DH is a new big law partner and I have no clue how to budget

[Anonymous]

I thought I posted this. My DH is a new big law partner as well. Right now he gets paid monthly and we take 40% of his paycheck and put it into a "vaulted" account to pay for taxes that we pay quarterly now.

He makes a specific paycheck each month and then quarterly we get draws on top of that. Then at the end of the year he could potentially get a bonus.

[Anonymous]

Also, first year of partnership can be very expensive bc of buy-in. It's not uncommon to bring home less the first year of partnership than the last year as an associate.

[Anonymous]

If nobody else has suggested it, hire an accountant experienced with law salaries. Let them work it out for you, and provide you with an easy-to-read financial breakdown. If your DH is big law - lucky you, just have an accountant handle the finances since you can afford it.

[Anonymous]

PP here- we also got an accountant recommended for us by DH's law firm. Very helpful. We could never do this ourselves.

One thing to mention, my DH is not an equity partner so he doesn't have a typical "buy in" yet. He does have to pay a lot more into a "retirement" account each year. Thankfully we get health insurance from my employer since it would be upward of $3000 a month for our family.

[Anonymous]

Can someone please explain buy-in to me? DH is currently a non-equity partner and I guess could become an equity partner this year.

What does the transition from non-equity to equity partner look like? As a non-equity partner, he is considers to be self-employed and we have all of the same issues with taxes, health insurance, etc.

[Anonymous]

Anonymous wrote:Can someone please explain buy-in to me? DH is currently a non-equity partner and I guess could become an equity partner this year.

What does the transition from non-equity to equity partner look like? As a non-equity partner, he is considers to be self-employed and we have all of the same issues with taxes, health insurance, etc.

Wife of big law partner here. Typically when a lawyer has "made" partner, they ask that he/she buy in to the firm with a capital contribution. Sometimes $1 or $2 million dollars. Some firms ask you to take a loan to pay them up front, but most will ask that you pay $100000 or $200,000 a year out of your salary to "buy in." That money doesn't usually ever gain interest, and if one were to leave the firm they would get it back (unless firm goes bankrupt, which has happened in other firms).

[Anonymous]

PP here again. I forgot to add that it is definitely helpful to use an accountant and planner that others in the firm use. It can be quite complicated when quarterly taxes are due. DONT attempt any of this yourselves!

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:My take on this is that OP and others are humble bragging about having spouses making lots of money in big law.

-- Biglaw partner whose spouse has never found any of this to be "so complicated"

I think that's a bit cynical. My firm has a series of onboarding events/trainings for new partners (and even for associates or counsel who are putting themselves up for partner) to make sure they understand and prepare for the new tax situation that comes with making partner. Since OP's DH is taking a strangely laissez faire attitude toward the question and she knows budgeting is not her strong point, I think it's perfectly reasonable to come to the one place on the internet where all BigLaw SAHM's can be found at any given moment for advice.

-- Biglaw senior associate who has no plans on making partner but has witnessed the transition go poorly for certain colleagues

What firm provides partner "tax training" for associates who aren't partners yet? That's odd.

In any event, it's just not all that complicated. Just be careful for the first year and after that go on prior experience. And if after being careful you still find that you have to tap a line of credit because your numbers were off, no biggie.

You definitely think you're bragging that it's "not complicated" but really you're just demonstrating that, even as a law firm partner, you don't make that much money (or aren't at a top/global firm). Anyone making seven figures, which gets distributed a year after it's earned, in random huge chunks throughout the year, including what one must LATER pay in taxes to several countries and states at equally random dates, would find cash flow complicated.

OP's husband is a first year partner. I'd be flabbergasted if he was making seven figures that quickly, but if he is, good for him. But the point remains the same: the first year can serve as a good barometer for planning purposes.

And any decent "global firm" will typically pay taxes to "foreign countries" on your behalf and include it all in your K-1 so your accountant can do the work. My firm had offices in a half-dozen cities in the US and twice than many abroad and the only estimated taxes I paid were DC and federal taxes. And, yes, I was an equity partner.

