Yes, tiny violin - did anyone else struggle first years of law partnership?

[Anonymous]

The structure of compensation at firm is making things tough. Monthly take is quite a bit lower than pre partnership and the overhead and mandatory retirement eat into the bottom line, a lot. Also the draws have not even been close to enough to cover tax installments, like $40k less. We can’t save when the lower monthly payment is so much lower. Just, not comfortable right now, and I naively thought we would be. It’s only the second year, so maybe it will get better, I guess. This year just sucked because we had to use most of the end of the year payout from last year for taxes in April. Sigh.

[Anonymous]

Eeks. I am being recruited as a lateral partner and now wondering if I should think harder and stay in my cushy salaried gig. Can you describe it in more detail please on how it works in practice?

[Anonymous]

This is an equity partnership at top 50. All partners start at $800k. Retirement is around $70k, overhead around $130k. Monthly payout is around $20k. Draws about 55k, three times a year. Then end payout. Tax bills for quarterly payments about $80k, fed and state. That’s the gist of it.

[Anonymous]

^^oh, end of year tax bill like $150k.

[Anonymous]

Overhead? I assume you mean capital contribution? That’s what’s getting you. My old firm gave you the option to borrow the capital contribution or to pay it in installments. I’m sure you at least have the option to borrow?

[Anonymous]

Anonymous wrote:This is an equity partnership at top 50. All partners start at $800k. Retirement is around $70k, overhead around $130k. Monthly payout is around $20k. Draws about 55k, three times a year. Then end payout. Tax bills for quarterly payments about $80k, fed and state. That’s the gist of it.

So you can’t live on 280k/yr? Sounds like a you problem.

[Anonymous]

Anonymous wrote:Overhead? I assume you mean capital contribution? That’s what’s getting you. My old firm gave you the option to borrow the capital contribution or to pay it in installments. I’m sure you at least have the option to borrow?

It’s just coming out of the check.

[Anonymous]

Same question as PP. And is the overhead every year?

[Anonymous]

Anonymous wrote:Same question as PP. And is the overhead every year?

Yes. Partners own the firm and they pay for it to run.

[Anonymous]

Anonymous wrote:

Anonymous wrote:This is an equity partnership at top 50. All partners start at $800k. Retirement is around $70k, overhead around $130k. Monthly payout is around $20k. Draws about 55k, three times a year. Then end payout. Tax bills for quarterly payments about $80k, fed and state. That’s the gist of it.

So you can’t live on 280k/yr? Sounds like a you problem.

Well, categorically, yes. It is. We have set expenses of schools plus mortgage that make it tough. And it’s not 280 - it’s 240.

[Anonymous]

What's the firm's recent financial situation? Most firms in AmLaw 100 had record years in 2020 and 2021, picture very different in 2022/23 due to significantly slowdown in deals last year. So you may have made partner at just a difficult cyclical moment, where you are dealing with all the "start up" costs of partnership but also seeing smaller payouts due to belt-tightening. It should even out longterm, but now might be a bit of a pinch point.

Firms don't always do a great job of preparing partners for the financial challenges of that shift. Do you have a good financial manager you can trust? Do you feel that you properly structuring your finances with regards to taxes? I would focus on finding a good, conservative advisor to help with tax and money management, and they will help you structure things so you can avoid cash flow issues during these initial years when the capital contribution and shifting from ordinary income to distributions can be tricky.

[Anonymous]

Anonymous wrote:What's the firm's recent financial situation? Most firms in AmLaw 100 had record years in 2020 and 2021, picture very different in 2022/23 due to significantly slowdown in deals last year. So you may have made partner at just a difficult cyclical moment, where you are dealing with all the "start up" costs of partnership but also seeing smaller payouts due to belt-tightening. It should even out longterm, but now might be a bit of a pinch point.

Firms don't always do a great job of preparing partners for the financial challenges of that shift. Do you have a good financial manager you can trust? Do you feel that you properly structuring your finances with regards to taxes? I would focus on finding a good, conservative advisor to help with tax and money management, and they will help you structure things so you can avoid cash flow issues during these initial years when the capital contribution and shifting from ordinary income to distributions can be tricky.

Thank you. We need to do this. We unfortunately bought a new home and signed on for private school for another child right before making partner, not aware how cash flow would change. Partnership was not from within but rather from government so we hadn’t saved. Just stressed about cash flow.

[Anonymous]

Are you the spouse or what? Because you’re not being very clear.

If the $130k being taken out each year is actually overhead and not a capital contribution then the partners aren’t making $800k a year - they’re making $670k. Such bullshit, probably designed to make them look better for AmLaw purposes.

[Anonymous]

Anonymous wrote:Are you the spouse or what? Because you’re not being very clear.

If the $130k being taken out each year is actually overhead and not a capital contribution then the partners aren’t making $800k a year - they’re making $670k. Such bullshit, probably designed to make them look better for AmLaw purposes.

This is what I’ve concluded.

[Anonymous]

No advice PP. But curious this is the norm at AmLaw 100 firms? Esp the overhead? I had no idea.