When one or both spouses in a divorce have ownership in professional practice, things can become complicated. Spouses who are partners, shareholders, or sole owners of professional practice have likely invested a great deal of time meeting with attorneys and accountants to limit personal liability and taxes that arise from their practice. In these discussions, the possibility of divorce may have been contemplated and a prenuptial agreement or other pre-divorce plan was put into place to protect their business. Many, however, do not have any pre-divorce safeguards, which can put their professional practice at risk during a divorce.
Valuing A Professional Practice
One of the more difficult issues regarding the division of professional practice during divorce is the valuation, which can be one of the single most expensive aspects of any divorce. Professional practices are particularly difficult to value because the majority of the practice’s worth is in the form of goodwill, i.e., the value of the practice’s reputation. Since goodwill is intangible and can be valued in a number of ways, it is often necessary to enlist the help of a professional expert or experts to place a fair value on the practice.
Once a fair value has been agreed upon, the next step is to determine how much of the professional practice is separate property and how much is community property. While the value of a business created before the marriage is typically considered separate property, many professional practices dissolve and reorganize several times over the course of the professional’s career. For example, a partnership may dissolve and then later reorganize as a limited liability company. An attorney who is experienced with dividing professional practices will be able to help you determine how much goodwill transferred from one entity to another.
In addition to its value in the professional practice, the community estate may also be entitled to reimbursement for education and training costs incurred during the marriage.
An experienced attorney can help protect the interests of professional practices through divorce proceedings. If you find yourself in this situation, look for an attorney with the knowledge and experience to help ensure that a fair valuation is made, and that can help keep your private practice protected during a divorce. Even if you don’t have any pre-divorce arrangements in place, the counsel of an experienced attorney can help immensely in this complicated area of the law.