Law firm partnerships are often a disaster. They usually feel like a group of lawyers rowing a boat: everyone is paddling in a different direction, each attempting to reach a different destination, in the opposite direction from everyone else.
The boat either stays still, or goes around and around in circles without ever getting where anyone wanted to go. Partnerships unravel with alarming frequency, especially among smaller groups of lawyers.
Likewise, the partnership you’re contemplating right now will probably result in disaster. Slow down before you join up. The formation of a law firm partnership is a bigger decision than it seems.
The theory behind a partnership seems sound: bringing in a partner will spread the risk, create synergy, and double the odds of success.
The reality, though, is that many law firm partners spend all their energy fighting for a bigger share of a pathetic little pie. Instead of synergy, they get misery when the relationship unravels and the partnership fails.
The business relationship has failed, and more often than not, the personal relationship has soured as well.
The huge time suck of disharmony among partners
I just finished advising a lawyer to extract himself from a partnership because the two lawyers couldn’t stop squabbling over money. The “successful” partner is grossing under $200,000 a year. The “failing” partner is grossing $130,000.
Their competitive nature is dragging them both down, because they aren’t focused on the right metric. These two are so wrapped up in their arguments about money that they aren’t doing any marketing. They’re squabbling over whose piece of the dwindling pie is bigger, instead of baking a larger pie.
They’re both failing, and they’re each blaming the other instead of themselves. They’re both losing. Having one another keeps them distracted from the reality that neither is winning, and both need to get busy growing a real practice.
If you’ve got a really good reason to form a partnership (like you’re married to a lawyer and they insist) then go for it. But be aware: getting along with your law partner often proves more challenging than building a successful practice.
Why? Because lawyers can be nasty, you know? (I can say that because I’m a lawyer.)
Sometimes we take our challenging personalities home to our spouses. But more often, we keep our oppositional defiance, and whatever other disorders, at the office. We get into arguments. We fight.
What do we fight about? Money, of course. But we find plenty of other things to fight about, too. We say upsetting things to one another. We treat each other badly, and we fail to communicate.
A business filled with partners who can’t get along won’t last a long time (or worse–it will last a long time). You have to find a way to get along with the other owners, if your business is going to last. Or, you have to find a way to be the sole owner of your law firm, so that you’re not required to share authority with others.
Often, lawyers find themselves better off on their own rather than partnering up. Staying solo might be the most efficient and effective path forward.
Compare: law firm partnership vs going solo
Let’s compare two law firms.
First, the solo scenario: Young, smart, driven lawyer starts out alone.
Year One–This lawyer gets going and it’s challenging. She’s undercapitalized, she’s overworked, and she has no idea how to market, price, or handle the crappy cases she’s pulling in the door. Year one goes by; she’s living on ramen noodles and camping out in her childhood bedroom.
However, she is getting out into the community. She’s scared, but not paralyzed. She’s involved in a young lawyers’ group, she joined Rotary, and she’s meeting older lawyers at bar association activities. She’s getting some scraps sent her way, and she’s eating them up. At the end of the year she’s still lacking in funds, but she has gained some good experience.
Year Two–She’s understanding how to do the work that’s coming in. She’s getting a steady stream of business. The cases are small, but she’s networking like crazy, and she sees signs of improvement. She lucked out and got one case that generated $45,000 in fees. That one case made her year. She’s moved out of her parents’ place, and she’s bringing in an average of $14,000 per month. She’s now spending some of it on Google AdWords, and it’s generating a return.
Year Three–The Google Ads experiment is paying off. She’s spending $2,500 a month on ads, and bringing in $30,000 a month in revenue, from all sources. She built a website and is blogging each day. The website is getting some traffic, and those visitors are starting to call. Her clients are referring family and friends. Things are humming along, and she hired an administrative assistant.
Years Four and Five–You get the idea. She’s winning. Her revenue has grown. Her team is growing. She’s doing well, and her parents are thrilled. Her little business is built on a solid foundation, and she’s set for a long and lucrative career.
