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LawBiz® TIPS – Week of November 26, 2013

LawBiz(r) newsletter

From our last edition, I received the following comment: "T(here are) thousands of new law school graduates ... who cannot find jobs and yet it seems we do not have enough lawyers to address every one's needs. Am I missing something?" No, Christopher. But new graduates don't want to work for low or middle-income people and the Bar does not want to invest in lawyers who do. We have those who do not want to be the McDonald's of lawyers (that's not being "professional," but more like a business) and Bar executives who adopt restrictive regulations (that preserves and expands their jobs) rather than invest money and education in those lawyers willing to help the underserved.

Ed in a Porsche 911Going from the sublime to the ridiculous, I attended the 2014 Auto Show in L.A. See the photo of me in my favorite fantasy, the new Porsche 911 Cab Turbo, the 50th anniversary edition. Let's see, the house or the car ... the house or the car ... hmmmm. That would, however, be a very nice companion to the now classic I originally bought in 1983, Porsche Cabriolet 911 SC.

Best wishes for a Happy Thanksgiving. Stay stress free, enjoy your family... and eat well!
Ed signature

The Lifecycle of Your Partnership Agreement

Lawyers who work in multi-partner firms owe it to themselves periodically to review their partnership agreement. The best firms will have a mechanism for regular review and possible modification to maintain fairness to all partners over time. Absent such a mechanism, every partner should take personal initiative to assess the financial aspects of that agreement. There are three particularly important milestones for doing so: joining the partnership, making a lateral move to a new firm, and retiring (voluntarily or through de-equitization) from the firm.

The decision to accept partnership in the first place is at the foundation of many financial concerns. New partners should make sure they understand the financial criteria for remaining in the partnership, and continually assess their own best interests against them. Be sure to define such considerations as whether the "buy in" to the partnership is at a value asserted by an independent study, whether the sale of your interest could be only under very restricted terms and at a value different from the formula used for the "buy in," and whether you will be jointly and severally liable for the debts of the law firm in the event of the firm's collapse.

By contrast, a lateral hire's new partnership agreement should specify the nature of the ready-made book business that firms expect will come with the lawyer to his or her new firm. Many pitfalls can keep the business from materializing, and if that happens the lateral hire may face financial penalties. An even more difficult scenario is when the departing lateral hire and the former law firm compete for the business of past clients. The only protection for the lateral lawyer is to ensure that the details of "who gets what" are specified in the partnership agreement.

As the phase-out of older partners at large firms continues, all lawyers nearing retirement age should ask hard personal finance questions about how to cope with a potential dismissal. Will you be able to get any equity at all out of their firms, and if so how fair will be the price set by your former partners? Are there are only certain times of the year (for example, an anniversary date, or the last day of the fiscal year) when you can leave and get their full investment back? Do you know the details of funding and future payment prospects for the firm's pension plan? Your partnership agreements should have the answers. If not, use your partnership status to start asking the hard questions ... now.

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The Lifecycle of Your Partnership Agreement

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