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Passive Income For Lawyers

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While my primary area of interest lies in criminal law, the senior partners at my firm have recommended/requested that I not pigeonhole myself into the area of criminal defence, but rather, focus on building a legal  practice capable of generating passive income. Unfortunately, we did not have time to discuss how lawyers can generate passive income and I am struggling to think of areas of law that would be conducive to generating passive income. Outside of real estate, what other areas of law would allow a lawyer to develop more of a hands off practice?

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Do they practice criminal law? This seems like an odd request of a criminal lawyer. Criminal law is the antithesis of passive income - you have to be out there hustling business, going to court and advocating for clients, preparing for court, visiting/meeting with clients and witnesses, doing research and writing for court documents, etc. And you can't dabble in criminal law - if you want to do well in it, you need to commit to it whole-heartedly. I don't think that is "pigeonholing" yourself - that is developing a practice. If that's what you want to do and they want you to generate "passive income" then it doesn't sound like a good fit. If you're doing your criminal work properly, you shouldn't have time to generate passive income.

I guess passive income is anything you can delegate to an assistant - so anything that is routine and paper-based. I know some firms offer something like this for family clients - they will draft a divorce for a flat rate, for example. A good paralegal can probably do that type of thing. But again, if you were doing criminal work previously, that is a completely different skill set and it would be strange to switch to that. 

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Here the thing with criminal law sometimes you have time to do the “passive” things some weeks you will work under 40 hours but the next week could be a five day trial and bang it’s 100 hours just dealing with that. Family is an area that a lot of Criminal Lawyer use to “pay the bills” and there are a lot of passive income in that 

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2 minutes ago, serdog said:

Here the thing with criminal law sometimes you have time to do the “passive” things some weeks you will work under 40 hours but the next week could be a five day trial and bang it’s 100 hours just dealing with that. Family is an area that a lot of Criminal Lawyer use to “pay the bills” and there are a lot of passive income in that 

Yeah but even if you don't have a trial you need to use your time to prep for it, write submissions, meet with people etc and you have new clients to meet, business to develop, routine tasks to catch up on, etc. Or sometimes you just need to rest. 

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Allow me to translate for you. Any reference to "passive" income is bizarre, and a distraction. I don't even really know what that is.

Your partners don't want you to focus on criminal law because (a) criminal law doesn't pay very well, and (b) any clients that you generate doing criminal defence typically won't bring other good business to your firm. People who are charged with crimes don't come back to you next year with their wills and estates, or with their business deals. Exceptions may occur, but overall criminal law provides terrible synergy with other areas of practice in a full service firm. That's one of the reasons that many practices do a lot of things but expressly exclude criminal law.

This can be a good area of practice if you don't mind going it alone. But if you want to work for someone else, you have to respect that you can't reasonably do something where you earn less than everyone else, contribute less to the common pool, and still expect to get paid the same. I say that as a criminal lawyer. I'm set up well as I stand in my own practice, but it would be a bad fit with others.

Honestly, to bring things down to basics, you need to decide if you want to stay within an established firm and try to pursue a career that way (working towards partnership, presumably) or if you want to practice criminal law and go your own way - perhaps with some ongoing relationship to the firm, if you get along well. You probably can't have both.

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This is probably an elaborate scheme to prime you to join the partner's MLM.

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The practice area I've seen with the highest potential for passive income is incorporating companies and acting as registered and records office. Most firms charge around $300 per year to act as R&R and file annual returns. This involves very little work which is almost entirely done by a paralegal. The stronger corporate law practices that I've been involved with have each acted as R&R for around 300 companies. That's $90,000 in revenue per year which the lawyer does very little ongoing work to generate (after the incorporation). Some practices are even able to cover all of their overhead for the year with R&R work.

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Is it possible that the person meant (I really don't know, I am asking): Get passive income such as from a side business and/or real estate investment?

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The reference was to passive income from practice so I assume what was really meant was a practice that could produce the kind of income desired by the firm.

Alternatively it might suggest a practice which could support associates/clerks. As an example: when I was an associate the work I did (and those of clerks) didn’t produce revenues for me—it produced revenues for the partnership who returned some back to me as salary. Most of the revenue I produced didn’t go to me but rather to cover expenses and to the partnership (and especially the partner(s) who were responsible for having the client I worked for pick the firm). This is obviously passive income (in the sense that no active lawyering by a partner was needed to create the revenue). 

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6 minutes ago, Harkareferral said:

The reference was to passive income from practice so I assume what was really meant was a practice that could produce the kind of income desired by the firm.

