Your carry statement shows $3.2 million.
Your spouse sees a new house.
You see a probability-weighted outcome subject to clawback provisions, distribution timing at GP discretion, and Section 1061 holding period considerations.
Romance.
Why this conversation is hard
There's a fundamental communication problem with carry, and it's not your fault.
When most people hear "I have $3 million," they process that as "we have $3 million we can spend." That's how money has worked for them their entire lives. Salary shows up. Bonus shows up. Stock vests and you can sell it.
Carry doesn't work like that, and explaining why requires venturing into territory that sounds like you're either:
Making excuses for why you can't buy the house / take the vacation / renovate the kitchen
Showing off about how complicated and important your compensation is
Being deliberately confusing
None of these are good.
The core concepts to communicate
Before you have the conversation, get clear on what you're actually trying to convey:
Carry is not cash. It's a share of future profits that may or may not materialize. The number on the statement is an estimate based on current fund valuations, which can change — sometimes dramatically.
The timing is uncertain. Even if the carry is "worth" what the statement says, you don't control when (or if) it becomes cash. It depends on when the fund exits investments, which depends on market conditions, deal dynamics, and decisions made by people who are not you.
The amount is uncertain. Fund valuations are estimates. Companies can perform better or worse than expected. Exit multiples can expand or contract. Clawback provisions exist. The $3.2M on today's statement could be $5M in three years, or it could be $800K.
Taxes take a big bite. When carry does become cash, expect to lose 25-30% to taxes if it qualifies for long-term treatment (federal + state + NIIT). That $3.2M is maybe $2.2-2.4M after taxes. If the underlying investments were held less than 3 years, you're looking at ordinary income rates — potentially 45%+ — and a much smaller check.
The conversation template
Here's a framework that's worked for others. Adapt it to your relationship style.
Start with the big picture:
"I want to make sure we're on the same page about how my compensation works, because it's a little different from a normal salary and I want us to plan together."
Explain the structure:
"I get paid in a few ways. The salary is straightforward — it hits our account every two weeks. The bonus is annual and varies, but it's cash when I get it.
Then there's carry. Carry is my share of the profits from the funds I work on. It's the biggest piece long-term, but it's also the most complicated."
Set expectations on timing:
"The carry doesn't show up until the fund sells its investments. That's usually 5-10 years after the fund starts. I have carry in Fund III, which might start distributing in a couple years, and Fund IV, which is probably 4-5 years out."
Set expectations on amount:
"My current statement shows $3.0-$3.5M. But that's an estimate. The actual amount depends on how the investments perform, when they're sold, and what the market looks like. It could be more, could be less."
Land the key point:
"I think we should plan our lives around my salary and bonus — the cash comp — and treat carry as a bonus if and when it actually shows up. I don't want us to make commitments based on money we might get someday."
The questions you'll get (and how to answer them)
"So when will we actually get this money?"
"Some distributions might start in 3 years from the older funds. But it'll come in chunks over several years, not all at once. And some of it might not come for 7-10 years."
"Why can't you just sell it?"
"There's no real market for carry the way there is for public stock. I can't just call a broker and cash out. I have to wait for the fund to sell its investments and distribute the proceeds."
"What's it actually worth then?"
"Honestly? Somewhere between a lot and nothing. The statement shows $3.0M, but that assumes everything goes well. I think a realistic range is $1.5M to $5.0M, with $3.0M being most likely. But I've seen funds where everyone expected a big payout and it didn't happen."
"Why are you being so negative about it?"
"I'm not trying to be negative — I'm trying to be realistic so we don't plan around money that might not show up the way we expect. If it comes through as expected, amazing. But I'd rather be pleasantly surprised than have us make commitments we can't keep."
Common mistakes in this conversation
Mistake #1: Giving a single number
Don't say "my carry is worth $3 million." Say "my carry might be worth somewhere between $1.5M and $5M, with $3M being a reasonable middle estimate." Ranges communicate uncertainty. Single numbers sound like promises.
Mistake #2: Over-explaining the mechanics
Your spouse doesn't need to understand waterfall calculations, catch-up provisions, or the mechanics of clawback. They need to understand: uncertain amount, uncertain timing, don't spend it until we have it.
Mistake #3: Having the conversation when you need to make a decision
Don't wait until you're debating whether to buy a house to explain how carry works. Have the foundational conversation early, when there's no specific decision pressure. Then when decisions come up, you have shared context.
Mistake #4: Being condescending
This stuff is confusing. Your spouse isn't dumb for not immediately understanding how illiquid compensation works. Be patient. Use analogies. Don't make them feel stupid for asking questions.
Good analogies that work
The lottery ticket analogy:
"It's a little like having a lottery ticket that's probably — but not definitely — going to pay out. The expected value is high, but the timing and exact amount are uncertain. We wouldn't mortgage the house based on a lottery ticket, even a good one."
(Note: This undersells carry, since carry is much more reliable than a lottery ticket. But it communicates the "don't spend it before you have it" point.)
The bonus analogy:
"Think of it like a bonus, but instead of getting it once a year, it builds up over 5-10 years and then starts paying out in chunks. And the size of the bonus depends on things I don't fully control."
The real estate analogy:
"It's a bit like if we owned an investment property that was appreciating. On paper, we're building wealth. But we don't have that cash until we sell the property. And we don't control exactly when that happens or what the market will be like when it does."
The ongoing conversation
This isn't a one-time talk. You'll need to revisit it:
When a big distribution is expected (or delayed)
When fund performance changes significantly
When you're making major financial decisions
When the statement shows a big change from last time
Build the habit of sharing updates in low-stakes moments. "Hey, got my annual carry statement — here's roughly where things stand." This normalizes the conversation and prevents surprises.
The bottom line
Carry is a wonderful form of compensation. It's also uniquely difficult to explain to someone who hasn't lived in the fund world.
Your job isn't to make your spouse an expert in fund economics. It's to give them enough context to understand why you're being conservative, why the number on the statement isn't money in the bank, and why you should make financial plans based on what you know rather than what you hope.
The conversation is awkward. Have it anyway.
Next week: Your fund just had an exit — here's what happens to your money.
Talk soon.