Way back in 1997, my firm had an existential crisis when our three largest rainmakers decided to ditch private practice to chase the really big money. And of course, they all wanted their capital back. At the same time.
So, brilliant lawyer that I was, after surviving that crisis I revised our partnership agreement to limit the amount of capital that the firm could be required to pay out in any one year.
Flash forward twenty-three years, and I find myself contemplating retirement, reading the partnership agreement, and thinking, “what type of moron stuck that in the agreement? Oh, wait, it was me…”
That got me thinking that it would make sense for me and my money to get out before some of my partners who were also getting a bit long in the tooth decided that they too wanted to retire.
Which brings me to my point. In addition to planning your retirement from your personal financial perspective, it may make some sense to look at it from a legal and business perspective.
In addition to planning to get your capital out, here are some other things to think about:
- Is it better to stay at your firm until the bitter end, or to move your practice to another firm some years before you retire? In order to determine that, you have to think about things like: (a) how portable is your practice? (b) will your existing firm pay you anything for leaving your clients behind? and (c) is there another firm which would be delighted to welcome you and your clients and pay you a trailer fee for them after you retire?
- What provisions does your existing partnership agreement contain concerning matters such as: (a) giving notice of your resignation from the firm; (b) non-solicitation of clients; and (c) return of your capital?
- What is the ideal time to give notice? Quite possibly, just before the compensation committee meets to allocate last year’s profits is not ideal.
- Who else may be planning to retire soon? Will the continuation of the firm be at risk if you and too many others decide to leave at the same time? If so, is it best to be the first rat off of the sinking ship?
- Are your partners the honourable type who will comply with all of their obligations to you? Mine were.
- Are your partners the super generous type who will do more than they are obligated to do to facilitate your retirement?
- If you are on your own or in a very small firm, think about business considerations such as: (a) the expiration date on your lease and whether there are any renewal provisions which can be exercised after your departure while keeping you on the hook; (b) how to have your line of credit paid down so that you can get a release from the Bank; (c) your obligations to employees should the firm close down; (d) transferring clients; and (e) file retention requirements.
My brilliant musings on retirement will continue next time.
This article was originally published by Law360 Canada, part of LexisNexis Canada Inc.