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Year One–One of the partners insists that they need to get organized first. They spend much of the first six months working on drafts of internal systems and processes. The stuff they create is awesome and will support their business as it grows. They interview paralegals so they’ll be ready to hire when the business booms. One partner is focused on marketing, and the other is going manage the work—as soon as the work arrives. The year has been challenging, fun, and tough, and these partners are totally bonded. They’ll be friends forever.
Year Two–They’ve got everything you can imagine. Great systems and processes, cool technology and excellent management skills, and they’re ready. Sadly, the clients aren’t pouring in. The marketing partner has been busy helping out with the systems and technology, but business is expected: it’s just around the corner. Tension builds.
Year Three–Not having money is wearing on these partners, and the financial pressure is overwhelming. They’re fighting and sniping at one another. They unravel in the spring of year three and go their separate ways. Since there’s no money, it’s easy to dissolve the partnership. However, they figure out a way to spread the dissolution discussion into a 90-day-long negotiation/interaction.
Years Four and Five–They’re both figuring out what’s next. Job hunting is fruitless, so they both start out again on their own. The documented systems, being of no use anyway, get lost in the transition. Both of them try to get busy on marketing and bringing in some business. Many of their lunches with other lawyers are dominated by conversations about the angry breakup of the old partnership. After four or five years, they’re both back at square one, and only now feeling like they can really get started.
What do we learn from these two law firms?
Do you know lawyers like the solo and the partners? Have you seen this story play out? Do you know lawyers who, after five years, are in the same situation they were in at the starting point?
Of course you do. I know one particularly well. She’s told me her story–repeatedly. She’s bitter and angry, and can’t stop retelling her tale of woe.
She knew that she was working harder than her partner. She didn’t want to say anything, so she kept it bottled up. Of course, eventually, she boiled over. The argument wasn’t even about the money, but it was totally about the money. She was only getting half, and she knew she deserved more.
Her story is the story of small law firm after small law firm. The profits are shared equally, but the work isn’t. Resentment builds. Hostility is suppressed. Eventually, the volcano erupts. That’s when the law firm becomes two law firms. That’s when partners become solos. That’s when they swear “never again” and sign separate leases for separate spaces.
Law partnership is not a marriage
“They” say that being partners in a law firm is like being married. I’d say it’s much worse than that.
Here’s how a law firm partnership is different from a marriage:
- Sex. In a marriage, you’re getting laid. Not so much in your law firm partnership. Well, actually, sometimes you are, and that’s the problem. But mostly you’re not.
- Kids. In a marriage, you’ll often end up with kids. See #1 above. Sometimes kids cause people to try hard to make a marriage work. There’s a reason to stick it out when times are tough. That’s not always the case with a law firm partnership.
- Community. In a marriage, you’ve got community, family, and other relationships pushing you to stay together. With law firm partnerships, there’s no such pressure. In fact, other lawyers tend to jump on the bandwagon when you complain about your partner.
- Love. Last, but not least, marriages (hopefully) involve love. That’s a powerful bonding force. You might really like your law partner. But odds are that you aren’t in love. Infatuation maybe, but probably not love.
No sex, no kids, no community pressure, and no love mean that many law firm partnerships dissolve. It happens quickly. It’s painful, expensive, and–sometimes–embarrassing.
I’m not a huge advocate of small firm lawyers joining forces. Many of the perceived benefits fail to materialize. Much of what is gained by coming together as partners can be negotiated in an employer/employee relationship. The employment relationship usually involves substantially less drama.
The arguments about money and contribution are inevitable between law firm partners. Without sex, most law firm partnerships aren’t strong enough to withstand the relationship. I’ve stumbled across a number of law firm partnerships that include the sex, and many of them can’t withstand the relationship either. It’s tough.
