What a contingency fee actually costs you
A contingency fee agreement pays your lawyer a percentage of what they recover, and nothing if they recover nothing. The percentage is the part everyone remembers. The three lines underneath it — case costs, the order in which those costs come out, and the liens — determine the cheque you deposit.
Four deductions sit between the gross number in the release and your net. The fee is the percentage. Case costs are money the firm advanced on your behalf: filing fees, deposition transcripts, medical records, expert reports, investigators, service of process. Those are reimbursed to the firm on top of the fee, not out of it. Liens and subrogation claims are what health providers, your own health plan, Medicare or Medicaid assert against the recovery for treatment they paid for. Whatever survives all three is yours.
Rule 1.5(c) of the ABA Model Rules of Professional Conduct, adopted in substance by every state, requires the agreement to be in writing, to state the method by which the fee is determined, and specifically to state whether expenses are deducted before or after the contingent fee is calculated. That sentence exists because the two conventions produce different numbers from identical facts, and the drafters knew clients would not otherwise be told which one they had signed.
The formula, and why the order of deductions matters
Start from the identity: your net is the gross minus the fee, minus the reimbursed costs, minus the liens. Nothing controversial there. The whole difference between two settlement statements built on the same case lies in what the percentage is multiplied by.
Under the costs-after-fee convention, the fee is a share of the gross: F = r × G. The firm takes its percentage of the whole number, then reimburses itself for the expenses out of the remainder. Under the costs-before-fee convention, expenses come off first and the fee is a share of what is left: F = r × (G − C).
Subtract one from the other and the algebra is clean: r·G − r·(G − C) = r·C. The fee gap is exactly the fee rate multiplied by the case costs, and it does not depend on the size of the settlement at all. At a one-third rate, every dollar of case cost moves a third of a dollar between you and the firm. On a case carrying $40,000 in expert and deposition costs at 40%, the gap is 0.40 × 40,000 = $16,000, on two settlement statements that would show the same gross recovery.
The identity has one boundary. If the costs exceed the gross recovery, the costs-before-fee base goes negative, the fee floors at zero, and the gap becomes r·G instead. This calculator floors the base rather than letting a negative base produce a negative fee, and warns you when you are in that territory, because a recovery smaller than the expenses is a conversation to have with the firm rather than an arithmetic problem.
Worked example: a $100,000 settlement with $10,000 of costs
A case settles pre-suit for $100,000. The agreement sets a one-third fee (33.333%) before suit. The firm advanced $10,000 in costs. There are no liens yet. Work it both ways.
- Costs after the fee. The fee base is the whole $100,000. Fee = 100,000 × 0.33333 = $33,333.00. Reimburse costs: 100,000 − 33,333.00 = 66,667.00, less $10,000 = $56,667.00 to you.
- Costs before the fee. The fee base is 100,000 − 10,000 = $90,000. Fee = 90,000 × 0.33333 = $29,999.70. Then 100,000 − 29,999.70 − 10,000 = $60,000.30 to you.
- Check the gap. 33,333.00 − 29,999.70 = $3,333.30, and r·C = 0.33333 × 10,000 = $3,333.30. The identity holds.
- Add the liens. Suppose the hospital and your health plan assert $12,000. Under the first convention you are at 56,667.00 − 12,000 = $44,667.00, which is 44,667 ÷ 100,000 = 44.7% of the gross. Under the second, 60,000.30 − 12,000 = $48,000.30.
Now change one fact: the case is filed and settles at the 40% tier with $40,000 of costs, on a $250,000 recovery. Fee on the gross is 0.40 × 250,000 = $100,000; fee on the recovery net of costs is 0.40 × 210,000 = $84,000. The gap is $16,000, which is again 0.40 × 40,000. The larger the case costs, the more that single sentence in the agreement is worth.
How to read the result
Look first at the share of the gross you keep. At a one-third fee with no costs and no liens, that share is 66.7% by definition. Every dollar of reimbursed cost and every dollar of unreduced lien comes straight off it, so the share falls fastest on small recoveries, where expenses do not scale down with the settlement.
A low share is a signal to go line by line rather than a sign that anything improper happened. Three things drive it: expenses that grew large relative to the recovery, a lien that has not yet been negotiated, and a fee tier that stepped up. All three are addressable. Case costs should be itemised on request and some are negotiable at disbursement. Liens are routinely reduced under common-fund and made-whole principles — the medical lien reduction calculator quantifies both. The fee tier is fixed by the agreement you signed, but which tier applies is a factual question about when the matter resolved.