Also, good firms don't pay their equity partners less than senior associates because of buy-ins etc. That's just wishful thinking for associates who don't make partner. Good firms give you the option to pay the buy-in in installments or set you up with a bank for a capital loan.

See? I actually do know what I'm talking about.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Can someone please explain buy-in to me? DH is currently a non-equity partner and I guess could become an equity partner this year.

What does the transition from non-equity to equity partner look like? As a non-equity partner, he is considers to be self-employed and we have all of the same issues with taxes, health insurance, etc.

Wife of big law partner here. Typically when a lawyer has "made" partner, they ask that he/she buy in to the firm with a capital contribution. Sometimes $1 or $2 million dollars. Some firms ask you to take a loan to pay them up front, but most will ask that you pay $100000 or $200,000 a year out of your salary to "buy in." That money doesn't usually ever gain interest, and if one were to leave the firm they would get it back (unless firm goes bankrupt, which has happened in other firms).

The one thing you left out is that while that money doesn't gain interest, you are paying income taxes on it the year that it is taken out of your pay so you're taxed on money you won't see until you leave the firm or retire. The bright side is that when you do get the money back it's not taxable since you already paid taxes on it.

[Anonymous]

So much misinformation here.

1. Most firms arrange a loan to fund your capital contribution and your capital DOES earn a coupon that exceeds the loan amount. Mine typically yields $4k-$6k per quarter, after loan interest is paid.

2. What you’re actually taking home can be difficult to understand at first. In addition to sheer complexity of the tax obligations and the fact that most of your total comp is deferred until year-end, first year as an EP is always different. Mostly because you have no profit allocation until you reach the end of your first year, so that first year can feel meager.

3. In terms of budget, the fact is at most firms you’re only receiving something like 40% of your total comp in monthly draws and special payments. So if you think you’re making $1MM, you don’t actually feel that way until end of year one when you get topped up. Before that, you’re making 400k which is a drop for most. Also, the mandatory retirement contributions are massive. So, lots of people “overspend” early in the year. HELOC is better than AMEX, fyi.

All that said, it turns out to be a lot of money once you’re in it for two full years or so. Like somebody else said, just don’t go buy a f&cking boat or something right away and you’ll be fine.

[Anonymous]

Do firms no longer retain accounting firms to handle partner’s taxes?

[Anonymous]

Thank you for your response! Good to hear that it’s been okay. I feel like I’m not a particularly big spender but we do have home projects we are doing (that are sadly necessary because of water drainage problems; they can’t wait until things are more stable) and I’m a little worried about cash flow. We would of course be fine if I overspent but I’d feel so embarrassed to have to take out a line or credit or something.

Do not worry about a line of credit - due to quarterly taxes and the bulk of annual compensation being deferred until the end of the year, it's not at all uncommon to use a line of credit and then pay it off when distributions start getting bigger.

[Anonymous]

Anonymous wrote:Do firms no longer retain accounting firms to handle partner’s taxes?

Nope. Most will “recommend” several. But retaining a single firm or even recommending just one is a massive liability.

[Anonymous]

You are definitely going to need a tax accountant. Get them on board now, talk expected comp range with them and get them to help you plan for your quarterly estimated payments. Then look at the draw schedule and save those amounts in a separate account. Pretend you don’t have any of that money.

Best to get tax accountant recommendations from your spouse’s colleagues - it saves a lot of hassle if the accountant is already familiar with how the specific firm does things, which can vary a lot.

Make sure you understand all the ramifications of partnership up front, including the effect on your health insurance premiums, and how the capital contribution will be funded. Hopefully they have a good borrowing facility in place for the latter. In my firm we get paid more interest on our capital contribution than the bank funding it charges, so it’s a little better than a wash.

Good luck!

[Anonymous]

Anonymous wrote:Also, first year of partnership can be very expensive bc of buy-in. It's not uncommon to bring home less the first year of partnership than the last year as an associate.

This is where we are and it sucks. Not even biglaw, so the payout isn't going to be much more than the of counsel salary was. It was more of a "become a stakeholder or get another job" deal. Dh's paychecks are about a third of what they were and we have to pay health insurance out of them.

Another reason law sucks