Top 3 partner fights: money, money, and money
I’d like to tell you that law partners argue about growth issues like picking an additional practice area, or deciding where to put the expanded office, or when to have the next referral source party. But that’s not what they spend their time fighting about.
Law firm partners spend their time arguing over the trivial things that involve spending money. Money, money, and more (or often less) money is the core argument. It manifests in a variety of conversations about a range of topics but deep down, it’s a money conversation disguised as a conversation about a particular issue. The power struggle boils down to who gets the money.
Back when I was an associate, I overheard (hold a glass firmly to the conference room door and press your ear against the bottom) the partners arguing about an automatic door closer. They spent nearly an hour on the discussion. There were six of them in the room. They could have billed more than $2,000 during that hour. The door closer they decided to buy cost $300.
Ultimately the partner bringing in all the money was tired of the other five partners spending his money on their behalf. He wanted to make the decisions. I’m sure he formed this partnership with the idea that the group was more valuable together than apart. But he found himself caught up in the trivia and resenting that his money was now being used to finance their decisions.
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Money fights manifest as arguments over lots of small issues. The partners distract one another from moving forward, and they get mired in trivia. When the partners argue about trivia, they lack the time required to make real progress (and don’t kid yourself: it’s nearly all trivia).
They spend hours discussing whether to add a new paralegal or whether to fire the existing paralegal. They spend little time, if any, figuring out how to finance and execute on a plan to generate 100 referrals in 100 days.
They spend days arguing over who gets credit for which revenues and how to split a declining pool of profits. They spend little time, if any, figuring out how to automate their practice and document management systems so they can assist more clients (growing revenues) without adding support staff (reducing costs).
They spend days debating whether the firm should reimburse for a particular personal expense rather than figuring out how to expand into a new market or practice area.
We like to say “money makes the world go round.” Unfortunately, it also brings law firm partnerships to a complete standstill.
Maybe you need a friend, not a law partner
Many of us are lonesome. It’s not unusual. It’s tough for many of us to make friends after we finish our schooling. Finding prospects for friendship is easy in school. We’re thrust into situations together where we connect and bond.
But practicing law isn’t well suited for meeting and making friends. Those of us who are proactive about building relationships can find opportunities in professional and business groups. But those of us who rely on happenstance find that it’s tough to build connections.
Many of us are practicing solo or in very small firms. The other lawyers we meet are our bosses, our adversaries, or our competitors. Each of these relationships contains obstacles to friendship. We’re not necessarily on equal footing. We’re hesitant to open up and be vulnerable, and we have limited time for building relationships.
Our loneliness sometimes drives us toward a partnership. We seek someone who will understand our stress, and with whom we can bounce around ideas and balance out the financial pressures. We need a buddy, not a business partner.
Sharing office space might be a better solution than going into business together.
I watched George and my father share office space for decades. They moved offices a few times over the years, and staff came and went. They survived together. The money was separate: each lawyer had his own checking account, his own trust account, and his own clients. They covered for one another when one went on vacation, or when one of them got sick. Sure, they argued about what to buy or how much to spend, but they were able to minimize the complexity of their financial relationship and keep the money arguments simple. The beauty of the arrangement, though, was that it didn’t destroy their friendship.
Partnerships just aren’t what they used to be
I often advise lawyers against forming partnerships with other lawyers. I pretty consistently argue for keeping finances separate, while sharing office space and expenses.
It’s funny, because based on my thirty years as a divorce lawyer, I advocate the opposite for romantic couples. For couples, I suggest integrating the money–it’s symbolically significant and it’s good practice for coping with larger challenges to come. It creates a “we” and breaks down the “me.”
Law firm business partnerships are different. There used to be good arguments for business partnership: economies of scale, ease of collaboration, and development of specific expertise. That’s not the case anymore, with advances in tools that facilitate communication and collaboration, and changes in the delivery and pricing of most business services. Now the partnership is often a dilution of effort, message, and effectiveness.
