Transcript

Guy Rodgers: One of the biggest pieces of advice I give to especially young lawyers or people that are leaving a firm and going out on their own, have a goal. Because if you don’t have a goal, you will miss it every time. That’s a line from Charlie Brown. You have to draw a circle on the wall, because if you don’t have a target, you can’t hit it.

Voiceover: You’re listening to The Texas Family Law Insiders podcast, your source for the latest news and trends in family law in the state of Texas. Now here’s your host, Attorney Holly Draper.

Holly Draper: Today I’m excited to welcome Guy Rodgers to The Texas Family Law Insiders podcast. Guy is both an attorney and a financial advisor. He’s been board-certified in family law since 2002 and has been working as a financial advisor since 2008. He currently owns Guy Rodgers Private Wealth Strategies, where he helps families and individuals take control of their financial futures. Guy regularly works with attorneys, both in advising on family law matters and in advising attorneys on their own personal finances. Guy is a member of the Tarrant County, Dallas County, and Collin County Family Law sections, and he regularly speaks on topics such as financial issues in divorce cases, Social Security basics, and tax and financial planning in family law. Thank you so much for joining us today.

Guy: Well, thank you for having me. I appreciate it.

Holly: So why don’t you start and tell us a little bit about your background and about yourself.

Guy: Okay, you hit the high points, but, like you, practicing law for many years. I still have my active law license. Graduated in 1991 from Oklahoma City University and licensed the following year, and started in Dallas doing criminal defense. Did that for about a year before I got a call from my hometown DA in Cleburne, Texas, asking me if I wanted to be a first assistant. I said, sure, I’m ready to get in the courtroom more.

And so I stayed there for a few years, and I always joke that I’ll be the only financial guy you’ll ever talk to that has both prosecuted and defended a capital case. So I’ve worked on all kinds of criminal cases. I prosecuted CPS matters for years. I represented Johnson County in their civil matters and mental commitments, and you name it, the whole gamut.

And then I left there after a few years and just threw out my shingle on the square in Cleburne. And I practiced mainly in Cleburne, Fort Worth, and Granbury. A little bit in Dallas, but mostly the rural counties around Fort Worth. And so I did that until 2008. Had an office also in Stephenville. So I had for a long time, I maintained dual offices.

And I was working it hard, like most of the folks that will watch the podcast. And there were days I loved it. I loved the practice of law. I love, if the world could have been my oyster, and I could have done anything, I would have been arguing appellate cases in front of the Supreme Court on First Amendment issues.

That was my passion, but there’s not a whole lot of money in that in Johnson County or Tarrant County, and so I just had a general practice. And I preferred litigation, and I loved the litigation aspect of that, but what I hated was the drama that came with the litigation. Sometimes for opposing counsel, but usually even from my own clients or the opposing party.

And I just wanted to strangle people way too often.

And so it just was stealing some of the joy from my life, and it was really weighing me down. And so some friends had suggested, hey, you ought to either get out of the family law, because eventually, after several years of general practice, there was a kind of a lack of good family lawyers in that area at the time. And so I said, I’ll become a family law specialist. But even while I was a family law specialist, I handled a capital criminal case.

So that gave me the ability to at least distinguish myself from the rest of the bar, at least for the family law cases. And that made it worse, because family law cases were so litigious and oftentimes unnecessarily so. I mean, I don’t mind a good fight in a courtroom. I enjoy it, but I would get real frustrated as a parent, as a dad, or as just a you know, member of the community involved.

When I would see people fighting over stuff that they had no business fighting over, and the only people that were probably going to hurt were either themselves or the children. And so I got, I got to this point of mental angst about that. And so I began looking for some other path. And so that started in about 2006 and over the couple years of searching, I wound up going to the financial aspect, kind of by happenstance.

I had a very contentious, a litigious case with a lawyer from Fort Worth. High net worth case. And so I had for years back about the time of Enron, I was at Advanced one year. And you always have these moments when you go to Advanced, any of the conferences, where you have these uh oh moments, right?

Or the oh no moments like, oh, I need to go back either, either you hear a new case, or you hear a new procedure, something that you think, wow, I need to change my practice. Well, somebody was talking about Enron, and it was the year in which I became board-certified. So that was back in 2001 when I was studying for the exam.

And it was during the time of Enron and Worldcom and all of those big companies failing, and the issues that the Houston bar was having because of the cases that were going on down there. If you had had a case where you represented an alternate payee, so the spouse of an employee, and in the settlement, you thought, this person really needs money to retire on.

The other side is the more monied side. They’ll make money, but we’ll get some alimony, and we’ll bulk up most of our money, either in pension or retirement or stock, from the profit sharing or the ESOP. And you loaded all that because they can’t afford the house in Riverside anyway, so you moved so many of those assets into their column. Well, when Enron went under everything that was in their column went away.

And so now you had a case where maybe you got what you thought was a 60/40, division, and it turned out to be a zero/100 or a 10%/90%. And so there was an issue down there of lawyers getting sued and malpractice claims, because that was the only way the alternative payee was ever going to have any money was to try to make a claim, get some money from the care provider for the lawyer.

And so they talked about that at the seminar, and it made me freak out. And so I began, from that day forward, I would always give my clients the business cards of three financial advisors in the community. Thinking, hey, I’ve just absolved myself from liability. But the next year we were talking about it at Advanced in a small group setting, and one of the lawyers said that doesn’t really absolve you from liability.

Because that’s as if you had said, imagine being at a doctor’s office, you went for some blood work, the doctor comes in and wants to visit with you about your test results. And he says, hey, I’ve got bad news. Your tests show that you have XYZ problem. As he’s telling you this, there’s the knock on the door, and the assistant comes in with a piece of paper.

And everybody that’s been through that situation. Knows what’s on the piece of paper. It’s not your lab results. That’s your appointment at a doctor across the way who specializes in cancer or diabetes or whatever your issue is, right? They’ve set you an appointment. My whole life, until 2002 and 2003, I thought that the doctors were doing that because they were looking out for us.

