Law firms collect larger capital contributions and are slower to repay departing partners
Image from Shutterstock.
Law firms are collecting higher capital contributions from partners and holding onto the money for longer periods when partners leave, according to law firm consultants.
The Am Law Daily (sub. req.) spoke with law firm consultants about the trend.
Surveys by Citi Private Bank’s Law Firm Group found that law firm partners are contributing an average of 30 to 35 percent of their earnings to capital contributions, the group’s managing director, Michael McKenney, told the Am Law Daily
That’s an increase from averages of 20 to 25 percent in the mid-2000s, McKenney says. Firms have “recast their balance sheets to reduce their financial leverage and to look more towards their partners for capital,” he tells the publication.
When partners leave, law firms are increasingly likely to return capital contributions in installments. Citi Private Bank’s survey of 40 firms found that only about 15 percent return capital in a lump sum.
The payout may take some time, the survey found. Twenty percent of law firms return capital between six months and a year after a partner leaves, 30 percent return the money between one and two years after departure, and 20 percent return the money between two and three years after departure. The remaining 30 percent either return capital within six months of departure or between three and five years after departure.
