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October 31, 2008

Will Bartering Legal Services For Chickens Come Back In Vogue?

I've gotten to seriously thinking about this.  Will bartering for legal services come back or simply become more prevalent given economic times are going to get more and more challenging?

The first people didn't buy goods from other people with money. They used barter. Barter is the exchange of personal possessions of value for other goods that you want. This kind of exchange started at the beginning of humankind and is still used today. From 9,000-6,000 B.C., livestock was often used as a unit of exchange. Later, as agriculture developed, people used crops for barter. For example, I could ask another farmer to trade a pound of apples for a pound of bananas.

(The History of Money)

Unemployment is expected to increase dramatically. But the number we don't hear about very often is the rate of 'under' employment...meaning six figure hedge fund managers asking if you'd 'like a shake with those fries?" Credit is drying up.  People and small businesses still need legal services but may not have access to traditional currency as payment.  What they do have are possessions or services of value.

When we first opened our law office we bartered our legal services for other services (and declared the value for tax purposes!).  Got carpeting, painting, construction services because we didn't have ready cash as a start up.  But now the tables have turned.  People will need legal services but won't have the cash.

For instance, many bankruptcy lawyers are saying bankruptcy will be good.... for a while.  But there will come a point when the clients who need bankruptcy the most won't be able to afford the fees as their credit is ruined and they won't have access to credit or ready cash and are unemployed or underemployed.  Home equity lines will have been closed by the lenders and borrowing against a 401k won't be possible because of the diminished value.

If you really think about it will lawyers have to consider bartering service for services or goods, again? Doing an accountant's divorce in exchange for a decade of accounting services? Or free daycare from a newly created day care center in exchange for a small business incorporation and periodic legal advice. It's quite possible situations (or opportunities) like these could arise out of necessity.

I'm just writing about it because it wouldn't hurt to investigate the IRS rules and Rules of Professional Conduct on bartering for legal services because there may be (many) moments in the future you will have to consider this as an option.

Just typing out loud.

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Comments

Doug Cornelius

Do you include stock as part of the barter? The Silicon Valley firms were famous for taking stock in partial payment during the dotcom heyday.

Cash is still king.

Susan Cartier Liebel

@Doug Cash may still be king until it is dethroned.

Certainly its kingdom is under serious attack!

Larry Brown

While it sounds very good in theory, I see one big drawback - disparity in the value of services.

Let's say a lawyer does some legal work in exchange for having her house painted. The lawyer puts in 3 hours of work and charges $600. The painter puts in 15 hours of work and charges $300. The painter has worked 5 times as long, yet still owes the lawyer.

The huge disparity in hours worked to wages earned can be very discouraging or even angering to the vast majority who will feel like they are being "short changed". Even though most people know that lawyers are expensive, the mindset changes when they see the actual disparity in practice. Over time I think that people on the other end of the (service) barter will become resentful. Not because it is necessarily unfair, but because that is just human nature.

Of course this is not a concern if the lawyer is bartering services with a person charging comparable fees. But how often does that really happen?

Naturally, this theory only applies to services bartered for services. Goods for services presents a much more straightforward and evenly matched transaction.

George M.

It's a nice idea...I prefer a nice 42 inch lcd tv than waiting vainly to get paid.

Anonymous Frustrated Lawyer

One of my peers has accepted
- work done on his house
- a weapon
- a dozen eggs delivered every week for a year

Susan Cartier Liebel

@anonymous - we will be seeing more bartering. Of this, I am convinced. The question then becomes, what policies do we put in place to embrace the concept so we stay in control of it? What type of retainer agreement? Protecting ourselves by following all ethics and tax rules? These remain the big questios.

Yes, a dozen eggs won't pay your student loans...but the money you would have spent on them which you now don't have to...this money will.

Susan Cartier Liebel

@Larry - well let's blue sky here. Imagine you are representing a doctor. You pay g-d knows what for health insurance each month. What if there was a service - to - service barter; legal services for medical services? That could be a pretty good deal depending upon your 'insured' status.

Again, strictly blue-skying but I can see how this type of situation may present itself in the future.

Stephanie Kimbro, Esq.

I think this is already happening under the table with lawyers and select clients. I've talked with other solo attorneys who have bartered for child care, business advertising and baked goods (I'm talking gourmet cakes, not donuts). It may be the only way some folks have to pay for legal services these days. The attorney realizes that they can get something for helping someone where the alternative is that the person just does not have the legal work done at all. No, you can't operate a solo practice on bartering, but being flexible in working with clients for alternative payment like this might lead to additional paying client referrals in the future. Good question for thought, Susan.

Wes

The comment to Fla. Rule of Professional Conduct 4-1.5 says, "a fee paid in property instead of money may be subject to special scrutiny because it involves questions concerning both the value of the services and the lawyer’s special knowledge of the value of the property."

So, it seems that right off the bat, a barter system should focus on uniformity in setting values of goods/services in trade. I'll add anything else I find later...back to the researching.

Susan Cartier Liebel

@Wes - Thanks for introducing the RPF from Florida. You always add that little something special to the conversation.

Looking forward to whatever else you uncover.

Margaret Keavney

There are barter groups where you pay a fee to belong and they assist in assessing the value of services, recording the tax implications, and even allowing a round robin: I do your will, but don't need plumbing services. So I earn "credits" to use for landscaping services from a third member. That seems to address the "valuation" issue, as well as the tax consequences, if the organization is trustworthy. I think it's a great way to network and start a new business, or supplement cash paying clients.

Susan Cartier Liebel

@Margaret - that's brilliant. If you uncover any organizations let us know. Otherwise, you may want to consider starting one.

Necessity is the mother of invention, right?

Wes

I've found several state (AL, TX, FL among others) Bar Ethics Opinions that touch on this topic, including the organizations described by Margaret above and the issues they pose for lawyers. They discuss possible pitfalls in fee sharing with non-lawyers, compensating for referrals and myriad conflicts issues. These opinions seem to posit that bartering is perfectly fine so long as it does not violate any rules of professional conduct concerning fees, etc. Do your own due diligence, but this looks like it could be an interesting possibility to enhance flexibility.

Kimberly Alderman

Wait a minute-- Apples grow in different regions than bananas! I think there's a coverup afoot...

Dan

I write corporate minutes and resolutions for small business companies and professional firms. It builds and fortifies their corporate veil, helps protect their tax benefits and their limited liability. having good minutes matters a lot if you are sued or audited.

Will work for chickens.

Bruce Kamm

Good post about barter and being involved in the barter industry (as a trader, a barter exchange owner and now a software provider to barter exchanges) for over 20 years makes reading the comments very interesting.

Most of the $9 billion in annual trading in the US happens through a barter exchange, so the inequity of trades becomes transparent. In other words, instead of trading painting services for legal services at different hourly rates, the painter pays for legal services with barter dollars that he earned from painting from any member in the barter exchange. Then the lawyer can use the barter dollars to pay for whatever products or services they want.

Trading through an exchange eliminates the issue of doing a back to back trade because the exchange enables multi-party trades. You can use trade earned from the painter for anything available in the exchange including office maintenance, business travel or vacations for example.

There is a great array of trade opportunities such as printing, advertising, travel and more available in over 400 barter exchanges in the US.

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