27 January 2003
For partners, redundancy can have wide-reaching consequences: what happens when you suddenly find yourself in this position? How does it affect your personal finance arrangements?
First things first, you will need a thorough and independent review of your personal finances. If there is a partnership loan, it is not usually a problem as it will be repaid by the firm. Any surplus capital will also be returned and can amount to a useful cash pile. Some firms will opt to pay out immediately, others prefer to do so in instalments.
Younger partners will often need to arrange a partnership loan for their next firm. In this instance, even if a partner's previous firm has opted to pay back the surplus capital in instalments, private banks which are geared up to meet the wealth management needs of lawyers will be generally prepared to run the two loans simultaneously. They may also look favourably on those who have temporarily lost one source of income before the new one kicks in.
A related question is one of other outstanding debts. It may be advisable to take steps to pay off debt that is non tax-efficient. For example, some people may decide to use surplus funds from their partnership to repay an outstanding mortgage loan. At the very least, people should look at the existing repayment terms on their mortgage. Now may be the time to opt for more flexible mortgage repayment arrangements.
Retirement arrangements, especially pensions, are critical. A partner who is over 50 may want to retire. If this is the case, he or she will need to consider if there is further scope to top up their pensions and then whether to take their full pension immediately or continue to defer taking benefits. Alternatively, they may go for the halfway house and arrange income draw-down. A full review of the various and ever-changing options is critical and no two lawyers will make the same choice. The under-50s often have more limited pension arrangements and will need to take a broader view of how to generate income for their retirement, including property and investment portfolios. These plans need to be put in place as soon as possible - time rewards the early investor.
The current state of the worldwide equity markets has done little to inspire the confidence of would-be investors. However, diversification of investment provides protection from the worst effects of the global economic downturn by diversifying across asset classes and fund managers.
Individuals who do not have an investment strategy suited to their circumstances will need to think seriously about their risk profile. Take advice from an independent financial adviser, and ensure you have a good spread of investments which satisfies your appetite for risk. Ask your adviser to recommend a suitable blend of cash, gilts, equities and alternative investments. Above all, make sure you diversify wherever possible.
A major change in circumstances tends to make people consider the issue of protection for themselves and their families. Some will take the opportunity to have another look at their will to ensure it continues to meet their requirements. Others may be prompted to reconsider their insurance arrangements - this is a good time to think about appropriate life assurance cover, or health and critical illness products.
Above all, with the right financial advice, a number of steps can be taken to ensure that the path to retirement, or to a new legal partnership, is an easy one.
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