The Hidden Costs of Making Partner at a Law Firm
Making partner at a law firm is a major career milestone—one that often comes with increased prestige, a higher income, and more influence in the firm’s decision-making process. But what many attorneys don’t realize is that along with the benefits, making partner also brings a slew of financial responsibilities and hidden costs that can catch even the most prepared lawyer off guard.
If you’re on track to become a partner—or recently made the jump—here’s what you need to know about the financial implications and how to navigate them wisely.
1. The Buy-In Cost Can Be Staggering
Unlike associates, who are simply employees, partners often have to “buy in” to earn their equity stake in the firm. Depending on the firm’s size, reputation, and financial health, this buy-in can range from tens of thousands to several million dollars.
How buy-ins typically work:
Some firms require a lump sum upfront.
Others allow partners to finance the buy-in over time, either through salary deductions or third-party financing.
A select few firms offer “sweat equity,” where attorneys gradually build their stake through performance-based benchmarks.
It’s crucial to understand the terms of the buy-in before accepting a partnership offer. Some attorneys take on significant debt to cover the cost, which can affect long-term financial stability.
2. Say Goodbye to Your W-2: Tax Complexity Increases
As an associate, taxes are relatively straightforward: your firm withholds payroll taxes, Social Security, and Medicare contributions. Once you become a partner, however, you’re no longer a W-2 employee—you’re a business owner. That means you’re responsible for handling self-employment taxes and making quarterly estimated tax payments.
What changes:
No automatic tax withholdings—you must set aside 30-40% of your income for taxes.
You’re subject to self-employment tax (an additional 15.3% covering Social Security and Medicare).
You’ll need to file quarterly estimated tax payments to avoid IRS penalties.
Many new partners underestimate the tax impact and find themselves scrambling to make payments. The key is to work with a tax professional who understands partnership taxation and can create a strategy for minimizing your liability.
3. Your Compensation Might Be Less Predictable
While partnership often comes with a bigger paycheck, that income isn’t always stable. Unlike salaried associates, equity partners’ earnings depend on the firm’s profitability, client billings, and firm expenses.
What this means for you:
Some years, you may earn significantly more than you did as an associate.
Other years, if the firm struggles financially, your income may be lower than expected.
Distributions are often paid in irregular intervals instead of biweekly paychecks.
To protect yourself, build an emergency fund before accepting a partnership offer. A reserve of six to twelve months’ worth of expenses can provide a cushion during slow periods.
4. Partnership Perks Come With More Expenses
Becoming a partner often means increased financial obligations—both expected and unexpected. Many new partners are shocked by the added costs that come with the title.
Common expenses include:
Malpractice insurance: Often a requirement for equity partners, sometimes costing thousands per year.
Capital contributions: Some firms require ongoing contributions to cover business expenses.
Marketing and business development: Partners are expected to bring in clients, which may mean footing the bill for networking events, travel, and business meals.
Office costs: At some firms, partners pay for a portion of office expenses, including assistants, research tools, or even furniture.
Understanding these costs ahead of time can prevent financial strain down the road.
5. Retirement Planning Gets More Complicated
Many attorneys assume making partner automatically secures their financial future. However, most firms do not offer traditional 401(k) plans to partners. Instead, you’ll need to take responsibility for your own retirement savings.
Best retirement options for law firm partners:
Solo 401(k): Allows contributions of up to $69,000 (2024 limit) if you max out both employer and employee portions.
SEP IRA: A flexible option for partners with fewer employees.
Defined Benefit Plan: A pension-style plan that allows high contributions but requires long-term funding commitments.
Taxable brokerage accounts: A great option for investing excess income without contribution limits.
Since partnership income can fluctuate, building diversified investments is key to securing your financial future.
6. You May Need More Insurance Than You Think
As an employee, you likely had firm-provided insurance benefits. Once you become a partner, those benefits may no longer be covered—or at least, not fully. You’ll need to review and possibly supplement your coverage.
Insurance policies to consider:
Disability Insurance: If you become unable to work, your income could plummet.
Life Insurance: Especially important if your family depends on your income.
Liability Coverage: Protects your personal assets in case of lawsuits.
Don’t assume your firm’s coverage is enough—review your policies carefully to ensure you’re adequately protected.
7. The Pressure to Perform Can Be Overwhelming
One often-overlooked cost of making partner is the psychological toll. Once you’re a partner, the firm expects more than just legal work—you’ll need to generate revenue, attract clients, and contribute to firm management.
What changes:
The pressure to bring in new business increases.
You may have to manage junior associates or oversee operations.
Work-life balance can become even more challenging.
While the financial rewards of partnership can be substantial, it’s important to consider the personal trade-offs before making the leap.
Final Thoughts
Making partner is a career-defining moment, but it’s not just a title change—it’s a shift in financial and professional responsibility. From the cost of buying in to self-employment taxes, retirement planning, and income volatility, new partners face a host of financial challenges they may not have anticipated.
If you’re considering partnership, take the time to fully understand the financial implications and create a plan to manage them effectively. By proactively addressing these challenges, you can maximize the benefits of partnership while protecting your long-term financial well-being.