BigLaw Garden Leave: What Happens to Your Money During Administrative Leave

Garden leave — paid administrative leave between announcing a lateral move and physically joining the new firm — has become standard practice at Kirkland, Latham, Paul Weiss, Quinn Emanuel, and much of the rest of the AmLaw 100. It lasts anywhere from 60 days to 12 months. During that time, your income continues, but so does financial complexity: capital account status freezes, NQDC elections may or may not trigger, 401(k) contributions get complicated, and your new firm's signing bonus won't start until you walk in the door. This guide covers every financial dimension.

What garden leave actually is

Garden leave (also called "paid administrative leave" in US law firm practice) is a period during which a departing partner has formally announced their departure but has not yet joined the new firm. The term comes from English employment law, where courts enforced non-solicitation covenants more easily if the departing employee remained on the payroll — "tending the garden" rather than calling on clients.

In US BigLaw, firms impose garden leave for two reasons: to enforce non-solicitation of clients and colleagues during a transition window, and to prevent the departing partner from working at the new firm while still receiving compensation from the departing firm. The practical effect is a period of paid inactivity that can last from 60 days to as long as 12 months at some firms.

Key distinction: garden leave is not the same as being on FMLA leave, disability leave, or a firm-approved sabbatical. Garden leave is specifically a departure-related administrative hold pending formal withdrawal.

Income during garden leave

Whether you continue receiving income during garden leave — and at what level — depends on your equity structure:

Equity partners (K-1 income)

If you remain a partner of record during the administrative leave period (i.e., your formal withdrawal has not yet occurred), your income continues to flow from your distributive share of partnership income under your existing points or formula allocation. Practically, this means:

• Draws continue. Most equity partners take periodic draws against their anticipated annual distribution. These draws typically continue during garden leave if the withdrawal hasn't formally occurred.
• Year-end true-up is uncertain. If the formal withdrawal occurs before year-end, your K-1 will reflect only the portion of firm profits allocable to your economic period as a partner. This can create a shortfall relative to the draws taken.
• Firm-specific terms control. Every partnership agreement handles this differently. Some firms provide a flat monthly payment during garden leave; others maintain standard distribution mechanics. Get the specific language in writing before you announce.

Non-equity partners and senior associates (W-2 income)

W-2 earners who are placed on garden leave typically continue receiving full salary. Employer benefits (health, dental, vision, disability) continue as long as employment continues. No action is typically required from the departing attorney during the garden leave period regarding W-2 mechanics.

Year-end bonus and the December 31 cliff

This is the most financially significant variable in most garden leave situations. BigLaw year-end bonuses — $32K to $165K for associates, and performance distributions for partners — are almost universally tied to being actively employed on a specific date (typically December 31, but sometimes the payment date in January or February).

Capital account status during garden leave

For equity partners, the capital account is typically the largest single asset on the personal balance sheet — and it's largely illiquid. During garden leave, the capital account sits in one of three states depending on how the withdrawal agreement is structured:

1. Formal withdrawal pending: The capital account continues to accrue your share of firm income (or loses value if the firm has a bad period). Capital return doesn't begin until formal withdrawal is complete. This is the most common structure for garden leave at AmLaw firms.
2. Formal withdrawal executed at announcement: Some firms execute the withdrawal agreement immediately at announcement, even if the garden leave period extends for months. In this case, the capital account return timeline starts at announcement, and the firm may pay a lump sum or installments per the partnership agreement terms.
3. Hybrid: The withdrawal agreement is signed but capital return is deferred until the non-solicitation period ends. This effectively extends your economic tie to the firm well past the date you join the new firm.

The typical capital return schedule — 4 to 7 years post-withdrawal — does not accelerate because of garden leave. A partner who contributed $600,000 over three years before departure will wait 4–7 more years after formal withdrawal to recover the full amount. The garden leave period does not run concurrently with the return schedule unless the withdrawal agreement specifically provides for it.

§409A NQDC treatment: when does "separation from service" occur?

This is the most legally complex dimension of garden leave, and it's where a specialist advisor matters most. The answer is different for equity partners vs. W-2 earners.