Alternatively it might suggest a practice which could support associates/clerks. As an example: when I was an associate the work I did (and those of clerks) didn’t produce revenues for me—it produced revenues for the partnership who returned some back to me as salary. Most of the revenue I produced didn’t go to me but rather to cover expenses and to the partnership (and especially the partner(s) who were responsible for having the client I worked for pick the firm). This is obviously passive income (in the sense that no active lawyering by a partner was needed to create the revenue). 

I’m not sure supporting a junior would constitute “passive” income - that’s the whole basis of firm economics, your bring in work that can feed juniors and you keep the cream. And I’m not sure I’d say that such work entails “no” active lawyering - you need to make sure your clients are being well served.  

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On 5/5/2018 at 5:34 PM, dB1 said:

While my primary area of interest lies in criminal law, the senior partners at my firm have recommended/requested that I not pigeonhole myself into the area of criminal defence, but rather, focus on building a legal  practice capable of generating passive income. Unfortunately, we did not have time to discuss how lawyers can generate passive income and I am struggling to think of areas of law that would be conducive to generating passive income. Outside of real estate, what other areas of law would allow a lawyer to develop more of a hands off practice?

You really are going to follow up with your partners on what they mean by this.  "passive income" is not a term I've ever heard when discussing the legal industry (disclaimer: be very cautious about taking business advice from a government lawyer like me).  Indeed the typical measuring stick for associates is the billable hour, which is about as active as income can get.

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11 hours ago, almostnot said:

This is probably an elaborate scheme to prime you to join the partner's MLM.

It's a reverse funnel system! You can't go wrong.

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Ya, I have no idea what "passive income" is in this context.

We are R&R for around 1,000 companies - not much passive about it.  We have a person who's full time job it is to keep on top of filings, notices etc. I am working with her every day on various parts and pieces of that practice.  I like it but I wouldn't call it passive. 

 While the R&R fees earn a good bit, once office space, wages, and other overhead are factored in - it wouldn't make for a great living.  If you charge too much, people just take their R&R in house so it is very price sensitive. The real benefit to that work is the corporate work that comes from it.

I own some commercial real estate - that is passive.

So do they want you to start a ponzi scheme?

 

 

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I think you misunderstood. Your senior partners were not talking about you earning a passive income, rather they were complaining that by practicing criminal law, you are not generating a sufficient passive income for them. 

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Passive income means that you take your extra cash and invest it, doesn't it? So fewer trips to Aruba and more investments through a law corp.

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On 2018-05-08 at 9:00 AM, Malicious Prosecutor said:

You really are going to follow up with your partners on what they mean by this.  "passive income" is not a term I've ever heard when discussing the legal industry (disclaimer: be very cautious about taking business advice from a government lawyer like me).  Indeed the typical measuring stick for associates is the billable hour, which is about as active as income can get.

It took a while, but I was finally able to follow up with my partners.  What they meant by passive income was any work that can be entirely or substantially completed by an assistant. Examples they gave were R&R, real estate, some family law matters, wills, and a few others. 

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On 2018-05-07 at 9:53 PM, Diplock said:

Allow me to translate for you. Any reference to "passive" income is bizarre, and a distraction. I don't even really know what that is.

Your partners don't want you to focus on criminal law because (a) criminal law doesn't pay very well, and (b) any clients that you generate doing criminal defence typically won't bring other good business to your firm. People who are charged with crimes don't come back to you next year with their wills and estates, or with their business deals. Exceptions may occur, but overall criminal law provides terrible synergy with other areas of practice in a full service firm. That's one of the reasons that many practices do a lot of things but expressly exclude criminal law.

This can be a good area of practice if you don't mind going it alone. But if you want to work for someone else, you have to respect that you can't reasonably do something where you earn less than everyone else, contribute less to the common pool, and still expect to get paid the same. I say that as a criminal lawyer. I'm set up well as I stand in my own practice, but it would be a bad fit with others.

Honestly, to bring things down to basics, you need to decide if you want to stay within an established firm and try to pursue a career that way (working towards partnership, presumably) or if you want to practice criminal law and go your own way - perhaps with some ongoing relationship to the firm, if you get along well. You probably can't have both.

While I plan to go solo at some point in the next few years, I do not believe that I have enough experience or financial resources to do so at this time. 

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On 5/14/2018 at 10:26 PM, dB1 said:

While I plan to go solo at some point in the next few years, I do not believe that I have enough experience or financial resources to do so at this time. 

You're not going to get much criminal experience generating passive income and not having mentorship in running a criminal practice. 

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