Just made partner? How to navigate the financial sea change

Understanding your new financial position

Making partner is a pivotal moment in your legal career. 

From now on, you can look forward to increased reward, respect and peer recognition. A good return on the long hours that you’ve invested.

The most obvious reward is the leap in income. The average salary of an associate solicitor in a mid-size firm is around £62,000 but that may jump by £10,000 or significantly more on becoming a partner.

Some new partners remain salaried, but many others will become equity partners – making the transition from employed to self-employed. 

Becoming self-employed means you’ll have far more control over your own personal finances.

Suddenly you’ll be responsible for arranging your own pension, insurance and medical protection: a whole host of things that used to ‘come with the job’.

And if you’re an equity partner, you’ll also have brand-new responsibilities for managing and running your law firm in return for a share of the profits. 

Making partner is an exciting time. It’s not all about the money, but a surprising amount of it is.

Becoming partner – what you win, and what you lose

Reward, recognition, peer respect. These are your big wins. But you also lose a few things when you make partner.

As an associate solicitor, you probably had a good benefits package, covering your pension, health insurance, critical illness protection, even club memberships.

As a self-employed partner, you’re now responsible for your own financial and personal wellbeing, from your pension to income protection.  

With pensions for example, you have an almost dizzying range of possibilities, but investing now, as your earning power is increasing, is a wise move.

There are plenty of tax-efficient ways to do this. Financial advice can help guide you through this important stage in your career. 

Making a plan for your money

More money can create the need for more complex financial arrangements.

Even the best paid partners can lie awake at night, worrying about their tax bills, or whether they’ve over-committed themselves financially. 

But with careful forward planning, you can start to turn that extra money into wealth that will last a lifetime.

Taking financial advice at this point in your life will help you plan, protect and provide for yourself, your family and the future you imagine.  

Planning your own taxes

As a new partner, your earnings increase overnight. It can be easy to sit back, enjoy that extra cash right now and start to live the lifestyle you’ve waited and worked for.

But more income means increased tax bills and learning to manage your personal cash flow. 

Cash flow can – and does – trip some new partners out, and result in the need for a last-minute January cash loan to cover the bill. 

Cash-flow modelling is key to helping you plan and prepare, so that you’ve got the money ready and waiting at tax-year end.

As soon as you become a partner, you’ll need to let HM Revenue and Customs know, and file tax returns by 31 January each year.

Financial advice can help you make sure you’re making full use of all the tax-efficient allowances you may not be aware of, such as:

• the £20,000 annual ISA allowance
• your personal allowance
• the capital gains tax allowance

Planning and building a profitable practice

Becoming an equity partner means you take an active role in deciding the financial direction of the practice.

You’ve got a vested interest in making sure your practice runs tax-efficiently – and profitably – so everybody benefits from more dividend income or higher bonuses.

For most new partners, this involves a brand-new skillset. From profit and loss sheets, corporation tax or managing cashflow to absorb lock-up periods to pension auto-enrolment. 

Planning for your employees

As an equity partner, you’ll take on new responsibilities regarding your staff’s benefits package too.

Putting together an attractive package that includes flexible working and wellbeing support is as important to many legal professionals as the salary.

Law firm recruitment has never been so competitive or intense, and a good benefits package can go a long way towards recruiting and retaining your staff.