By Jeff McClean
Making partner changes your income twice. The amount goes up, and everybody tells you about that part. The way the money arrives changes too, and almost nobody mentions that part.
This is part of a series we’ve been writing for HENRYs, shorthand for “high earner, not rich yet.” Plenty of attorneys stay in that category longer than you’d expect. High income and long-term wealth aren’t the same, and the first doesn’t automatically produce the second.
Before I spent my career advising families on their wealth, I practiced tax and estate planning at a law firm in Houston. I have watched numerous friends make partner at big law firms and have to adjust to the income timing issue. Their income climbed to a level most people never see, and it stopped showing up in the same amount on the same day. That second part mattered more than anticipated.
Your Income Now Comes in Waves
Partner pay usually arrives in two pieces.
The first is a fixed salary the firm pays you across the year no matter how the year goes. It shows up on schedule, and you can build a lifestyle around it.
Your firm may call this a guaranteed payment, or it may pay you through a draw, which is an advance against profits you haven’t earned yet. Those are taxed differently, so find out which one you have.
The second piece is your share of the firm’s profits, and at a larger firm that’s where you earn the most. It can carry you from half a million dollars to millions in a good year.
Your income also refuses to behave predictably. One quarter you might see $250,000, and the next $950,000. Since you can’t control the timing of when clients pay their bills, your cash flow rises and falls entirely with the firm’s performance.
Nothing about this is broken. It’s how partnerships pay people, and it shapes your financial life more than anything else about the job.
Why the Standard Advice Stops Working
Here is the advice almost every high earner gets, and it’s good advice.
Automate everything. Set up a monthly transfer from your bank account to your investments, then stop thinking about it.
That’s the entire point. Automatic investing works because it takes the choice away. You never sit at your kitchen table deciding between your investments and something more enjoyable.
Now imagine trying that with partnership income. Automation only works if you know how much money is coming and when it will arrive. Right now, you know neither for most of your earnings.
You can still automate against the fixed part of your pay, and you should. But that’s the smaller piece of your pay. The bigger piece requires you to stay alert and make active decisions.
So What Do You Do Instead?
First, automate what you can. Take the fixed part of your pay, pick a monthly amount you could sustain even in a slow quarter, and put it on autopilot. That’s the part you never think about again.
Second, and most importantly, put a standing quarterly check-in on your calendar with whoever helps you manage your money. This doesn’t have to be formal; a 10-minute call covers it. The question is the same every time: what came in this quarter, and how much goes into investments once the tax payment is set aside?
Four conversations a year isn’t a burden. The hard part is that all four happen when your bank account looks its healthiest all year and you want to reward yourself for the long hours or a successful deal or case. Take advantage of the opportunity to build long-term wealth and financial freedom while you have the liquidity. Too many young partners assume that their health or family life will continue to allow them to bill 2,500-3,000 hours a year forever, which is rarely the case.
Taxes Come Out First
If you receive a guaranteed payment or salary, the withholdings happen automatically on that portion. If you receive a draw, nothing gets withheld from any of it. Not the profits, and not the draw either.
There is no payroll department pulling taxes out before the money reaches you anymore, and that can catch people by surprise. You handle it yourself now, by sending estimated tax payments to the IRS four times a year.
Something else changed that often goes unmentioned. As an associate, the firm paid half of your Social Security and Medicare taxes. As a partner, the IRS treats you as self-employed, so you pay both halves. That’s a real reduction in what you keep.
The math isn’t the hard part. Your accountant will usually base your payments on what you owed last year, which means a better year has you paying against a number that’s already behind.
That safeguards you from a penalty, but it doesn’t mean you’re square with the IRS. The balance still arrives in April, and it can be large.
A couple more notes. The IRS payment dates are fixed and have nothing to do with when your firm distributes profits, so the money must be sitting there when the date arrives.
The order makes the difference. Tax money comes out first. Whatever you invest comes out of what’s left. Partners who flip those two steps are in for an unpleasant April.
Money Without a Plan Doesn’t Sit Still
Here’s the pattern I saw then and still see now.
A big payment comes in with no corresponding plan, and a few months later it’s gone, absorbed into ordinary life.
The legal profession comes with a specific lifestyle blueprint already written for you. There’s the house in the right neighborhood and the club membership that comes up in enough casual conversations to start feeling mandatory. You’ve worked hard and earned the right to enjoy what you built, and I’m not going to tell you otherwise.
Lifestyle naturally expands to match your most recent earnings, but it almost never shrinks when a slower month brings in less. A strong April can gradually become your new normal by September without you ever choosing to spend that much.
The Reason This Matters
Partner income is generous, and it depends on two things staying true.
The firm keeps performing, and you keep practicing at a pace that demands a lot of you. Neither is permanent.
Building long-term wealth outside the partnership gives you a real choice about how long you want to keep doing this. That’s why I mentioned the quarterly check-in earlier.
If your income arrives in uneven amounts and you’d like another set of eyes on how you’re handling it, we at Solidarity Wealth would be glad to talk.
Reach out to us at info@solidaritywealth.com or call 385-374-1665 to schedule a discovery call.
Frequently Asked Questions About Financial Planning for Law Firm Partners
How should law firm partners handle uneven partnership income?
Set up automatic monthly investing based on the fixed part of your pay, then review each profit payment as it arrives and decide how much of it goes into investments. A short quarterly check-in with your Solidarity Wealth advisor is usually what keeps those payments from disappearing into everyday spending.
Why can’t I set up automatic investing as a law firm partner?
You can automate the predictable part of your pay, meaning the fixed amount your firm pays you regardless of how the year goes. Your share of the firm’s profits varies too much in timing and size to automate, so you need to decide each quarter instead of using a standing instruction.
How do quarterly estimated taxes work for law firm partners?
In some situations, nothing is withheld from a partner’s pay, so partners send tax payments to the IRS four times a year on dates the IRS sets. Those payments are calculated from last year’s tax figures, which safeguards a partner from a penalty but doesn’t settle the actual bill. If a partner has a better year than the one before, they’ll still owe a balance at filing. Partners also pay both halves of Social Security and Medicare, since the IRS treats them as self-employed. An accountant can help you set aside enough for all of it.
About Jeff
Jeff McClean has advised some of the country’s most successful families on all aspects of their wealth for over a dozen years. With his background as a former tax and estate planning attorney at a prominent Houston, Texas, law firm, Jeff has advised clients through business sales, funding rounds, IPOs, complex tax and wealth planning transactions, private and public market investments, executive compensation packages, succession planning, and much more.
Solidarity Wealth is a registered investment adviser. This material is solely for informational purposes. Advisory services are only offered to clients or prospective clients where Solidarity Wealth and its representatives are properly licensed or exempt from licensure. Past performance is no guarantee of future returns. Investing involves risk and possible loss of principal capital. No advice may be rendered by Solidarity Wealth unless a client service agreement is in place.