Equity partners (not employees for §409A purposes)

Under 26 C.F.R. §1.409A-1(h)(2), separation from service for a partner occurs when all services performed for the partnership are expected to permanently decrease to no more than 20% of the average level of services rendered over the immediately preceding 36-month period. Garden leave creates a real ambiguity here:

• If the partner remains a partner of record and retains their economic interest (even if performing no services), the IRS may not treat this as a separation from service triggering distribution.
• If the formal withdrawal agreement is executed — even during garden leave — the partner ceases to be a partner, which typically does constitute separation from service under the plan document.
• Most AmLaw NQDC plan documents define "separation from service" by reference to the plan document itself, which may or may not track the §409A regulatory definition exactly.

Practical implication: if your firm's NQDC plan distributes upon "separation from service," determine whether signing the withdrawal agreement during garden leave triggers that distribution — even if you're still receiving draws for months afterward.

W-2 earners (employees for §409A purposes)

Under §1.409A-1(h)(1), an employee separates from service when all services are expected to permanently reduce to no more than 20% of the average level over the prior 36 months. A bona fide leave of absence under §1.409A-1(h)(1)(i) can be treated as continued employment for up to 6 months (or longer if mandated by statute or agreed in advance). If garden leave is structured as a bona fide leave of absence, the §409A separation from service clock may not start until the leave ends or month 7.

401(k) contributions during garden leave

If employment technically continues during garden leave:

• W-2 earners: 401(k) contributions can typically continue through payroll withholding, up to the 2026 employee deferral limit of $24,500 ($32,500 if age 50+; $35,750 ages 60–63 under SECURE 2.0 super-catch-up).¹
• Equity partners: Contributions to the firm's qualified plan depend on whether the plan requires active service. Many partnership 401(k) plans do not allow contributions from partners on administrative leave. Check the plan document.
• Employer match: Even if employee contributions are permitted, the employer match may stop if the garden leave is classified as a departure period rather than active employment.
• Over-contribution trap: If you join a new firm mid-year, watch the annual §402(g) deferral limit of $24,500. Contributing at both the old firm (pre-garden-leave) and the new firm can result in excess contributions that require correction by April 15. See the lateral associate guide for the mechanics of the FICA double-withholding refund and 401(k) over-contribution fix.

Benefits during garden leave

Health insurance

W-2 earners on garden leave typically retain employer health insurance during the administrative leave period. Equity partners, who may already be on a self-employed health plan structure under §162(l), may see different treatment — confirm with the firm's benefits coordinator before announcing.

Planning note: the ACA enhanced premium tax credits that had extended through 2022–2024 lapsed after 2025. If health coverage gaps during the transition, COBRA continuation under the departing firm's plan is typically available for 18 months but at full cost (employer portion + employee portion + 2% admin fee). Estimate $500–$1,200/month for a single attorney, $1,400–$2,500 for a family in 2026.

Disability insurance

Group LTD coverage through the departing firm terminates when employment or partner status terminates. If you have an individual own-occupation policy (which you should — see the disability insurance guide), it continues regardless of employment status as long as premiums are paid.

Critical gap: if you are between the end of the departing firm's coverage and the start of the new firm's group plan during garden leave, individual IDI is your only coverage. Confirm portability before announcing your departure.

Malpractice tail insurance

Professional liability coverage for BigLaw partners is generally firm-sponsored. When you depart, the firm's claims-made policy covers claims arising from work done before your departure — but only if the firm purchases tail coverage (an "extended reporting period" endorsement). Standard practice at most AmLaw firms is to purchase a 3- to 5-year tail at firm expense for departing partners. Confirm this in the departure agreement before signing. If the firm does not agree to cover the tail, you will need to purchase individual tail coverage, typically costing 100–200% of one year's base premium.

New firm signing bonus and forgivable loan timing

Most lateral partner packages include a forgivable loan ($500K–$3M at larger firms) structured as a signing incentive. The typical timing:

• The forgivable loan is disbursed on your first day at the new firm — not when you announce or sign the offer letter.
• If your garden leave is 6 months, you will receive no new-firm compensation during that period.
• The combined effect: full departing-firm income during garden leave → immediate new-firm forgivable loan on arrival, creating a transition that looks financially smooth but requires careful cash management between announcement and day one.

The non-solicitation period: what it means for your finances

Garden leave typically runs concurrent with a non-solicitation agreement. The non-solicitation restricts you from:

• Contacting clients of the departing firm to invite them to follow you to the new firm
• Recruiting colleagues from the departing firm to join the new firm

True non-compete agreements (which would bar you from practicing law entirely in a geographic area or practice group) are generally unenforceable against attorneys under state bar rules and the Model Rules of Professional Conduct — the client's right to counsel of their choice creates a policy barrier to enforcement. But non-solicitation agreements targeting client contact are typically enforceable if reasonable in scope and duration.

