You’ve worked through law school and various phases of professional development—climbing the ladder, so to speak. With your hard work paying off, you may be presented with opportunities to transition to a new firm or partner-level role—which can have a major impact on your finances. And as a legal professional, there are unique opportunities, structures, and challenges that demand a financial strategy as sharp and dynamic as the legal expertise that’s built your career.

Making sure this transition integrates with your overarching goals and financial picture takes some foresight and intentional planning. Here are some factors to consider:

Assess the Big Picture

A partner-level career move might involve a significant capital contribution. Before making the investment, zoom out to get a rounded view of the opportunity—evaluate not only the potential financial rewards, but also the risks, responsibilities, and personal implications involved. A holistic approach will help ensure that this major career move aligns with both your professional aspirations and your personal circumstances.

As you weigh your options, assess the following:

Financial Health and Stability:

Conduct thorough due diligence on the financial health of the firm you’re considering. Ideally, you’ll be able to review the firm's financial statements, profit and loss reports, balance sheets, and cash flow records to assess financial stability and performance history. You will want to know how profits are distributed and how debts and liabilities are managed. If you’re not able to access these statements, you can still ask the questions. (The quality of their response will be telling.)

Revenue Streams:

When it comes to revenue streams, look for diversification and consistency. Consider how the firm’s contracts are executed, how retainers are managed, and how insulated the firm is from client concentration risk. It is worth understanding whether their success relies on a few major clients versus a broad, stable client base.

Equity vs. Non-Equity Partnership:

Evaluate the type of partnership being offered. Equity partners typically make a capital contribution and share in the profits, losses, and strategic decisions of the firm, while non-equity partners may have different financial and managerial rights and obligations. Weigh these factors against your risk tolerance and overarching objectives.

Partnership Agreement: 

Review the partnership agreement carefully. Pay attention to your rights and obligations, capital contributions, profit distribution, decision-making processes, buy-in and buy-out clauses, and what happens if the partnership is dissolved or if you decide to leave the firm.

Firm Culture and Values:

Assess whether the firm's culture, values, and practices align with your professional ethics and personal values. The satisfaction and success of your partnership will be significantly influenced by the compatibility of your professional ethos with the firm's culture. (Chambers Rankings shouldn't be the only measure of a firm’s quality.)

Career Advancement:

Consider how this partnership aligns with your long-term career goals. Evaluate the firm's track record in supporting the professional growth of its partners, its market reputation, and its strategic vision for the future. Lastly, ask yourself whether your future focus will lean toward origination or billables. This preference may change over time and your inclination will likely impact your decision.

Liability Exposure:

Understand your potential liability as a partner. This includes both professional liability and any financial risks associated with the firm's debts and obligations. Are appropriate insurance policies in place? How are liabilities shared among partners?

Exit Strategy:

We know it’ll be a match made in heaven, but your best move today may not be your best move tomorrow. Consider the terms to exit the partnership, including any restrictions on leaving the firm and how your capital contribution will be returned.

Work-Life Balance:

In some industries, it can feel faux pas to ask about work-life balance, but understanding expectations is a crucial factor in assessing whether this investment of your time, money, and energy is worthwhile. Understand the expectations for partners in terms of billable hours, business development, and firm management responsibilities. Consider how these expectations align with your personal life and work-life goals.

Compensation

New compensation structures, while hopefully exciting and lucrative, can also be disruptive to your existing cash flow and investment timelines. Taking time to understand, adapt, and optimize changes in salary, bonuses, profit sharing, or deferred compensation will help ensure each piece of your income fits neatly into a holistic financial picture. A simple method is to maintain a basic balance sheet that outlines your asset composition by percentage of your total assets. With this transition, you may be presented with opportunities to invest in private deals and other unique investments. Use the balance sheet you’ve built to see what the liquidity constraints and concentration risk will look like against your current situation. The goal here is to balance long- and short-dated assets, while also accounting for your liquidity needs. As time goes on, this outline will act as a guidepost as new opportunities arise.

Download our guide on issues to consider after a promotion or raise at work.

Reassess your Retirement and Benefits

Retirement planning is especially crucial for legal professionals given the delayed runway that many lawyers face after spending more time in school and high student debt. Thoughtful financial planning can go a long way toward making up for this delay and ensuring your vision is on track. From consolidating your retirement accounts, evaluating new retirement plan options, and assessing other benefits such as health insurance elections, you’ll have many options that can affect your finances down the line.   

Download our guide on assessing your employer-provided benefits.

Manage Transition Costs and Cash Flow

From income variations, potential relocation costs, and liability considerations—ensuring effective cash flow and budgeting is foundational to a smooth transition. Many legal professionals are faced with managing irregular cash flows and adding transition-related expenses and adjustments can be highly disruptive to your current cash management and budget. Take time before transition to reassess your cash flow to help avoid disruptive surprises so you can maintain focus on what matters most.

Download our guide on issues to consider when reviewing your cash flow.

Pro tip: Putting together a simple one-page document that outlines your current and projected income, expenses, savings (along with savings rate), cash reserves and portfolio value will give you a high-level overview to help guide your decision-making throughout this transitional period.

Pre- and Post-Transition Planning

Embarking on a career transition isn't just about the move itself—it's about creating the space for some preparation and foresight. Don’t let perfect be the enemy of good enough. Focus on your guidepost and then think through a punch list of items to continually revisit and review. Remember that while some items can wait until your transition is complete, others shouldn’t. Keep your priorities in check. Optimizing investment strategies, reassessing time horizons, readjusting retirement plans, firming up cash reserves, and revising your estate plan are just a few items that can be on that list. If you have a young family, for example, cash reserve planning may take priority over optimizing investment strategies. The most important thing is to pace yourself and prioritize.  

A Future-Focused Approach

As you step into your new role, remember that your personal financial planning will evolve with your career. Partnering with a wealth management firm can make a world of difference in taking control of your financial narrative, ensuring each chapter aligns with your personal and professional growth.

At Evensky and Katz / Foldes, we emphasize holistic planning and work closely with you before and after your transition to ensure optimal positioning that you can feel confident and excited about—because you’ve earned it.  

Happy planning.

Marcos