Must a lawyer wait for settlement funds to clear the bank before disbursing them to a client, and can the firm advance the client's share from its general account?

Plain-English summary

The committee answered four questions about handling settlement proceeds. First, it concluded that immediate disbursement of non-real-estate settlement funds is improper; LE Op. 183 permits immediate disbursement only in real estate settlements and only when the Wet Settlement Act's requirements are met. DR 9-102(B)(3) and (4) require the lawyer to wait until the depository bank has credited the deposited funds to the trust account before disbursing to a client, because disbursing against uncleared funds would be paying out money belonging to another client.

Second, DR 9-102(A) requires that all client funds, other than advances for costs and expenses, be deposited in one or more identifiable bank accounts, so failing to deposit settlement proceeds to the appropriate firm account before disbursement is improper. Third, disbursing cash to a client at deposit through a "less cash received" item is improper for the same reasons. Fourth, EC 9-5 prohibits paying a client from the firm's general account for proceeds deposited to the trust account, so a firm may not deposit a check issued to both the firm and the client to the trust account and pay the client's share from the general account intending to reimburse it later.

Currency note

This opinion was issued in 1984, under Virginia's former Code of Professional Responsibility, before the Virginia State Bar's adoption of the Rules of Professional Conduct effective January 1, 2000. Subsequent rule amendments or later opinions may have changed the analysis. Treat this page as historical context, not current guidance. Verify against current rules before relying on any specific rule, deadline, or requirement mentioned here.

Common questions

Q: Can a lawyer pay a client from a settlement check before it clears the bank?

A: Under this 1984 opinion, no; DR 9-102(B)(3) and (4) required the lawyer to wait until the depository bank credited the funds before disbursing, to avoid paying out other clients' money.

Q: Can a firm advance the client's share from its general account and reimburse it later?

A: No. The committee concluded that EC 9-5 prohibits paying a client from the firm's general account for proceeds deposited to the trust account.

Q: Does immediate disbursement ever apply?

A: The committee noted that immediate disbursement is permitted only in real estate settlements under LE Op. 183, and only when the Wet Settlement Act's requirements are satisfied.

Background and rules framework

The opinion applies the former Code's trust-accounting rules, DR 9-102(A) and DR 9-102(B)(3) and (4), and Ethical Consideration 9-5, to the mechanics of disbursing settlement proceeds. The funds-handling duties correspond to ABA Model Rule 1.15 on safekeeping property. The committee also situates the analysis against the Virginia statutory scheme in Code of Virginia §§ 6.1-2.10 through 6.1-2.15 and its earlier opinion LE Op. 183 on real estate settlements.

Citations and references

Rules of Professional Conduct:

• DR 9-102(A), DR 9-102(B)(3), (4) (preserving the identity of client funds) (former Code)
• EC 9-5 (former Code; not commingling firm and client funds)
• ABA Model Rule 1.15 (safekeeping property)

Statutes:

• Code of Virginia §§ 6.1-2.10 through 6.1-2.15 (Wet Settlement Act)

Other opinions cited:

• Virginia LE Op. 183 (immediate disbursement in real estate settlements)

See also

• VA LEO 753: Disbursing Loan Funds Under the Wet Settlement Act
• VA LEO 1255: Wet Settlement Act and Disbursing Uncollected Items
• VA LEO 1116: Disbursing Real Estate Proceeds Before Recordation

Source

• Landing page: https://vsb.org/Site/about/rules-regulations/leo-opinions.aspx
• Original PDF: https://www.vsb.org/common/Uploaded%20files/LEOs/0614.pdf

Original opinion text

Reproduced from the official source for research purposes. The linked source is authoritative.

LEGAL ETHICS OPINION 614

TRUST FUNDS – TRUST ACCOUNTS – PRESERVING IDENTITY OF CLIENT’S FUNDS.

1. It is improper for an attorney to immediately disburse non-real estate settlement funds pursuant to the provisions of Code §§ 6.1-2.10 through 6.1-2.15 of the Code of Virginia (1950), as amended. LE Op. 183 permits only such immediate disbursement in real estate settlements and only authorizes disbursement so long as the requirements of the Wet Settlement Act are satisfied. The provisions of DR:9-102(B)(3) and (4) impose on an attorney the duty to wait until the depository bank has credited the deposited funds to the attorney's trust account before disbursement to a client out of the trust account. Otherwise, in the absence of “cleared” funds an attorney would be disbursing funds belonging to another client.

2. DR:9-102(A) requires that all funds of clients paid to a lawyer or a law firm, other than any advances for costs and expenses, shall be deposited in one or more identifiable bank accounts. Accordingly, the failure to deposit settlement proceeds to the appropriate firm account before subsequent disbursement is improper.

3. It is improper to disburse cash to a client from settlement proceeds pursuant to the deposit slip “less cash received” item for the same reasons set out in response to inquiry number 2.

4. Ethical Consideration 9-5 [EC:9-5] proscribes payment to a client from a firm's general account for settlement proceeds deposited to the firm's trust account. Accordingly, it is improper for a law firm, upon receipt of a check issued to both the firm and a client, to deposit the check with the client's endorsement to the firm's trust account and pay out of the firm's general fund an amount equal to the amount due the client with the intent of reimbursing the general account from the trust account when the funds are credited by the depository bank.

Committee Opinion
October 30, 1984