Then those glasses came off, and I realized, no, no, they’re doing that for them. They’ve, in essence, handed off the liability, at least in part. They’ve now made sure that I have the name and an appointment with an expert in that field. And they would tell you, you don’t have to use this expert, but they’re good. I trust them. At least I’ve set you your first appointment, you can figure out your second and third opinions.

And then that doctor, when you meet them, will send them back all the information and keep them in the loop, right? So as a GP, they’ve really shifted the liability away. So I started doing that in my practice, right? But with the three cards, I hadn’t really done that. So then I started having a referral to a specific advisor, and now I’m off the hook. If the advisor does some Bernie Madoff stuff that’s on the advisor, they can sue them.

But at least it’s not on me. Well, Guy gave me three cards, but I never set an appointment. If I did do that now I’ve got the hanging out their issue of, did they go see one of the three? And if so, what did one of the three tell them, and should that impact the way we plan or prepare for the case? So those things all happened at the time I was working on this big case.

I brought in an advisor during the case and said, hey, here’s a potential settlement that we’ve been proposed. What do you think? And he says, I don’t want to look at the settlement. I want to talk to your client. So we get the conference room we’re visiting about it, and we were about 90% of the way home. The only big issues left where we had two big annuities, I say big annuities. We had two annuities of about $200,000 or $300,000 each, and home equity of a couple $100,000.

And so the issue became, what to do with those assets? I represented the monied spouse, the doctor. At the time, in 2003 or 2004, his tax rate was through the roof. And so as he was talking with the advisor, he said, I hate the one annuity. And the guy said, the advisor said, which annuity?

He said, well, annuity A is the annuity that’s lesser value because it’s down. Let’s say you were both originally $300,000. He invested $300,000. This particular annuity had dropped $100,000 so now it’s only worth $200,000. Both of the annuities were non-qualified annuities that he had set up because he had maxed out all of his qualified investing opportunities. And so he said, so I hate that one.

I’d rather have the $300,000 one and I’ll trade her off some home equity. I said, well, the home equity is not taxable as long as you reinvest it. That’s not the rule now, but back then, that was the rule. And he said, well, I’m going to buy another house. And the advisor said, wait a minute, let’s talk more about these annuities. So he asked, why? What was the purpose? It was to avoid liability, judgment proof, those sorts of things.

And so he said, why don’t we tell them we’ll take the worst annuity, but we want a similar amount of money out of the home equity, plus whatever you thought you were going to get. Showing my age a little bit. I literally stepped out of the room, called the other lawyer, and he said, I think that will work. Let me call my client. Five minutes later, I get the bzzzz. My fax starts rolling.

It’s a rule 11. It’s a rule 11 coming from the other lawyer that proposes all of the things. So he’s getting a couple of $100,000 in home equity that’s not taxable, as long as he reinvests, and he was. She’s getting the better of the two annuities. The $300,000 annuity, which has not made any money, but hadn’t lost any money, so it’s just flat, and he’s getting the annuity that’s lost $100,000. So I go in the meeting with the guy, and I say, hey, look to the advisor.

Before we sign this, I want to make sure I’m clear on why this is the best for him. And he said to me, hey, I thought you did real well in law school at tax class. I did tax in law school. But since then, like most of us, I’d flushed and forgot. And I said I did, but I don’t get this. And he said, well, right after the divorce is over, we’re going to have him liquidate the $200,000 annuity.

And I said, no, no, no, no. I remember enough about annuities to know that those in a non-qualified setting the money he takes out his income, and I stopped. Because that’s when it hit me. It was an ordinary income loss. So what he did in that instance, he gave her the $300,000 annuity, which had neither a loss nor a gain.

He took $100,000 ordinary income loss, as in most monied situations, we had that he had to pay all the taxes we’d already negotiated that if there was an overpayment, he could keep it because they thought we were several $100,000 short on our taxes. He got to then keep an equivalent amount from the house, which was tax-free so that one move was several $100,000 tax savings in cash to that doctor.

When we hit the advisor explained that to us, he was giddy. I was giddy. I immediately started getting lots more doctor divorces because he was telling everybody about me. And the advisor, then the week after the divorce is over, I sent him over to the advisor. The advisor sold the annuity and bought him a new one, because he wanted to still be judgment-proof. So there was something in it for the advisor.

He got new business from that client, and oh, by the way, he’s still a client for that advisor today, even though now I’m doing this, he goes, hey, I’m sticking with the guy that I worked with. And several other doctors that I worked with during that time did the same thing. So that was my aha moment of why I switched, and my history of how I went from, you know, dirty little litigator to what I’m doing now.

Holly: So, and I know kind of the story you just told us about when you were the lawyer and you have the financial advisor in you do that now for a lot of attorneys with their clients. I know our firm has used you. I know tons of other lawyers have as well, and that’s not really the main part of what we’re going to talk about today. But just talk a little bit about what you can offer for the family lawyers out there and their clients in a divorce.

Guy: Sure, and thanks for sending folks my way from your firm. I appreciate it. So when I made this crazy and bold move in 2008 to leave my law practice and become a financial advisor with zero clients and zero guaranteed income. What was I thinking? My parents nearly disowned me, but when I made that move, it was because I really saw a gap in the services as lawyers that we were able to provide.

I mean, lawyers are brilliant folks, but you could only have your eye on so many balls at one time. I all the time, will go into financial advisors and ask them if they know the local rules of a local court, and they look at me crazy. And of course, they don’t. But the lawyers also don’t sometimes know some of the financial rules or the tax rules that the advisor would know.

So in a case, whether it’s divorce, my practice typically breaks down into divorce, property cases, typically. And then estate cases, whether they’re estate planning or as part of a probate case when there’s litigation. Or people coming into money. Planning on how to divide up their estate or and then finally, I’ll do a little bit of personal injury work where people will get a lump sum.

