain in our summary of the Organic Law on the Right of Defence.
2. A specific account for client funds, identifiable and separate from the operating account.
3. Immediate return of what was collected for the client.
4. Written, informed authorisation before any deduction, with a detailed statement.
5. Claim unpaid fees through legal channels, not by retaining funds.
6. Periodic statements and records of the movements.

Money that is not the firm's

Handling third-party funds also has tax and accounting consequences. Amounts collected on the client's behalf are not fees and must not be mixed with the firm's invoicing, which is declared in income tax and, where applicable, in form 130.

Client trust is the main asset of a small firm. Treating their money with clear rules is the most direct way to protect it.

More management guides in Solo and small-firm lawyers. And on the duty of secrecy and the documents the lawyer hands to the client, read our editorial on professional secrecy and reports delivered to the client.