How does the value of you or your spouse’s professional practice fit into the divorce settlement?
While any high-net-worth divorce presents challenging financial separations, it’s particularly tricky when one spouse owns a professional practice. Doctors, attorneys, accountants and therapists spend years building their businesses—obtaining advanced degrees, launching their practices, hiring top-tier staff and earning the trust of patients and clients. It’s their life’s work: a huge investment of education, time and resources. That’s why it’s often so nerve-racking for professionals to know that the business could be pulled into the divorce.
For the spouse not involved in the practice, a large part of the family’s assets may be tied up in the business. The spouse may have made sacrifices to the practice’s growth over the years, helping support educational goals, attending events, lending expertise or taking on extra household duties. Financially, it’s often critical that the business be factored into the divorce settlement.
Because Georgia is an equitable distribution of property state, marital property must be divided fairly. In most cases, a professional practice is considered marital property, even if the practicing spouse owned it before the marriage. But that doesn’t mean that the court will split up the business or force a sale. Instead, it means that the practice’s value will be factored into the settlement. In the case of a practice that existed before the marriage, the settlement will focus more narrowly on its increase in value from the time of the marriage to the divorce.
How professional practices are valued
During a divorce, lawyers will compile all the assets that are part of the marital estate. If this includes a professional practice, that means the business has to be ready to open up its books. (Finances only—a practice will never have to share private patient or client information with divorce attorneys.)
The good news is that professional practice valuation happens all the time, and not just for asset discovery. Bringing in a new business partner, selling a practice or merging with another firm all also require valuing a business. Still, divorce valuation can be a little different. The goal is to obtain information on the value but otherwise keep the business running normally.
Ideally, attorneys try to determine the present net fair market value: what a buyer would pay for the firm, minus the business’ debts. The valuation expert also considers retirement accounts, pensions, contingency fees and goodwill, or the added value of a good reputation. Everything is then benchmarked against the value at the time of marriage.
Once the growth is valued, the business-owning spouse offsets the business assets with something else in the divorce settlement, though monetary awards are also possible.
Considerations when splitting a professional practice
Because marital property must be divided fairly, though not necessarily equally, judges have a fair amount of leeway in determining how to split assets. The court considers the earning power of each spouse, financial needs and any bad behavior, like trying to conceal assets.
This is why, if you own a professional practice, it’s so important to continue running it normally during a divorce. Trying to liquidate assets or depress the business’ value will only create problems. Conversely, if you suspect that your spouse is trying to manipulate the practice’s value, you need an Atlanta divorce attorney to ensure you get your fair settlement.
Ultimately, it’s expensive and time consuming to value a professional practice, requiring many hours of work from financial experts. Ideally, couples can agree on one trusted business evaluator, and their attorneys can help them reach a productive resolution that keeps the business running smoothly and fairly compensates the spouse who does not own the practice.
Schedule your consultation today with an Atlanta divorce lawyer
Valuing a professional practice is one of the most complex aspects of high-net-worth divorces. The divorce attorneys at Marple Family Law have years of experience working with clients who have valuable professional practices. We can help you move through the process thoroughly and quickly. Contact us today to schedule a consultation to move your divorce forward as efficiently and effectively as possible.