While such issues as asset division, child custody, spousal support and child support are common issues in most divorces, those with a professional practice or business can encounter additional complexities during the divorce. Dentists, doctors, lawyers, architects, accountants and other professionals with independent practices will need to use more complicated methods to properly divide assets.
Whether you are a divorcing spouse with a thriving practice or family business, or the spouse of such a person, it is a sure bet that questions will arise during your divorce as to whether one spouse is entitled to part of the other’s business or professional practice—and if so, how that spouse will be compensated. If you are in such a position, the attorneys at The Law Place can put safeguards into place to prevent the transfer or concealment of valuable business documents and assets. Our many years of family law experience translate into protection for you during your divorce—protection of your rights and your assets.
What Part of the Business or Practice May Be Considered Marital Assets?
It is important to remember that a professional license in and of itself is not considered marital property, and can neither be divided nor taken during a divorce. The actual business or practice, however, may be considered marital property, therefore would be subject to division. Determining whether a spouse is entitled to a part of the business or practice may be dependent on whether the value of the business or practice increased due to joint marital efforts or income; if so, such an increase is considered a marital asset. Further, if the spouse who owns the practice or business puts the other spouse on the title or co-mingles marital funds, assets or debts with the business or practice, then it may be considered marital property.
It would be extremely rare for a judge to divide a closely-held business or professional practice between spouses, as that would remove the livelihood of the owner-spouse. More likely, the judge will allow the owner-spouse to keep the business or practice, then “equalize,” with additional assets of roughly the same value or provide a cash payment equivalent to the determined interest in the practice or business. If you and your spouse must have a practice or business valuated, you will be asked to produce an extensive list of financial information. These documents may include financial statements, accounts payable and receivable reports, income tax returns, balance sheets and liabilities reports. If a medical or dental practice is in question, a capital equipment list, patient count reports and prior practice appraisals may be necessary.
What is Goodwill?
The valuator may include “goodwill” when valuing a business or practice; goodwill is an intangible asset, but is considered the expectation of continued patronage. The location of the business, the existing patronage, the length of time the business has been open and the likelihood of repeat business are all taken into consideration during a valuation. Profitability is important when determining goodwill, and because goodwill does not exist in every business, the court will determine whether goodwill does exist in the business or practice in question. Determining a professional’s goodwill will also consider the person’s age, health, reputation, skills and knowledge and demonstrated earning power.
Further Issues Related to a Business or Professional Practice
As stated, a professional license or degree is not considered marital property, however a spouse who contributed to the acquisition of such a license or degree may be entitled to compensation in the form of additional assets or spousal support. The valuator of the business or professional practice will ultimately look at market comparisons, adjusted book value, income approach, liquidation value and asset characterization and tracing in order to properly value the practice or business.
In the end, no matter how a business valuation is conducted, it may well become a battle of experts, costing you and your spouse a significant amount of cash and annoyance. The attorneys at The Law Place will carefully weigh the cost of extended litigation against the value of the business or practice to be divided, and clearly present your options. Our attorneys are committed to ensuring you are not taken advantage of during your divorce, and if this includes a business or professional practice valuation, we have extensive experience in obtaining an equitable settlement.