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

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[quote=Anonymous][quote=Anonymous][quote=Anonymous][quote=Anonymous][img][quote=Anonymous]I’m the previous “confused” poster. When I first read OP’s post I assumed that by overhead she meant capital contribution.  If you switch those words in her OP then, yea, that’s exactly how most equity partners are compensated in Biglaw.  The difference is that the capital contribution refunded to you when you retired or leave the firm.  So it’s almost like a forced savings.  You pay taxes on it the year you make the contribution, but when you get it back you don’t.

Example:  I was an equity partner in a big DC firm for about a decade, retiring early quite a while ago.  I was paid almost exactly what OP’s spouse is now.  But it was an honest $800k with the capital contribution taken out - none of this “overhead” BS.  Then when I left the firm the money was returned to me.  It was about $700k from what I can remember, and because I had already paid taxes on all of it before it wasn’t taxed again. A nice chunk of cash to ease the path to early retirement.  [/quote]

So how was your pay structured? Did you get a monthly payment and what was it?[/quote]

I can’t remember the exact numbers and of course they fluctuated by year, but I seem to recall that the firm would estimate what the partner’s compensation would be for the upcoming year, divide that by around 2, then divide that by 12 to come up with a monthly draw.  So for 800 you divide by 2 to 400, then divide that by 12 for a monthly draw of 33k.  Health insurance premiums, social security, etc would then be deducted from the monthly draw.  Then you’d get a couple of extra draws for estimated taxes around estimated tax time.

At the end of the year you’d basically get a statement that says ok, here’s your actual pay for the year.  We’ve already paid you X, so you’re still owed Y.  From Y we are now deducting your capital contribution and taxes that are paid on behalf of all partners, etc, which leave you with Z.

On rare occasions there was a deficit, but usually I’d end up with a check in five to (very low) six figures at the end of the year - just in time for another tax bill. [/quote]

Got it. So did you ever get to keep money from that end of the year check? I guess I thought we would but it seems like until you move beyond the 800k mark, the answer is no, correct?[/quote]

Yes I was able to keep some.  Not a lot, but some.  I remember being able to open a brokerage account outside of my 401k for the first time as a young partner with that leftover money.  That’s something else that ultimately allowed me to retire early.

But again I never really worried because between the massive retirement contributions that the firm required and the capital contributions that I knew I’d get back I never worried about savings.  I knew I was saving plenty.

Honestly, the “overhead” thing is bullshit.  If it really is what you think it is (ask your spouse), then you need to resign yourself to the fact that spouse is pulling in 670 - not 800. [/quote]

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