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

[Anonymous]

Get a financial advisor who works with other law firm partners. S/he'll help you make a plan for the cash flow and see if you can reduce taxes. We had to reduce our retirement savings for the time being (which sounds insane, but... cash flow)

[Anonymous]

Anonymous wrote:

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.

Stop paying the discretionary school expenses. Done and done.

[Anonymous]

Anonymous wrote:Get a financial advisor who works with other law firm partners. S/he'll help you make a plan for the cash flow and see if you can reduce taxes. We had to reduce our retirement savings for the time being (which sounds insane, but... cash flow)

Most firms don’t give equity partners the option to “reduce retirement savings.” They’re mandated under IRS rules.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:

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.

I’ll play a duet with you. My DH will probably lose his job. This brings us to only my income which is about 290k. With one kid about off to college it’s definitely not as comfortable as it used to be. Plus I’ll be the first to admit we like our vacations and like our comfortable life. I’m sure he’ll find something, but I’m not gonna lie, I quite enjoy living off 600-700k/yr vs less than half that.
Of course we can do it.

My advice to you is you really need to ditch the private school. Unless you are in a terrible school district it is only a status symbol. Reason why college is so expensive for us is because my son got into Duke. Public school did him well.

Really interesting that you’re telling the OP to ditch private school in the same post where you say your kid is going to Duke. I’d never pay for a private college either.

That’s great! My son graduated top of his class and had a buffet of options laid in front of him. He didn’t want to attend UMD and I can’t blame him for not wanting to go to school 15 min from home with half his high school class.

I also consider the state of Maryland a “terrible” school district for state universities.

[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.

If it is capital you are making 800 --- you don't lose the 130. You get it back when you retire or leave.

I am a 20 plus year partner and have 1.5 million in capital.

[Anonymous]

Anonymous wrote:

Anonymous wrote:Get a financial advisor who works with other law firm partners. S/he'll help you make a plan for the cash flow and see if you can reduce taxes. We had to reduce our retirement savings for the time being (which sounds insane, but... cash flow)

Most firms don’t give equity partners the option to “reduce retirement savings.” They’re mandated under IRS rules.

That that is not a thing. There is nothing that can be done. This is the way of partnership. For me it got better by year 3 and year 5 plus is great.

[Anonymous]

Anonymous wrote:

Anonymous wrote: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?

I just asked to be a lateral "senior attorney" instead. It made more sense for more personal circumstances.

This makes no sense. You are a no one at a firm if you are not an equity partner.

[Anonymous]

Anonymous wrote:

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.

If it is capital you are making 800 --- you don't lose the 130. You get it back when you retire or leave.

I am a 20 plus year partner and have 1.5 million in capital.

That’s a lot. My firm’s requirements aren”t so high. And literally everyone uses a capital loan the firm arranges at excellent rates, so no one gets money back when they retire. The loan is just repaid.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote: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?

I just asked to be a lateral "senior attorney" instead. It made more sense for more personal circumstances.

This makes no sense. You are a no one at a firm if you are not an equity partner.

I'll take $500K/yr to be a "no one".

[Anonymous]

Anonymous wrote:Seems like the smart thing to do is be a high level associate or non equity partner forever.

Unless you’re going to be a big rainmaker, this is true. The problem is that it’s often “up or out” unless you have a skill set that they really need.

[Anonymous]

Anonymous wrote:

Anonymous wrote:

Anonymous wrote:OP it sounds like you’re spending more than you earn and didn’t ask any detailed questions about compensation in your new job.

What do you want? We can surmise that the house is an expensive house in a good school district. Send one or both kids to public school for a few years. Or refinance your house. Or apply for financial aid. Whatever.

Well, if you read my actual post, I asked if anyone else struggled at first and when it changed.

Most people were coming from being highly compensated senior associates and non-equity partners and had, you know, savings before doubling down on the mansion and private school. Its not fair that people can be this stupid and still be rich.

Just stop. The vast majority of associates don’t understand that they’ll make less money as a partner than they did as an associate. That’s because law firms want everyone to fight to make partner, so they’re not exactly forthcoming with this info. Unless you have a good friend who is a law firm partner who will clue you in, the most you’re going to get is a few jokes along the line of “lol, you’re a new partner, you’re still paying them.” Not everyone understands that they mean that *literally.*

If OP came from the government to a well compensated Of Counsel position, than I could see how they would assume that they wouldn’t have to take a pay cut when they made partner.

[Anonymous]

OP, did your family have a personal accountant aware of DH's career trajectory? If not, that's a critical mistake.

While the bumps in the road for a new partner can't completely be removed, a good accountant can certainly smooth them over.

[Anonymous]

Anonymous wrote:OP, did your family have a personal accountant aware of DH's career trajectory? If not, that's a critical mistake.

While the bumps in the road for a new partner can't completely be removed, a good accountant can certainly smooth them over.

So can just asking questions and understanding the answers.

[Anonymous]

As someone who followed the same path - i.e., government to counsel to equity partner - I am very sympathetic. The first couple years are rough because there is no non-retirement savings to draw from and the take-home pay is much reduced from counsel to new partner due to all the tax, insurance, and buy-in costs. The answer is a credit line. It's hard to imagine any firm doesn't offer their partners options to finance the capital costs, unusually through favorable relationships with large commercial banks. We were also able to obtain a phenomenal mortgage rate through such a relationship, and now after 6 years are doing fine with both retirement and non-retirement savings. Ask your finance folks about financing capital contributions or a line of credit to manage tax obligations - I would be surprised if both are not available.

[Anonymous]

Anonymous wrote:OP, did your family have a personal accountant aware of DH's career trajectory? If not, that's a critical mistake.

While the bumps in the road for a new partner can't completely be removed, a good accountant can certainly smooth them over.

The numbers for new partners are not shared with non-partners. There is no way to prepare. Other than save money and do not buy a house at this point. In 4-5 years you will be swimming in money. Just need to wait.