We’re negotiating with an insurance company. Or we’re trying to set up a trust. We’re trying to set up annuitized payments for a child. Courts will sometimes appoint me to do guardianships for monies on cases like that, that sort of thing. Typically in a divorce case, I will come in, usually about the time of an INA, but sometimes even on initial appointment, depending on what we know about the case.

The lawyer will have me come in and meet with the client. We’ll either look through the INA, figure out what assets exist, and it’s amazing, I will find assets that the lawyer never finds just because I keep asking different questions. And people don’t think about, oh, you know what, we do have that one policy at work. Or we do have, you know, an ESOP, but my shares aren’t vested, so I didn’t think I needed to talk about that or whatever.

So we’ll find sometimes more assets, and then once we have all the assets, we’ll literally analyze them based on the client’s situation, determining cash flow needs, liquidity needs. You know, sometimes we’ll have somebody who needs to buy a house or a car or pay legal fees. There are ways we can avoid penalties on some of those things.

I always talk about the one free bite of the apple on a QDRO. That’s one of my favorite tricks. When someone’s the alternate payee on a QDRO, they get one one-time penalty free distribution on whatever they get. And so someone, I’ve had people liquid $1 million. They’ll pay the tax on it, but they will not pay the 10% penalty. So that helps sometimes resolve those things.

And then in litigation, if it goes further, and we say, these are the assets you would like. This is maybe a tax equivalency that would make sense and be fair. We could help with that. And doing analysis under 3007 for an ESOP or an RSU plan. We could do back of the envelope tracing I do. But if we’re doing serious tracing, of course, I want to refer that out to one of the CPA firms, but back of the envelope tracing, helping us know whether we have an issue.

And then mediation support, trying to say, hey, we’re almost to a deal. What do you think about this proposal? How should we tweak it? Everything from Social Security, teacher retirement, Railroad Retirement, all those things, kind of figuring out how each of them fits into the puzzle and whether it’s an appropriate deal for the client and their needs.

Holly Draper: How do your fees work for those types of things?

Guy: That’s a great question. I don’t charge anything at all to the client or the lawyer to do any of that analysis we just talked about, except misery has taught me that I will charge, number one, to be an expert witness. Number two, if I’m going to be doing RSU or ESOP calculations under 3007, because they’re meticulous and confusing, and I’ll spend a lot of time doing them, and I’ll get questioned about them for a long time.

So those are the only things I charge. And those I just charge like at an hourly attorney’s rate, kind of depending on the area in which we’re working. But for the other stuff, I don’t charge anything at all. My hope is that I’m in essence, selling myself well enough that if the person needs financial assistance, post divorce or post settlement, a business sale, I just did a big business sale the other day.

If the person needs financial guidance after that, needs someone to manage those monies, then I’m hoping that I’m going to have shown myself ethical and knowledgeable that if they need somebody, I’d like to be at the front of the line for consideration, and that’s all I ask. And it’s worked out okay.

Holly: Is there a certain threshold dollar amount above which it’s appropriate to bring in someone like you?

Guy: I say the amount of dollars is almost irrelevant, from the lawyer’s perspective. Let’s talk about from a lawyer’s perspective. That little gold card you carry in your wallet is worth whatever you think it’s worth. It doesn’t have any bearing on how much the amount from controversy is. I had a case where there was no money involved. It was literally a Social Security question. I had a lawyer who eventually became a judge in Fort Worth.

Very well-known, very prominent lawyer, knowledgeable, right? Called me and said, hey, got a client. Divorce is already done. We’re doing the prove-up next week, but I want you to go ahead and come over and meet with her. So she waited till the very end to call me, right? But she said, I know she’s going to have a QDRO. She’ll roll you some money over.

She’s going to need some help. When I set out and met with that client, asking all the questions, I learned that one of the things that she was kidding, they’d been married for nine years and 10 months at the time I met her. And I said, wait a minute to the lawyer. Said, wait a minute, she’s not been married 10 years. 10 years is a big number.

And the lawyer, literally, a friend of mine, patted me on the head and said, silly rabbit, you’ve been out of the practice of law too long. The Judge we’re in front of in Tarrant County is not given the nature of the assets, is not going to let this be at the time, it was an alimony case, and so we’re not even worried about 10 years.

And I said, do you love your bar card? And she said, yeah. And I said, we’re gonna wait until it’s 10 years. And she said, well, we’re set for proof up on the DWOP docket. I don’t think we can. And I said, we need to. And she said, but why? And I said, Social Security. In this instance, we had a couple with a large age gap and large earnings gap.

And I said, if we don’t get this lady Social Security, it’s gonna reflect on you, and she can, she could claim on you. And she said, again, listen, Social Security is a federal issue. We can’t affect her Social Security rights and his Social Security rights. Social Security is what it is. And I said that’s true also, except at 10 years, she has the right to claim under the former spouse. And she said, really? And this is a good lawyer. And I said, now it’s been my mission for the last 15 years to preach this.

So now I’ve done CLEs in every county about Social Security alone. But we’d always at that time just thought, we can’t really affect what it is, what it is, kind of thing. And so we literally got on the phone with the judge. The judge knew and respected me, and I said, Judge, we need to delay this hearing so that she can have a 10-year marriage.

And got the other lawyer on the phone, and there’s no harm, no foul to the other client. Doesn’t affect his Social Security. So the judge said, I’m going to set it after 10 years. And so in that one instance, there was no money necessarily even coming to me, but I helped the lawyer. That’s been my philosophy all along. If I help the lawyers, the clients will come. And it’s worked out that way.

Holly: All right. Well, switching gears to the main topic of our discussion today. Really gonna, speaking to those who own their own law firms, or maybe those who might dream of becoming a law firm owner someday, but that is how to be the CFO of your law firm. So I know the first thing that is important is know your numbers. Talk to us about that.