Read the net under the other cost convention as a diagnostic, not as an entitlement. It tells you what the same case would produce under the other clause. If the difference is material and you cannot find the sentence in your agreement that resolves it, that is the sentence to ask about before you endorse the settlement draft.
Finally, remember what the net is not. It is not taxable income in most physical-injury cases — IRS Publication 4345 explains that damages for personal physical injuries or physical sickness are generally excluded from gross income, while interest, punitive damages and emotional-distress damages not arising from physical injury are not. And it is not final until every lienholder has signed off, which is why firms hold funds in trust until the last release comes back.
What the cost convention is worth, by fee rate and case costs
| Case costs advanced | 25% fee | 33.333% fee | 40% fee | 45% fee |
|---|---|---|---|---|
| $2,500 | $625 | $833 | $1,000 | $1,125 |
| $6,500 | $1,625 | $2,167 | $2,600 | $2,925 |
| $15,000 | $3,750 | $5,000 | $6,000 | $6,750 |
| $40,000 | $10,000 | $13,333 | $16,000 | $18,000 |
| $120,000 | $30,000 | $40,000 | $48,000 | $54,000 |
Values are rate × costs, rounded to the dollar. The table holds where the gross recovery is at least as large as the costs; below that the costs-before-fee base floors at zero and the gap shrinks to rate × gross.
Mistakes that change the number
- Assuming costs come out of the fee. They do not. Case costs are advanced by the firm and reimbursed on top of the percentage unless the agreement says otherwise.
- Applying the wrong tier. A tiered agreement is triggered by an event — filing the complaint, setting the case for trial, filing a notice of appeal. Check which event actually occurred, and when.
- Treating the lien as fixed. The number a hospital or health plan first asserts is an opening position. The common-fund and made-whole doctrines exist to reduce it, and Medicare applies its own procurement-cost reduction.
- Forgetting the balances that are not liens. Letters of protection, unpaid co-pays and a treating provider's balance bill come out of the same pot even when no formal lien was filed.
- Netting a structured component at face value. Where part of the settlement is paid over time, the fee is normally computed on the cost of the annuity, and the future payments are not worth their nominal total — see the structured settlement present value calculator.
- Ignoring multiple claimants. Where a single policy limit is split among several claimants, each claimant's fee and lien arithmetic runs on their own allocated share, not on the aggregate.
This is arithmetic, not legal advice
Fee caps, mandatory fee schedules and lien priority rules are set by state law and vary widely. Several states cap contingency rates in medical malpractice claims on a sliding scale, and claims involving a minor or a wrongful-death estate usually require court approval of both the fee and the distribution. Run your own agreement and your own state's rules past a lawyer before relying on any number here.
Where this sits among the other settlement calculations
This calculator answers the last question in a claim: given a number on the table, what reaches you. The questions before it have their own tools. What the claim is plausibly worth in the first place is the job of the personal injury settlement calculator. If fault is disputed, the award is reduced by your share of it before any of this arithmetic starts — the comparative negligence calculator shows by how much, and how differently the rules in use treat the same fault split. Where a large part of the claim is future wage loss, that component is a present-value calculation in its own right, handled by the lost earning capacity calculator.
Contingency fees are not the only model. Hourly representation shifts all the risk to you and is the norm in defence and commercial work. Hybrid agreements pair a reduced hourly rate with a smaller percentage. Fee-shifting statutes — civil rights, wage-and-hour, consumer protection — let a prevailing plaintiff recover fees from the defendant, in which case the fee award and the contingency percentage interact under the agreement's own terms; the billable hour realization calculator covers the hourly side of that arithmetic. What every model shares is the requirement that the basis of the fee is disclosed in writing before the work starts, and that a closing statement shows the client exactly how the money was divided.
Key terms
- Case costs (expenses)
- Money the firm advances to prosecute the claim — filing fees, records, experts, transcripts, mediation fees. Reimbursed out of the recovery, separately from the fee.
- Settlement statement
- The itemised closing document showing gross recovery, fee, each cost, each lien payment and the net. You are entitled to one, and to the backup for every line.
- Lien
- A right asserted against your recovery by someone who paid for your treatment — a hospital, a health plan, Medicare, Medicaid or a workers' compensation carrier.
- Tiered fee
- A contingency percentage that steps up at defined milestones, typically the filing of suit and then trial or appeal.