Divorce when you own your medical practice

It is a common question: What are the effects on my assets when I own a medical practice and you get divorced?”

Many doctors enter the divorce process with significant concerns about how divorce can affect their medical practice, retirement, and lifestyle. Toppled with already difficult decisions facing their families, doctors can feel the brunt of divorce even more when they own their own practice.

Doctors who own their own practices need to make informed decisions to ensure that their families and their practices are protected.

One major consideration for doctors who own a medical practice is their spouse’s potential entitlement to the assets, specifically, their medical practice and how can it be paid without impacting the practice’s profitability. 

A second consideration is the level of support owed to any partners in that practice.

In most cases, and depending on when the practice was created, the spouse has a potential claim to a share of your assets.  However, medical practices are not easily converted into a cash value and present difficulties during a divorce. Courts in Washington, D.C. and Maryland have differing methods of business valuation. 

A major component of the divorce process involves property. During a divorce, the parties or the court identity and divide the property acquired during the marriage. In many “equitable distribution” jurisdictions, the court conducts a three-step analysis. First, the court must characterize all property owned by the parties regardless of title, as either marital or non-marital. Second, the court must determine the value of the property. Third and finally, the court may divide the property in a jurisdiction where it has authority to do so.

Your medical practice could be subject to this property division or be a major consideration in determining alimony.

Business goodwill is a criterion in determining value, and there is an important legal difference between personal and professional goodwill. Personal goodwill is usually given to the doctor and is not something that is a split during a divorce action.  Professional goodwill is the distinct business asset having a value that is independent of the continued presence or reputation of any specific individual.  However, professional goodwill does apply to a business practice and can be split during a divorce action. In Maryland, the Court of Appeals held that to be distributed in a divorce, professional goodwill must be “severable from the reputation” of the party and “must be an asset having a separate value from the reputation of the practitioner.” Prahinski v. Prahinski, 540 A.2d 833 (1988), aff’d, 582 A.2d 784 (1990) (citations omitted).

These types of matters with complex valuation may require the retention of an expert to value the business. Since the practice is not liquid cash, these types of cases warrant creative solutions in determining how to compensate your spouse. An experienced family law attorney is pivotal in assisting with these decisions and crafting solutions.

Another major consideration is that of spousal support. Alimony and its duration rely on many factors that are case specific. The owner of a medical practice must consider whether the court will look at historical earnings or whether the court will instead use discontinued future earnings. It is important for practitioners to understand that a spouse who receives value from both alimony and the practice asset would in effect be compensated twice. The laws in Washington D.C. and Maryland, account for this issue, but an experienced lawyer is necessary to assist practitioners in working out these difficult issues.

In short, when divorcing, it is pivotal that physicians, especially those who own their own practices, need to retain an experienced attorney to advise them on these decisions. Legal assistance is vital when sorting out these issues.