Guy: So I always tell everybody, pretend you’re on the Shark Tank if you own your own practice. You watch the Shark Tank, the number one thing that you need to do is know your own numbers. And so for me, that’s the most crucial thing, and that means everything. And I’ve got some slides, and if anybody wants them, they can ask you or me, but I always say, what’s your trailing 12 revenue?

If you don’t know what your trailing 12 revenue is, you can’t begin to plan. And it’s pretty fortuitous that we’re here at the beginning of the year. This is perfect, because you could literally just look back at every dollar you brought in last year. That’s your trailing 12 gross revenue.

And then you could look at your trailing 12 expenses. In the last 12 months, what were my revenues and what were my expenses? And then this time of year, I do this, I set a goal. So what is your goal? What is your goal for the next year? I know you, Holly, I know you have a goal for this next year for revenue.

Holly: I do. Yes.

Guy: And so one of the biggest pieces of advice I give to especially young lawyers or people that are leaving a firm and going out on their own, have a goal. Because if you don’t have a goal, you will miss it every time. That’s a line from Charlie Brown. You have to draw a circle on the wall, because if you don’t have a target, you can’t hit it. You also can’t know by how much you’re missing it, and learn how to refine your pain.

So have a goal. And so figure out if I work for the next 12 months, if you’re a solo, are you going to work all 52 weeks? Are you going to take some vacation time? Are you going to bill in quarter-hour increments, you know, tenths? How do you bill? Do you bill flat fee? And then back all the way out of that into, how many clients do I need to get this year?

And what does the average revenue per case, or how many court appointments do I need to get that are CPS visits? Whatever your practice is, back into what your revenue should look like this next year, maybe a comparison between last year. But if you’re brand new, you need to have a target, and then what are my expenses going to be? If you’re new, both of these numbers are going to be wrong.

Your revenue and your expenses are going to be wrong. If you’re experienced, both of these numbers are going to be wrong. Your revenue and your expenses are going to be wrong. But at least if you have a target, you can kind of know where you’re headed. And so once you get your trailing 12 revenue and expense, and your projected expense and revenue, now you kind of have a map.

And so I want you to be thinking about, do I need to change my hourly rate? Because I literally will walk through this process with lawyers and they’ll say, well, my goal is to do X dollars of revenue, and we do their hourly rate. And I said, well, are you going to work 60 hours a week? You’re going to work 100 hours a week? Or are you going to work 100 weeks this year?

Because at your current billable rate, it’s not reasonable for you to have that expectation. I’m not asking you to change your current billable rate, but you’re gonna have to change one or the other, right? So that process is being a CFO. And so that’s to me, the step-by-step, knowing your numbers is the most important beginning point for your practice.

Holly: So once we know those numbers, I’m assuming the next step we’re going to talk about is what to do with them and creating a budget.

Guy: Yeah. So I always say budgeting stinks, and when I do this with a slide, I either have a picture of a baby diaper, of the trash can with the flies buzzing around, or a skunk. Because nobody wants to budget. And so I also say, like when I’m talking with your clients, that you refer me, I will say it’s not a budget, it’s a spending plan. Okay. You have to have a plan.

And so the same goes true for us as the CFOs of our own practice. Have a plan. The biggest way lawyers fail in their plan, and it’s not just lawyers, it’s almost everybody, but the biggest way they fail in their plan was failing to know their numbers. Once they know their numbers, the next biggest way they fail is they don’t pay their taxes first.

Because Uncle Sam waits for no one. And so I’ve had lawyers get into so much trouble that I’ve literally I’ve watched the, this goes back a ways, but I’ve watched old men walk into the courthouse in their leisure suit asking for court appointments because they still have an IRS bill to pay. They want to be retired. They’re not working for their money.

They’re working for Uncle Sam’s money to pay him back the money they owe him from 20 years ago. So pay your taxes first, get a good CPA, plan on your taxes, just like you plan on your revenue. Pay your taxes in line with your revenue. So to me, that’s the most important thing, or you can really get sideways. Because everything else you can catch up from you can find a way around.

Holly: So are you usually basing that based on your revenue from last year, your revenue from last year, plus a certain percent, or whatever your goal is for this year?

Guy: I usually will base it on last year’s revenue, and then I adjust by quarter. Because you notice I didn’t say what was your revenue for last year? Trailing 12 means we should be spending 15 to 30 minutes every month being a CFO. We should be reviewing our trailing 12 revenue expenses, all those things, and for the first several months, it’s going to take you more than 30 minutes. But once you’ve done this month after month after month after month, you’re going to get better at it, right? You’re going to know how much the cable bill is.

You’re going to know how much your subscriptions are. What am I paying to LexisNexis? You know what this is, because you’ve been doing it for so long, that helps you move that process along. So I do every month I’ll do a review, I’ll speak with my accountant and try to figure out adjusting my tax issues on a quarterly basis.

Holly: All right, so in order of priority, we have number one, taxes. What comes next?

Guy: Taxes first. Well, then I say, pay yourself. And as a guy who was a solo for a long time, we don’t do this. They need to teach this class in law school. Make it mandatory, one hour of mandatory, but pay yourself first. And I say, pay yourself first, because if you don’t pay yourself first, you won’t get paid. If you’ve been very diligent, you have a plan.

I ask often, have you done the same thing with regard to your household? If you’ve not, that’s a different discussion, but the process is the same. Do the same thing for your household. Know your bills, know your expenses, know your interest rates, your your cash flow, know all of that. Because I need to know, I had a lawyer I went through this process with.

We presented it Advanced last year, this topic. And the lawyer that co-presented with me, said, I gotta be honest, I’ve not done it. Let’s make me the guinea pig. So we did, and as we began to do that, we set him a salary, and he said that won’t work. I need more than that at home.