But no matter how much I counsel lawyers to avoid partnership, they do it anyway, and I’m not one to ignore reality. So, if you’re going to do it, let’s talk about how to give it the best chance of success. Since we know that money is the source of most problems, let’s focus on the money.
How not to split the money
The reflex among new law partners is to split the profits equally. It never even occurs to them to do otherwise.
They take the pool of income, pay all of the bills (the smartest ones put a bit aside for emergencies), and then they divide what’s left.
That’s where the trouble starts.
It’s the equal split that leads to anger, resentment, and ultimately, the dissolution of the partnership.
Did you know that you’re not required to divide the profits equally? Yep, that’s not something you have to do. You can do anything you want with the money. You can pay one partner more than the other. You can come up with some kind of formula for dividing the funds. You can be creative and do something no one has ever tried before.
Ready to put these ideas into practice? I have a 10-day email course called Rosen’s Rules that will help you take action starting right now. It’s completely free, and this time in 2 weeks, you’ll be a lot closer to having the practice you deserve.
You already know that I think you’re headed for an argument regardless of what you do with the money, but it’s helpful for you to know—up until the wheels come off the relationship—that there are alternatives to a 50/50 split.
How to split the money with the partner you shouldn’t have
There are as many ways to split the money as there are law partnerships. I’ve heard about a hundred different plans and they range from the incredibly simple to the incomprehensibly complex.
1. Eat what you kill: One approach is to divide based on results, not effort. It pushes lawyers to act in their own interests rather than the firm’s shared interest. Nonetheless, it works for lots of lawyers. It’s basically a space-sharing arrangement disguised as a partnership.
These firms often prepare mini profit and loss statements for each partner, and pay an individual share of the profits after allocating expenses. These lawyers call themselves “partners,” but they’re really solos operating out of one bank account.
2. Revenue split: Some lawyers divide the money based on proportional shares of revenues. Each lawyer gets a share of the profits based on his or her percentage of the overall revenues that month, that quarter, or that year.
3. Subjective assessment: Some lawyers negotiate, using subjective judgments about each attorney’s contribution, and come up with a percentage of the profits to be paid to each partner. The negotiations get very involved with judgments about how to value the contribution each partner makes to the firm.
Does it matter which system you use? Probably not. Regardless of the approach you adopt, it’s easy to find fault with your methodology. No matter what you do, something unexpected will happen, and the system won’t work perfectly. That’s unfortunate, but it’s unavoidable.
I think it’s probably easier in larger firms with more lawyers. With a bigger group of lawyers, the money in your pocket didn’t necessarily come out of my pocket. It’s harder to blame an individual when you aren’t happy with your share.
In a bigger group, the lawyers tend to blame the firm, the system, or the committee at the top. They’re not any happier with the approach to compensation, but they have a harder time focusing their anger.
What to do about it? I’ve heard from advocates for every system and every formula. They all work—for a while. Then something happens, and something needs to change for the relationship to survive. It’s tricky, and there’s no single right answer.
Fundamentally, surviving a law firm partnership is about the relationship between the people. If the relationship is working, then the money will work out. When the upset, resentment, and bitterness reach an unacceptable level, then tolerance for the distribution of profits unravels, and the partnership unwinds.
Get a great prenuptial agreement
So what should you do? I don’t think there’s a perfect answer. If you find yourself talking about the topic before you start the partnership and have trouble agreeing, then you should probably recognize that trouble is coming.
Of course, it’s easier to agree before the creation of the firm and before there’s any money to divide. Once the cash shows up, the fireworks are more likely to start.
My suggestion on this topic is to lock it all down. Get it all in writing. Talk through every contingency and turn it into a comprehensive partnership agreement.
Don’t just trust one another. Don’t just make it a handshake deal. Write it all down in really excellent legalese.
Anticipate the end, because odds are good that it’s coming. Take a few minutes and imagine a very expensive, public, stressful, embarrassing end to your business relationship. Do what’s possible to mitigate the impact of the dissolution on your relationship. Is arbitration an option, so you can avoid airing your dirty laundry at the courthouse? Are there other steps you can take now to minimize reputational damage later?
