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Thread: Practicing Law From My Home? Is this crazy?

  1. #1
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    Default Practicing Law From My Home? Is this crazy?

    Melonie,

    You were right about Gold and you were right about the Euro... You were right about the housing crisis, so I want your advice. (plus anyone else with an opinion).

    I am considering opening a home-business, a law office in my home. Specializing in divorce law, with advertising aimed at women in my suburban area.

    Previously I was commuting and the transportation costs from the last year exceed $7000 (I own the car outright, this is parking and public transit, gas repairs etc.)

    I found a house with nothing but a den on the ground-floor, which I think would be suitable as a home office where clients occasionally met me. Local zoning would let me see 4 clients per week in my home, which would be enough I believe.

    The mortgage would carry for $1500 and the total costs of running the house would be $2000/month. My present mortgage (little condo) is $1200/ month and my office rent arrangement is I get to keep 50% of my earnings, which usually total around $8000 per month. Income taxed around 35%. So basically my boss keeps all my money and what little is left is taxed so much.

    Every way I look at it, I would make more money starting from scratch and working from home. Even if I only charge $100 / hr (less than current billing rate) and work 10 hrs per week, I would be farther ahead than now.

    So I want to know if you have any opinions on the financial decision to make a home office and start a business like this.

  2. #2
    Banned Melonie's Avatar
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    Default Re: Practicing Law From My Home? Is this crazy?

    Well I'm certainly no expert when it comes to the marketing of 'family law'. However, it would appear that the following are fair assumptions ...

    - economic stress re suburban 'middle class' family incomes / budgets are not likely to improve in the near future. As this kind of stress contributes to divorces, future business volume is likely to be 'steady' at least

    - the same economic stress is likely to prompt hard pressed suburban 'middle class' divorcing couples to try and minimize their own costs of separation / divorce. Thus a family law practice with a low cost structure that can in turn pass on cost savings to clients is likely to be VERY busy. In some ways, this is analogous to JC Penney losing customers to WalMart or Chrysler losing customers to Hyundai.

    - with other economic changes already in the pipeline i.e. increased mortgage foreclosures / after the fact short sale loss recovery suits ( are you in a single action state ? ) / future tax problems for small businesses etc., if you were 'short' of divorce clients there would undoubtedly be beaucoup opportunities to diversify into other aspects of 'neighborhood' civil law.

    - especially in the coming environment of higher income taxes in 2011, minimizing 'costs of doing business' while also reducing gross income would directly bear fruit in terms of the amount of after tax dollars produced versus the X hours worth of work effort necessary. Put another way, in the near future a $200k per year high profile law practice is likely to face a 40%+ de-facto tax rate at the same time that most transportation costs to and from the law office are not tax deductible. On the other hand, a $100k per year low profile law practice is likely to face a 25%- de-facto tax rate with far lower transportation costs. Obviously such details are subject to future congressional action re the expiring GWB tax cuts, re an extension of the AMT fix etc., but it's a fairly sure bet that de-facto tax rates for persons and small businesses in the $200k+ per year income range aren't likely to be moving lower.

    - there are however two significant concerns. The first involves the financial loss risk associated with committing to a large property purchase which combines law office and residence ... versus your present rent arrangement for a separate law office where essentially all loss risk is borne by your 'senior partner'. The degree of future loss risk re property valuation is obviously linked to the state of your own local economy / property market. But on the flip side, you could clearly deduct 'home office' related business expenses that you presently can't. Also, if you could make this move quickly, you could also avoid the possibility of having to pay a newly enacted 3.8% national health care related additional cap gains tax, plus a possible future 20% versus 15% regular cap gains tax rate, on cap gains resulting from the sale of your condo.

    - my other concern is the zoning restrictions under which this property falls. Again, like local conditions affecting property valuations, local conditions vary widely in regard to whether or not this zoning would actually be enforced, whether or not local politicians could be 'incentivized' to issue a zoning variance ( i.e. political contributions ), and whether or not you choose / need to expand your appointment book beyond the legally allowed 4 clients per week, etc. Of course the same sort of local 'base building' could apply to establishing favorable relationships with the local family court ... assuming that the vast majority of your suburban clients will fall under the same local court jurisdiction.