And so we need to know what’s going on at home, so we can set the salary right, but pay yourself that salary. And I’m a big believer of, I’m a big believer of, file as a subchapter S, as an LLC. Pay yourself a bare-bones salary and then take the dividends, which are taxed at a lower rate, as your bonus money.

But at a minimum, set your baseline salary for your subchapter S. I mean, like, even now for my firm, I think my salary is 100 grand. So I set my salary to 100 grand. That’s the number that Social Security is going to tax me on. Everybody’s going to tax me on. Everything I make above and beyond that will be taxed at the dividend rate.

Where, if instead, let’s say I made 300 grand, my income tax rate would be dramatically higher, and I would have fewer dollars in my pocket if I’d been just taxing myself as a sole proprietor and LLC, not as a subchapter S. So pay yourself a salary, and then quarterly if you need to adjust that salary up or down, do it.

But same thing, you’re reviewing this on a regular basis. Once you’ve done this for about two years, that’s the time I find really works. At about two years, now you’re going to be in the groove, and you’re going to have more repetition. Things are going to work better, and you’re going to be more accurate, both on your income, your revenue, your taxes.

Voiceover: This episode of The Texas Family Law Insiders podcast is sponsored by The Draper Law Firm, providing family law litigation in Collin, Denton, and Dallas counties and appeals across Texas. The Draper Firm has represented parents in cases before multiple courts of appeals and prevailed in the Texas Supreme Court in one of the biggest parental rights cases in Texas history. For more information, visit draperfirm.com, or call 469-715-6801.

Holly: Okay, so third on the priority list, I know you had to put away money for a business fund. Tell us about that.

Guy: So yeah. So I believe both at the home and at the business, you need to have an emergency fund. Operating capital. And I tell people, depending on the nature of your job, I want you to have three to six months’ worth of expenses, and that’s whether it’s at the home or at the business. So for your home, I want you to have in your family savings account three months’ worth of all the bills.

Everything you would run into for three months. But the same thing is true for your office. If, for whatever reason, I had no revenue from this practice for the next three months, I have enough money that I have enough money to pay my staff, pay my utilities, pay my bills, pay my subscriptions, and me, don’t forget me, for those three months. Three months is my minimum.

If you really get well healed and you’re able to, I love people to have six months or a year. You got to find something smart to do with that money during that six months to a year with that number, right? You wanted to be earning some interest in those sorts of things, but in terms of putting my head on my pillow every night as a CFO, I know for myself personally, for a year, no matter what happens, my staff has a payroll, and so do I.

And that changes everything. That allows you to try to figure out what you’re going to do with advertising, employees, and expenses of a different nature. They’re more elective. Well, now I’ve got some cushion. I’m not always running with my hair on fire.

Holly: So how do you feel about instead of having that big of an emergency fund in your business, you know, if you have access to a line of credit of a certain amount, or you have access to your own, you know, if you have your own investments, you have your own, you have plenty of money there, where if you had an emergency, you could access it?

Guy: So long as it’s liquid, I’m okay with that. But I’ll give you the line of credit story comes from my own example. Back in 2007 and 2008, when the financial crisis was hitting, I sold my law practice and thought the right thing to do would be to pay down, I had a line of credit, and I had a little money on it. It was like a $100,000 line of credit, but I only had a few grand on it, so I paid it off.

You know what they did? They canceled it, because they have the discretion to do that at any time. So my only concern for a line of credit, or a credit card that people use as my safety line of credit, be careful because that can turn into a line of credit that no longer exist. The three months that I gave became my rule for me after my line of credit went away.

With regard to the personal stuff, if you have enough money that’s nonqualified, right, then maybe, but you don’t want to have to pay an IRA penalty and taxes to get to that money. And then secondarily, even if I have the money in a non-qualified account that’s my own. If I invested in Amazon stock several years ago and it’s blown up, I got a lot of gains in it.

Number one, I probably don’t want to sell it. But number two, if I had to sell it, now I got to pay a ton of taxes, and I lost my Amazon position. I would rather as one of my budget items, carve off a little money every month to build that emergency fund. And it could be, I keep mine in a money market. Money market right now is paying four and a half percent. That’s not as sexy as my Amazon, but it’s something, right.

And if worse comes to worse, even if it were in cash, I put my head on my pillow every night as a business owner with much more assurance. That’s why three months is plenty for that. If you have a big firm, you have maybe big swings, maybe in your revenue, like if you’re running the PI practice, you hit a big lick, and you may not hit another lick for eight months. You need a bigger, bigger safety blanket.

Holly: Next on the list, we have put away money for retirement, or at least a personal emergency fund.

Guy: So you already me, I love the personal emergency fund to already be in existence. The actual emergency fund. For retirement, I always say, if it’s truly up to me, and we’re not, and we’re going right, once we get going, that’s part of paying yourself first. Okay, but if we’re starting from scratch and we’re literally trying to learn our numbers, this can be last, but it can’t last for long, okay.

Because what Albert Einstein said the most powerful force in the universe that he had discovered, compound interest. And it either works for you or against you. And the problem, just like talk about the IRS, it’s hard to catch up. When you start too late for savings for retirement, it’s hard to catch up.

People are always chasing a return in the market, timing the market, trying to get the big return. It’s not that. Slow and steady does win this race. And so I tell people, once you get established what I now call item number four, really goes along with with item number two, which is, pay yourself first, but it also helps with item number one, which is pay your taxes.

I strongly encourage people, at least for the first few years, to do a SEP, a simple or an IRA, depending on their firm structure, or even an owner K to put away some money, especially if you get to the towards the end of the year and you think you’re going to have bonus money that you don’t need to eat. Sock that money away and let it reduce your tax bill.

So many of us don’t think about the fact that if you leave that money in the retained earnings account, you and I were talking offline just a few minutes ago about that, spend that money on a business expense, including your retirement plan, and have it be a deduction so that it reduces your tax bill. The government subsidizes your taxes by way of helping you reduce your adjusted gross income.

