What Investors Should Understand About Attorney-Client Privilege

When it comes to going over your business plans and tax structure with your lawyer, you need to understand what information is privileged and what is not.

You don’t want to be that client who gives crucial information to his or her lawyer and then ends up wondering whether that information is “attorney-client privileged” or not. Knowing the difference will help your lawyer just as much as it will help you.

What Is Attorney-Client Privilege?

Attorney-client privilege is a fundamental legal protection for individuals, companies, and organizations who provide confidential information and who seek counsel from a lawyer or law firm.

Under law, an attorney cannot be required to provide attorney-client privileged information to a plaintiff in a lawsuit (such as a creditor) or to a government agency (such as the IRS) except in certain scenarios.

Below are a couple of common situations where you may lose attorney-client privileges and a few tips on how to make sure your confidential information stays a secret.

Exceptions to the Attorney-Client Privilege Rules

Was a third party present with your lawyer when the information you wanted to be privileged was discussed? For example, was your financial advisor, your accountant, or a nosy family member there? If so, the attorney-client privilege is compromised.

There is nothing keeping your accountant from getting a subpoena, and there is nothing keeping Grandma from gossiping on bridge night.

If your lawyer hires third party professionals like accountants, your attorney can extend attorney-client privilege to them. This is called a “Kovel” hiring, and its origins are worth a read if you like legal history. It comes from a landmark case where a lawyer got an accountant for a client and the accountant’s work was covered under the lawyer’s attorney-client privilege.

Here’s a pro tip: For sensitive matters where you want information to remain confidential and privileged, do not involve outside parties, as those non-attorney advisers cannot raise the attorney-client privileged defense.

Only Legal Advice Is Attorney-Client Privileged

This is especially tricky for companies who have their own “in-house” legal counsel that also offers business advice. In this case, only the information exchanged that pertains to legal advice would be privileged.

For example, was an organizational chart of the company’s holdings “privileged” when provided to the company lawyer if that lawyer also manages those assets for the business?

Also, what if that lawyer shared that organizational chart with accountants, property managers, or other non-lawyers? If they did, then that information is no longer attorney-client privileged.

The solution here is to stay tight-lipped. If you have documents that you only want to share with your lawyer, have your lawyer designate them “attorney-client privileged” and keep them out of the hands of non-lawyers. Always tell your attorney what information is privileged when you share it, so they can proceed accordingly.

In short, keep everyone on a “need-to-know” basis. Let your attorney know before you provide the confidential information that you intend it to be privileged. This way your lawyer can make sure that your information is properly handled.

Here’s another pro tip: If you have sensitive documents or information you want to keep only between you and your lawyer, ask your attorney to identify the document as “attorney-client privileged” and do not provide it to non-lawyers.

Conclusion

Like so many legal concepts, attorney-client privilege is multi-faceted. There are some common mistakes that you can make that will compromise your protection. If you fall under these exceptions, your confidential information can be examined.

You should know what information is protected by attorney-client privilege and what information is not. Violating the privilege might lead to catastrophe, or it might just be embarrassing. Either way, knowing when to keep your mouth shut is a handy skill to possess.

Questions? Comments?

Join the discussion with a comment below.

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.