    I'll go out on a limb and offer the opinion that your present situation is only likely to get worse in the near future as tax rates and fuel / transportation costs rise, whereas your proposed alternative is only likely to get better. And in the final analysis, you're really only 'risking' ~$300 a month in total cash flow, plus some differential in property tax and insurance costs, minus transportation costs ! And whatever 'fraction' of the additional property valuation risk you'd be assuming that is related to your personal residence ( versus your law office ) is probably not much different than the property valuation risk you already face with your condo.

    And I'm not sure how you feel about this personally, but there is something to be said about being 'in control of your own destiny', as opposed to a significant portion of your efforts being diverted to make a 'senior partner' rich !

    Therefore I'm going to recommend that you 'go for it' ASAP ... and try to get the deals closed before the end of the year to avoid potential higher taxes / fees applying to the property transfers once 2011 arrives !!!

    Additionally, I would highly recommend researching the possibility of quickly forming a C corporation as opposed to an S corp or LLC ... and potentially listing the C corp as the owner of the new property ! As an attorney yourself, the hassle of setting up and maintaining a C corp should be minimal. Operating under a C corp then opens the door to all sorts of other future tax minimizing opportunities, from arbitrage of the future corporate tax rate versus personal tax rate, to reduced net health care taxes / costs, to below market 'rent' pricing for the residential portion of the property as a 'perk' of 'employment' by the C corp. It might also open the door to eligibility for certain gov't subsidies ( i.e. below market interest rate loans, subsidized health insurance coverage, etc. ) targeted towards new small business formation by minorities i.e. women.

    ~
    Last edited by Melonie; 08-14-2010 at 10:03 AM.

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    Default Re: Practicing Law From My Home? Is this crazy?

    The problem with this is that some clients are put off by home offices.

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    Default Re: Practicing Law From My Home? Is this crazy?

    ^^^ this is true for some clients. However, it may actually be a 'selling point' for the particular pool of clients she intends to focus on i.e. financially strapped 'suburban' wives. Again I assume that if this property is zoned limited commercial, that there are other businesses in the area and that the property is located on a main street ( as opposed to being 'tucked away' in some suburban area, which would contribute to the 'stigma' you reference ).

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    Default Re: Practicing Law From My Home? Is this crazy?

    Thanks for the well-reasoned reply. Your points that really hit home are the inevitebility of the cost of transport increasing, and the immense pressure divorcing women are under to control legal costs. Half the time, when a woman comes looking for a divorce lawyer, the guy has just left / took the car / closed bank accounts (or emptied them as soon as he got out of jail for domestic violence charges)... and the wife is living hand to mouth or borrowing from parents just to get by.

    Definitely I know some clients will be turned off by a home office... but many are also turned off by lawyers who bill $400/hr and need a $5000 retainer up-font.

    There seem to be a lot of suburban at-home wives who don't have that kind of cash to get the ball rolling, but at the end of the divorce they get half the house OR they can afford to go to trial after the judge forces their husband to pay her legal bills to level the playing field. Also I noticed it's an ordeal for a mommy to go into the city where the big name firms are. A 30 minute meeting takes all day. The parking at my office building is $4/30 minutes.

    Assisting men in the course of their divorce made me hate my job. I want to work with women and mommies who don't have a lot of money and who need my help. If I work from home I can even visit women's shelters etc. and get legal-aid clients that nobody else wants. Legal aid only pays $80/hr but you never have to argue with the client over being paid... the Govt pays you. With a high overhead it doesn't make sense to help these people. But working from home, I think I can do it.

    The house I'm looking at faces a secondary street with ample street parking. The average price of homes around here is $477,000. The family court is located two towns over, so there are few family lawyers in this area. I keep liking this idea more and more.

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    Default Re: Practicing Law From My Home? Is this crazy?

    ^^^ as I tried to express in my earlier post, you really don't have much to lose by trying this ... especially so if you can close all the deals before the end of 2010 ! And it certainly sounds like you are frustrated with your present clients and would feel a lot better about working with the suburban female clients you are intending to target. Also, as you point out, getting your cost structure down to the point where you can turn a small profit doing legal aid work would also suit you. But this also offers another huge advantage ... because if there is ever a legal challenge over zoning, all of your legal aid work could arguably be listed a single client ... the county / city gov't that is paying you the $80 an hour !

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