Financial implication: if you are a significant rainmaker at an EWYK or modified lockstep firm, your compensation at the new firm will likely depend substantially on clients following you. A 6-month non-solicitation period delays your ability to originate that relationship transfer — which means your actual income at the new firm in year 1 may be substantially below the projected annual distribution you were promised. Model your new-firm income on a "no client follows" floor, not the ceiling, for year 1 planning purposes.

State law differences

• California: Business & Professions Code §16600 renders virtually all non-compete agreements void for individuals (with narrow exceptions for sale-of-business). True practice restraints are unenforceable. Non-solicitation of clients is also disfavored under California case law for attorneys. BigLaw partners leaving to join California firms or leaving California firms have substantially more freedom to solicit clients immediately.
• New York: NY courts apply a reasonableness test — temporal scope, geographic scope, and legitimate business interest. Most AmLaw non-solicitation agreements survive scrutiny if narrowly drafted (e.g., 6 months, identified clients only). New York's proposed non-compete legislation was vetoed in 2023; no statewide ban is currently in effect.
• Texas, Delaware, Florida: Generally more employer-friendly; well-drafted non-solicitation agreements are routinely enforced. Partners at Texas or Florida offices of AmLaw firms should not assume California-style freedom.

Garden leave cash flow planner

Model your income and expenses during the administrative leave window.

Pre-departure financial checklist

Run through these before you announce a lateral move. Many of these windows close the moment your departure becomes known.

1. Read your partnership agreement — specifically the withdrawal section. Look for: capital return schedule, NQDC treatment on withdrawal, non-solicitation scope and duration, garden leave income terms, bonus forfeiture triggers, capital holdback provisions.
2. Identify your NQDC election timeline. If the formal withdrawal triggers §409A distribution, confirm in which tax year distributions will be paid. A departure in December vs. January can shift $500K of ordinary income by one full year.
3. Max your 401(k) before departure if possible. The $24,500 employee deferral limit (2026) is use-it-or-lose-it for the calendar year. If you're departing in Q3, ensure contributions are maximized before your last payroll.
4. Check your disability insurance policy for portability. Individual IDI policies are portable; group LTD is not. Confirm your individual coverage is in force and premiums are current.
5. Confirm malpractice tail coverage language. Get the firm's tail commitment in the departure agreement — ideally 5 years — before you sign anything.
6. Time the announcement relative to bonus payment. If your firm pays bonuses in February based on December 31 employment, and you announce in March, you capture the bonus. Announcing in November — even if you stay through December 31 on garden leave — may trigger forfeiture depending on the bonus policy language.
7. Identify any unvested retirement benefits. Some BigLaw firms have deferred compensation plans with vesting schedules separate from §409A elections. Know what you're leaving on the table.
8. Understand the capital contribution return timeline. If you contributed $500K and the return schedule is 5 years post-withdrawal, model the capital as unavailable for 5 years — not as a lump sum you'll receive at departure.
9. Open a taxable brokerage account for new-firm signing proceeds. The forgivable loan disbursement will be a large cash event. Have a plan for its allocation before day one at the new firm.

Sources

1. IRS — 401(k) and Profit-Sharing Plan Contribution Limits. 2026 employee deferral limit $24,500; combined limit $72,000; catch-up $8,000 (age 50+); super catch-up $11,250 (ages 60–63).
2. 26 C.F.R. §1.409A-1 — Nonqualified Deferred Compensation Plans: Definitions. §1.409A-1(h) defines "separation from service" for employees and independent contractors; §1.409A-1(h)(2) addresses the partnership context.
3. California Business & Professions Code §16600. Voids non-compete agreements for individuals; interpreted broadly by courts to cover non-solicitation provisions restricting attorney client contact.
4. IRC §402(g) — Limitation on Exclusion for Elective Deferrals. Annual employee deferral limit applies per individual, not per employer — lateral moves mid-year require monitoring across both plans to avoid excess deferrals.

Tax values verified June 2026. Partnership agreement provisions vary significantly by firm; specific withdrawal, NQDC, and capital account terms described here are common practices, not universal rules. Obtain the specific language from your agreement before making any departure decision. Non-solicitation enforceability depends on state law and specific drafting — consult employment counsel in your jurisdiction.