So put some money away. So it helps in more than one category. Once you get going, especially if you’re young. I’m a huge fan of Roth within your 401K, or within a Roth IRA, things of that nature, or overfunding a 401K, with nondeductible amounts if you don’t have a Roth element in your 401K. Do that, though. Always put away money for your retirement because it’s hard to catch up, and I’ve got some illustrations about that later.

Holly: Well, and one other tip, as people build up their practice a little bit more and they have a little bit of extra money. You know, certainly, I’ve had my practice, or my firm, sincethe end of 2008. And the retirement plan has changed quite a bit along the years, and now my kids are on my payroll, and my kids have Roth 401Ks that, $150 a month or something, that I’m chipping in.

Guy: We talked about estate planning. That is one of them. For small business owners, including lawyers, that’s one of my favorite estate planning tools. Make your child an employee legitimately. Then there are some rules. Get with your CPA, make sure you’re following them.

But make your child an employee and have them get a company match. One of my other favorites is as an employee, so long as we’re doing this for everybody in the firm, you know, there are rules where you can pay for their college and have it be a deduction of the business as an expense. So, holy moly, look at there.

Holly: Okay, I’m gonna need more information on that because I have a daughter who’s a junior and a son who’s a freshman in high school.

Guy: Okay. And let me give this quick tip. I wrote for the American Academy and Family Law Specialists, is that what it is? They do every year, the AAML, yeah, the matrimony lawyers, the AAML. Every year they come out with a bar journal. And a couple years ago, they asked me to write a Bar Review, a law review article for their journal, and that was one of the tips that I put in that article. So you can find it, if you’ll look for the AAML under my name, but it was specifically in the Secure Act, which came out during the very middle of Trump’s presidency.

And then it got bolstered by even some of the things that have happened since then. But it allows you, I say this, to especially, even associates, or if you’re a partner at a firm and you don’t know this, you can bonus your junior associates come Christmas time in the amount of next year’s law school loan minimum payments, and it’s not taxable to the employer, meaning we don’t pay as an employer.

We don’t pay all the FICA and social security, all the stuff that we pay as an employer, and employees, in case you don’t realize it, they’re paying just as much gets withheld from your check. The employer pays the same. So you can get that deduction as an employer, and so can your employees, but it’s an expense to you.

So that’s a way to bonus associates. So if you’re an associate, raise your hand and say, hey, when it’s time for bonuses, bonus me by way of paying my Fannie Mae or Sallie Mae, and it’s deductible to the company, but it’s not taxable to you as an employee. And it’s not taxable to the firm in the same way either. It’s a beautiful loophole.

Holly: And so does the firm have to pay that money directly to the lender and bypass the middleman of the employee?

Guy: Why are you asking me that? I think my memory is my because I almost said, I think, I think you actually can pay it to the employee, but the employee has to be able to provide proof to their CPA back to the firm that they paid it. Been a minute since I, since I’ve studied that. Probably been six months. Because I actually thought about doing it for my own employees here, and I didn’t have anybody right then who needed it but. But if I had, my kids were here and they have school loans, I could do that. So there’s you a hint.

Holly: All right. So last little bit to talk about on the CFO front is hiring. You know, earlier, when you were talking about, are you gonna work 100 hours or 100 hours a week, or 100 weeks a year? My goal is always to do exactly the opposite of that. I have been a big component of hiring and specifically of hiring attorneys, because they can do everything that I can do and reduce the amount of work that I have to do to bring in greater revenue. So talk a little bit about the analysis of hiring and what people should be looking at as the CFO at their firm.

Guy: That’s one of the biggest regrets I have of my practice. Whenever I was a solo. Though, I say I’m glad I didn’t hire associates, because had I done that, I may not be doing what I’m doing now, and I really feel the calling for what I’m doing now. But even if you’re relatively young as a lawyer, you could do this. You could do it. You can structure it in 100 different ways.

And you maybe can talk about some of this, but whenever I was preparing to give the speech in San Antonio this year, I called three or four law firms and I said, how do you guys do this? I knew how I thought I would do it, but the other presenter was a solo. He’s working on not being a solo after this speech. But so we called some law firms, and we got ideas.

And almost everybody kind of fell into the same path. The only variance was how they paid for it. Meaning some of it is eat what you kill, but I’ll give you a draw against expected future earnings, or I’ll hold your core appointment money in. That’s, in essence, going to help me cover your overhead, or things like that. So the associate formula that we came up with and presented the decision factor was 25 billed and collected hourly in a week.

Holly: Is that the owner, or is that the person who you’re hiring?

Guy: For the associate. The associate, in order for them to pay for themselves and be worth it for you, you have to determine at 25 minimum billed and collected if they did that, then you could then take and use eight hours of those hours as compensation for the attorney in one form or another. Then eight hours for support staff and expenses, including subscriptions, CLE, and malpractice.

And then lastly, the other nine hours would be payroll taxes, benefits, if you have them, and owner profit. And so the formula becomes, if things are going great, then eight or nine hours a week of that lawyer’s billed and collected should come back to the owner of the firm as the profit for the risk they’re taking.

So the issue then is, how do you structure the salary to the employee, or the sharing ratio, or the bonus structure, things of that nature. But just to determine what I would have someone making, in order to make them pay for themselves if they can’t bill and collect 25 hours a week, then they’re gonna be a drain on you as the hiring person, either logistically, staff oriented, stress, having to cover for them, having to throw them clients of yours.

I had some firms say to me, you know, people come in and see me and I tell them my rate is x, or I can let my associate handle at their rate of y. I’ll supervise and make sure that I’m here in case X, Y, and Z happens, and we’ll make sure your case is well handled. But if you use them, it’s a lower rate, but I’m happy for you to hire me or them, and they’ll do it that way.

