Yes, tiny violin - did anyone else struggle first years of law partnership?
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Anonymous
That post did show perspective. That poster compared their situation to someone else, but didn’t lost sight of anything. They stated a fact. |
Anonymous
No. If OP's quarterly draw is $55k + $20k/month, that's a total of $115k (55 + 20*3) income per quarter. Its NOT reasonable to expect someone to pay $80k of estimated tax on $115k of cash flow. When he/she gets the fat check at the end of the year, the firm can withhold the remaining additional estimated taxes. |
Anonymous
Really? IME most law partners are married to SAHMs or their spouse is mommy/daddy-tracked so that at least one parent can be the primary parent. I honestly can't think of a single law partner whose spouse is in an equally or more demanding career. |
Anonymous
Yes, I'm a law firm partner at a large firm, and my spouse is a doctor who works two (somewhat short) days a week. It works amazingly well for us. I can't imagine two spouses with my schedule. And yes, starting as a new partner can have financial struggles. In part, it sounds like the capital contribution (assuming it is capital contribution and not overhead!) is fairly early lump sum. At my firm, the capital contribution is roughly about 20% of a partner's budgeted annual compensation. If you are a bit under that, you may have paid it all this year. Or perhaps you pay the rest next year, and then your capital contribution is done and better cash flow. What is more standard at my firm, to even things out, is new partners generally get a loan with 3 or 5 years interest-only payments, and then 5-year repayment after that. The upshot is that the buy-in cost is spread over several years, so there isn't a big cash flow hit early. That may be no small part in what is causing a cash crunch for you. Separately, this may not be your issue, but many firms have a ~6 month hold back, to capitalize the firm (on lieu of taking on debt). With our firm, for example, partners don't receive current year distributions until Q3 tax payments are due. Q1 & Q2 distributions are the payment for the remainder of the prior calendar year. A new partner, however, doesn't get a distribution until about 9 months in. Moral of the story, new partners generally do need to plan ahead here, as it can pose challenges. These are good challenges, ones most folks would be thrilled to have. But challenges nonetheless. |
Anonymous
| If a newly minted equity partner is actually bringing home less than a senior associate the firm is poorly managed. Our firm saw to it that that was never the case. |
Anonymous
I assume that you mean "on a monthly basis". Under my assumption, your judgment that such a firm is "poorly managed" is premature without more knowledge about the specific law firm and about the particular individual's election to accept or reject firm financing. |
Anonymous
You are nuts. A senior associate will be making 500k ---- partners say 650 for first year -- so they are making more. But take home and draw are a lot less. Senior associate may be, after taxes is brining home 18,000. That is what they have been getting for last bunch of years. Same firm -- new partner draws probably 12,000. Why so much less if they are making 150k more? Most firms pay partners on the back end. Associates get paid up front plus bonus. In addition you end up paying 3,000 a month for health insurance when a partner because you pay both the employee and employer portions yourself. Plus most firms have manadatory retirement contributions that eat up money. You make more but your day to day cash flow is less. By a lot. In year 2 it is a little better as the firm may have paid you 100k plus as the rest of your comp. But that will come months after the new year. Year 3 is better and so on. And comp is rising. 650 for a first year is probably 750 plus as a third year so the draw increase to maybe 17,000 up from 12,000. I am a 20 year partner with 1.8 in comp. My monthly draw is around 35k. There are counsel at my firm with higher take home. What they do not get is the rest of my money later on. So for 2023 in May 2024 I will get 500k. The rest is taxes, retirement, capital, etc. |
Anonymous
OP has not said that. Pretty obvious to me that OP is the partner. I’d also guess that OP is male. |
Anonymous
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My DH is a 4th year partner, I work FT, and cash flow is something we manage carefully. Honestly, DH makes low 7 figures but I keep working on part because my income ($200k) and benefits are what allow us to not be super tight with our cash flow. The quarterly tax payment in June is the tightest because it’s also when private school tuition is due, and we have prepaid all the summer camps for the kids.
I will just say that you should probably be more conservative with your income moving forward. It’s not just the cash flow - if you spend all you make, then you have golden handcuffed DH also came from government, and we are aggressively saving because while he loves his job, it’s a grind, and he may not want to do it anymore one day. For us, we have a house mortgages payment we can manage on $400K income (not crazy if I am also working). Private school tuition is our current golden handcuffs - DH knows he has an out in about 3 years when we have to pick to do public for high school or not. Then he’s stuck again for 6 years until the youngest finishes. I also haven’t quit my job so that we don’t have golden handcuffs. We have 3 young kids, so juggling is hard, but working means more options for DH in the future. |
Anonymous
I mean, I guess . . . I was promoted from counsel to equity partner at a major DC firm around 20 years ago. At the time of my promotion I was one of the higher paid counsel and made a lot more than an eighth year associate. My first year as a partner I made $450k. I remember it distinctly. I also remember making more than I did as a counsel that first year even after expenses were taken out. I don’t remember my monthly draw, though. Maybe it was lower than my monthly pay as counsel, but it’s not like we spent every cent that I made as counsel so I don’t recall money ever being tight. In other words, there was really no “adjustment” necessary for us, at least not that I remember. |
Anonymous
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Hoping to move from income partner to equity in next two years. Feeling very fortunate I have $500k ‘available money’ (not retirement, not strictly savings but invested in medium risk unless/until needed) to consumption smooth, if needed. But could easily build that up given all my years in biglaw (and my spouse also spent abt 6 years). This was after paying almost $500k in debt too (and buying a house).
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Anonymous
If it gives you any comfort OP, we have a somewhat similar situation. A few years ago, DH joined Biglaw after many years in government. He is a non-equity partner. We thought he would be making much more than in government, but he's feels like a glorified associate, without the benefits. Long story short, it's been an eye-opening transition, with the firm giving him small bonuses, and meanwhile our paying a lot in taxes. Still, he's happy he made the move from government to the law firm, and the future is looking better (whether at this firm or elsewhere). |
Anonymous
When you’re a partner, they don’t withhold taxes. You have to rejigger your cash flows to accommodate quarterly estimated payments yourself. For a new partner that often involves either using up savings (if they’ve done that) or use of a line of credit. |
Anonymous
Private school can add up quickly. We pay for private schools via cash flow (like OP). But it seems like a lot of the kids have grandparents paying the bill (instead of parents who are grinding away). It's a lot harder to build wealth when you're spending $100,000 per year (for 2 kids), x 12. Then $85,000 per year per kid x 4. |
Anonymous
| I guess I’ve never thought about how lateral partners do it. The last fat year end bonus more than covered the first tax payments. |