By Roberta Gubbins
Legal News
Understanding that each form of law practice has its own financial issues, considerations and opportunities helps when making a career decision, whether solo, partner or shareholder in a law firm. The members and guests of Mid-Michigan chapter of Women Lawyers of Michigan gathered at Troppos in Lansing on February 16th to network and gain information on the financial business of a law practice.
Vince Mastrovito, a partner in Heritage Private Wealth, Inc. specializing in wealth management for attorneys and judges, began with law firm partnerships.
"There are cash flow considerations, he said. "You will have a buy in when you join the firm or buy out at the back end when you are ready for retirement," the age of which may be stated in the contract. If there is no established retirement age, he noted, there could be too many senior partners leaving no room for younger lawyers to advance.
Once a partner, he said, "you are now on the hook for capital calls which can take the form of cash or a reduction in salary" to cover the cost of an expansion or a short fall in cash flow. Also be aware that "all banks are now asking for a personal guarantee on partnership loans."
He advised practitioners to be aware of how profits are calculated and know what type of insurance coverage such as life, disability or liability is provided. Retirement options as a partner are limited to the firm's plans such as a 401K.
"The problem we see with attorneys placing so much money in the plan is that all of their money is taxed as ordinary income when they retire," he said. "Some tax planning considerations you might consider include whether you maximize your retirement plan and if so, is that the place where I want everything to go?"
Expenses, he noted, are an area that often gets missed. Unreimbursed expenses should be tracked to be used at tax time.
Cash flow considerations for a solo are important, which means, he said, "billing at the end of every single month," and keeping expenses in line. "A line of credit may be needed and professional liability coverage is important for your protection."
Retirement options for a solo include a "SEP (simplified employee pension), simple 401K or IRA. The issue is what can your practice reasonably afford to do?"
Corporations shareholders, like law firm partnerships, also have the buy in and buy out situations, capital calls and sometimes a line of credit is needed calling for a personal guarantee.
Retirement options are also the same and again "diversification is needed to reduce tax liability."
Judges and attorneys working for the state or corporations are paid a salary meaning that expenses are not paid and retirement options are limited to the 401K plans.
Mastrovito commented on the movement of partners from firm to firm.
"The preparation ahead of time to prepare you for these steps is critical," he said. "People don't plan to fail just fail to plan. It all depends on where you want to go."
He advised audience members to "think about where you want to be five or ten years from now versus where you are today," and make the necessary plans.
Vince Mastrovito has been in wealth management for over 22 years, focusing on attorneys and judges for 17. He is a partner in Heritage Private Wealth, Inc. He can be reached at 248-254-4273.
Published: Thu, Feb 23, 2012
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