They’ll use some of their leads to generate their nine hours a week of profit. So different people do it different ways, but that formula that we discussed really does come in handy in figuring what the cost, it’s the same thing as we talked about before. Got to know what your expenses are.

Well, your expenses for an associate is their salary, regardless how we get it to them, whether it’s fee sharing, whether it’s a build against minimum salary, however you do it. And then it’s expenses of staff, expenses of you know, are you paying for their cell phone because they’re using it 20 hours a day. If they’re going to have company benefits and taxes, all of those things got to go into the mix before you decide this would make sense.

And if you can’t find somebody that is going to pretty easily hit those numbers, and we all know it’s not always the case, right? Some months we do some months we don’t. But if you can’t consistently generate that, then why would you do that as the business owner? The flip side of that is the young associate.

If you want to make more money, up your hourly, up your billables, up your collectibles, and all of a sudden there’s more profit on the back end. And you go to the firm and say, hey, look, instead of you getting $900 worth of profit this week, you got $1,800 worth of profit this week. And if you’ll look for the trailing 12 months, I’ve been doing that for a year.

I want to renegotiate. You’ve got to be able to look at your trailing 12 as the CFO of your own sliver of that practice, as the associate. It all works the same. It’s just at which slice are you looking at? Are we looking at home? Are we looking at the slice as the associate? Are we looking at the slice as just the practice owner and manager?

Holly: All right, so we’re just about out of time. But I did want to squeeze in one last little topic that you and I have really bonded over this topic, and that is travel and travel hacking. And for those of you, anybody that knows me, knows that I love to travel. Love to travel the world, and travel hacking is letting me do it, flying business class for a lot less expensive. So give us your top travel hacks that people can take to make their lives better.

Guy: So the first one is what you and I have bonded about a lot recently. And that sign-up bonuses on credit cards. My firm, I have two corporations, and each one of them has multiple credit cards where I meet the spending minimum. I pay it off every month. Is something I would have just written or had it as a draft out of the account.

Instead, I pay it with the credit card and draft it out of the account. I carry zero credit balances at all. All right, let’s start with that. I love the credit sign-on hack bonus thing, but you can’t carry balances because then you’re paying interest for your points, and that’s dumb. But get the sign-on bonuses.

In the last year, both of us have gotten over a million miles in sign-up bonuses, spending money that we were going to spend anyway, and you can go all over the world a lot of times in business class on a million miles. We do that every year. So sign up for bonus hacking. And what’s the name of the website that we both like so much? I’ll get it wrong if I say it.

Holly: 10x travel.

Guy: 10x travel Facebook page. Look at that, and you’ll see both of us on there a lot.

Holly: But one thing that I didn’t realize I’ve been doing wrong for my entire adult life, until March of this year, was you want transferable points. And I thought, you know, we live in Dallas. I have used American Airlines forever, had those cards forever, and I’ve been like, miles are worthless. I can’t go anywhere with my points.

And then I’ve had Capital One cards forever, and just thought I could use the portal, and I couldn’t get diddly squat for that. And so I’d been accumulating them. And now I realized, all right, I can transfer them. I just got, you know, about to buy business class seats home from Singapore. I got premium economy there for 75,000 points, getting back for 125,000 in business. And you know, if you look at American Airlines or United, it’s a million points for that.

Guy: And so there’s a hack there too, right? We talked about before we jumped on. And that is, there are websites, this 10x travel as well, that have charts and graphs that will show you, if you have a million Amex points, the best way to transfer them to Virgin American, Virgin Atlantic, or whatever airline to get the best miles rewards on any given trip.

Perfect example, I have a lot of American Airlines points. So I went the other day to try to book a flight for American Airlines. The flight was 40,000 miles from myself and 40,000 for my wife, just a short domestic first class. I went and looked at one of my other travel hack websites that I like, called points.yeah.

Y, E, A, H, so I looked at their portal and they said you can take that same flight for 7000 miles round trip each, if you use Alaskan Airlines miles. So I already had some Alaska miles, but if I didn’t, I could transfer my Amex points to Alaska and then use my Alaska miles to book that. So I booked it.

Holly: And it’s the exact same American Airlines flight. That’s the thing.

Guy: Same flight, same seats. It’s an American Airlines Flight, the same ones I was looking at, nonstop, same exact flight. The American flight was, was ridiculous. It was 40,000 miles or like $800 because it’s soon I’m going next week. Last minute trip, or 7000 points, round trip with Alaskan. So those are my, the sign-up bonus hack that we’re both doing. Points.yeah.

Once you have the sign up bonuses or miles at Chase, Capital One, American built all of there’s, there are several of them that do it once you have those, and you can select and spring them out to that points.yeah, you can even set up alerts. And I get alerts every day for the cheapest trips.

I just pick Europe. If I want to go to Europe in the next year, anytime they see anything that’s such an outlier in the algorithm that they say we need to let Guy know about this. He might like it. I get an email and I may pick it up. I may not. Another one that I love. First off, for general information, I love TripAdvisor.

I’m a big TripAdvisor fan to look at reviews and hotels and things. It’s a really great source of pictures and data that are not done that’s crowdsourcing, right, and not done by the hotel. It’s real reviews. And then secondarily, I love Travel Zoo.

Holly: Yeah, me too.

Guy: I booked some amazing trips during COVID, on Travel Zoo, including one that I just got back from. I went to Africa. I went on a six-star, I mean, an amazing, expensive trip to Africa, not including my flights, but for me and my wife, for 11 days, for about $4,500.

Almost all meals included, all of, I mean, just almost everything, and staying at an amazing resort outside of Kruger in a private lodge. That trip, if I bought it today, would cost $20,000. I had another one that I picked up during COVID for $1,500 for seven nights in an overwater bungalow in Southeast Asia. I’m having a vapor lock.

Holly: The Maldives.