Get experienced counsel to review the agreement for you. Make sure you get someone who has dealt with painful, acrimonious law firm dissolutions. Find someone who has been to the dark side, seen it exposed, survived, and come back to share the lessons learned.
Fast forward to the partner leaving
What if you’re reading all of what I’ve written, and are seeing yourself in what I’m saying? What if you’re trapped in a partnership that hit a dead end long ago, and now you’re dreading the unraveling and just killing time until it finally ends?
Stop waiting. Take action. Get it done so you can move on. It’s time to get it finished and build something more for yourself.
Being a solo is easier and better than ever. Office space is available in small units for shorter terms. Technology is sold on a per-user basis with features never before accessible by small businesses. Phone systems are activated in seconds. Printed material can be ordered and delivered tomorrow. Virtual assistants, paralegals, and lawyer support are available on an as-needed basis at bargain prices.
I hate to be Mr. Negativity, but let’s face facts: the partnership is over. It’s time to move on. Why not get it done now–like, this afternoon? What are you waiting for? Deep down, you know you’re going to split up. It never gets easier. Waiting for that big fee to come in before you take action won’t solve the problem. Hoping he stops being crazy isn’t going to work out. Dreaming of the relationship getting back to what it used to be is pointless.
Free yourself of the burden of the broken relationship. The energy and enthusiasm you used to have will flood back in. You’ll get busy marketing your new practice, and you’ll be creating an asset that delivers a lucrative future for you. There’s no time like the present for taking a positive step forward.
11 tips for forming your law firm partnership
If you’re going to insist on the partnership route, then I’ve got some advice. Here are my tips:
1. Don’t do it
Walk away. Ask yourself whether there is anything to be gained that couldn’t be achieved without becoming partners. Don’t do it is my best piece of advice, but we’re going to assume you’re ignoring me. Okay, I’ve been ignored before. I really like it when, after the wheels come off, lawyers tell me I was right, so go ahead and do what you’re going to do.
2. Document the partnership
I mentioned this above but I’ll reiterate: get it all in writing. Build in a specific plan for unwinding the partnership. Detail who gets what money and what effort is required by each partner. The more details, the better. Hopefully, you’ll get heavily into the negotiation and realize what a disaster you’re creating. If you survive the negotiation, be sure you’ve documented–in great detail–your systems for sharing fees, paying expenses, and covering for each other.
3. Make it office sharing
When things get challenging as you negotiate the partnership agreement, you can simply back off and turn it into an office-sharing arrangement. Don’t share your finances. Maintain separate funds and accounting systems. You can still collaborate and share backup coverage and staff. You don’t need to become partners to make this work.
4. Assume it’s not going to work out.
Assume this is an exercise in figuring out how you’re going to make it work next time—in your second partnership. Think of this as an experiment and don’t get overly emotionally involved. Maybe it’ll work, and you can get emotionally committed later.
5. Assume joint liability for everything
If you are going to make financial commitments that require personal guarantees, be sure both partners are guarantors. And—and this is critical—make sure your partner has assets on the line. If your partner has no assets, then a personal guarantee is meaningless. Guaranteeing an obligation when you’re drowning in student loans and judgment-proof is emotionally meaningless. You want both partners to have skin in the game. No skin, no game.
6. Get separate phone numbers
Get a separate number for each partner. You don’t need a “main number.” Just use your own numbers on your cards and in your marketing. In the event of dissolution, it’ll be one less argument if the phone numbers aren’t in dispute. Trust me on this.
7. Create three websites
Create a site for the firm, and create a site for each partner. Do the same if you decide you need to blog. You need your own web presence for now. There’s arguably a marketing benefit in taking this multiple website approach, and it’ll most certainly ease the unwinding of the law firm partnership. Invest your time and energy in your personal website and keep the firm site simple.
8. Don’t get credit
Don’t get a firm credit card or a credit line. If you’re going to use credit, then do it on your personal accounts. At the same time, don’t allow one partner to contribute more to the partnership than the other. You don’t want to have to loan money to your partner, and disproportionate contributions to the firm from assets or credit lines create a debt from one partner to the other. That’s a bad idea.
9. Keep separate bank accounts
Create a firm trust account, if necessary, and open two separate operating accounts: one for each partner. You don’t need a joint account. Just run both accounts in parallel. Keep it simple, and keep it separate. Yeah, I know, this is starting to feel less like a partnership and more like space sharing. You caught me.
10. Create separate entities
If you’re going to create an entity, and there’s not always a reason to do so, then create two of them: one for each partner. Talk to your lawyer about how to get this done so that it’s easy to unwind the partnership when necessary.
11. Choose a decision-maker
Designate one partner as the decision-maker with ultimate authority. Lock down that authority in your partnership agreement. One of you needs to lead, and the other needs to follow when you disagree. Otherwise, you’ll debate endless trivia. If you can’t agree on this point, then you’re doomed anyway, so this is the perfect time to find out what each of you really thinks.
Ready to make this work? The quick test
I’d never have been a good law firm partner. I like to do things my way. I mostly think I’m right and that I know better. You’d hate having me as a partner. But that doesn’t mean you can’t make it work for you. I’ve provided a single question below that’ll help you shortcut the process and find out, without all the trial and error, if this is going to work for you.
Here’s the quick test. Ask yourself–and ask your prospective partner–this single question:
Are you a leader or a follower?
The odds are good that you’ll designate yourself as a leader. So will your partner. That’s what most law firms look like–lots of folks who think of themselves as leaders with very, very few followers.
That explains why so many law firm partners find themselves rowing the boat in different directions. They each have a different destination. They’re all leading the others to a different place. Unfortunately, nobody is following. That explains why they keep crashing into the rocks. See it now?
What’s the solution?
Stop. Stop trying to cooperate. You weren’t able to do it before, and you’re not likely to do it now. Stop dreaming that you or the others will change. Stop imagining that you’re going to convince the others to follow, or that you’re going to magically become a follower yourself.
Here’s what you do:
Option 1: Separate your practices. Split up. Divorce. Leave. Get away from one another.
Option 2: Stop being a leader. Let the other lawyer be the decision-maker. Shut your mouth and follow. Why you? Why not the other lawyer? Exactly! You should probably refer to Option 1 above.
As usual, I’m fatalistic about our chances of cooperating (I like to think of myself as realistic).
Sure, there are lots of reasons to work with other lawyers. However, working with other lawyers doesn’t require the sharing of all decisions. Someone can lead and the rest can follow. It’s essential to designate a leader who has decision-making authority. In fact, you’ll find that most successful practices have figured out a way to grant someone authority, regardless of the ownership structure. But it’s only when some lawyers relinquish the role of leader that law firm partnerships start to work.
Can a law firm partnership work out?
Am I opposed to all partnerships? Of course not. But mostly they don’t work, and the lawyers who join them spend 40 years playing musical partnership chairs. They group, regroup, move around to other partnerships, and spend unquantifiable energy on partnership issues.
A partnership isn’t necessary. It’s not essential, and it’s often a distraction from the important tasks required to build a business.
You’re driven, energetic, and willing to work hard. That’s like lightning in a bottle. There’s a powerful force in that bottle, and now is the time to use it.
You can use that energy on getting business, satisfying clients, and growing your reputation and practice. Or you can spend it on “partnership issues.” Your energy, your call.
If you’re tired of arguing, if you’re tired of rowing in circles, then choose from the options above and get moving. Soon you’ll be moving the boat forward. There may be fewer oarsmen on board, but you’ll be headed where you want to go. You’ll stop going in circles, and you’ll eventually reach your destination.