Guy: The Maldives, yeah, and Malawi, outside of Malawi. So for $1,500 for seven nights in an overwater bungalow, it had a time restriction, and it just didn’t work out, but it also had a refundable nature. So sadly, I held on to that till almost the end of the time. We never could make the timing fit, but they shipped me my $1,500 back.

I would have much rather used that trip, that trip today I looked a couple weeks ago, is worth about $7,500 for five nights in an overwater bungalow. So Trip Advisor, for general purposes, travel zoo, and there’s a pay-per-service, I think it’s like $25 bucks, nextvacay.com that will find you flights that you got to pay for. But you could put in your nearby airport.

So I’ve got all of the Texas major airports in and you could put in the regions where you would want to go. So for this one, for example, I have the Caribbean, South America, Latin America, and Europe. And if they get again, an outlier that’s crazy, they’ll notify me. And usually, on that site, I’ll have a day to book before it goes away. You might have seen on our travel hacking website, did you see yesterday there was a flight from DFW to Milan for $1.

Holly: No, I missed it. I would have booked that!

Guy: Somebody posted it, and it lasted less than an hour, but it was $1 and it was economy, but you could then buy the ticket and pay the upgrade, either miles or dollars. So $1 and it was a Lufthansa flight, stopping in Frankfurt to to MXP for $1. So looking at those kinds of things are always really cool, and then I know you’re going on a cruise, maybe going on another one coming up.

There’s a website that I’ve found that I’ve used for years, and it’s called cruisecompete.com. I’ve got I love vacationstogo. If you’ve ever gone to vacationstogo, they’ve got a 90-day ticker. So if you’re looking for a cruise within 90 days, vacationstogo has amazing deals at deeply discounted prices. The way the cruise industry works is Royal Caribbean doesn’t hold on to all of its rooms. They sell them to wholesalers, right to cruises, and more.

And cruises are us or whatever, right or to orbits and price line. They sell these things. Well, those companies will sell those but especially when you get reasonably close to time to go on these cruises, they’re willing to offload their cruises at very little profit because they’ve already made profit on the cruises they’ve been booking out of their 100 room block over the previous year.

So cruise compete acts as a reverse eBay. And what it is is you go on cruise compete, and it’s free, you sign up and you tell them, and I did this just the other day. There’s a cruise that I want to go on that leaves from Venice and goes to Barcelona next September. Pick the date, pick the cruise ship. I picked that and I picked the class of room I wanted.

And I said, this is what the cruise I want. I can name that tune. I’m so old. Y’all probably never seen that show. There was an old show, I can name that tune. And people would say, I can name that tune in five notes, four notes, three notes. It’s reverse eBay. These companies are bidding for you to purchase their bulk cruise room. And so I said, I want a suite on this cruise.

And the price started out at $4,500 a person, and it got to four, then it got to three. Now it’s at $2,700 right now per person, but if I just try to go buy that from one of your major cruise brokers, I can get for the same price, I’m going to get an outside cabin. But I’m getting a suite, because these people have this room already paid for in their column, and they’re going to try to get rid of it before it’s too late.

Holly: Generally has to be pretty close to last minute.

Guy: The closer you get to time the prices go down. So it’s just a matter of how flexible you are. I mean, we’re, you know, we’re eight months out, which for me, is, is way distant planning. I do a lot of last minute. But eight months out in the cruise world is actually beginning to become shorter notice. Most people for a cruise plan about a year.

If I wait a couple of months, I can get those prices down significantly more. So it’s just a question of how much am I willing to risk that they sell the last big suite before I book it right? But instead of using one wholesaler, I’m in essence posting on a website that has 20 wholesalers subscribed to it. Cruisecompete.com and you’re under no obligation to buy the room.

Holly: Well I have already put that on my bookmarks, because I definitely, we love to cruise, so I’m definitely going to be using that one. So one final question before we wrap it up is something I like to ask everyone who comes on the podcast. What is one piece of advice you would give to young family lawyers?

Guy: Don’t sit in front of the blinds when the when the sun is moving. So I would say young family lawyers. Don’t ever let the litigation and the fire you feel about it for your client ever make you treat the bar in a way that is not professional. Don’t ever be tempted to ex-parte a judge even when you really need to. Don’t ever be tempted to gloss over a certificate of conference or call the lawyer and try to work it out.

When a lawyer has a family member that’s sick or dying and they file a motion for continuance, tell your client you’re agreeing to it. I was a big fan of always copying those rules that we get, those aspirational rules that they would give us in the creed, the Texas lawyer’s creed.

And I would make my client sign those on the first day that they retained me. And I would say, I’m going to abide by the Texas lawyer’s creed. And if that means I don’t need to be your lawyer, I’m not going to be your lawyer. But I would give them examples like that. And of course, at the time, they’re thinking, well, of course, I would never, but then in the heat of the moment, they’re like, but I don’t care.

I’ve been waiting three weeks to find out about X, Y, and Z. I would never have been that lawyer that would deny those things for another lawyer in need. Because you know what happens? Happens to you. It happened to you. Happened to me. We’ve all been there. And if you haven’t been there yet, trust me, you’re going to be. So abide by the Texas lawyer’s creed. We’re not thinking about that one in advance. I think that’s a good answer.

Holly: So where can our listeners go if they want to learn more about you or connect with you?

Guy: So I’ve got a website. [email protected] is my personal email. My website is Guy Rodgers Private Wealth Strategies. I’m an independent financial advisor, but I’m associated with LPL. They’re my broker-dealer, so that’s where all the funds for my clients stay. But that’s where they can find me. I’ve got a good website and Facebook presence. They can email me, if they want slides or anything else.

Holly: Perfect. Well, thank you so much for joining me today. For our listeners, go take a second and subscribe to enjoy future episodes.

Voiceover: The Texas Family Law Insiders podcast is sponsored by The Draper Law Firm. We help people navigate divorce and child custody cases and handle family law appellate matters. For more information, visit our website at www.draperfirm.com.