I'm Steve Kaplan, a New Jersey divorce lawyer with decades of experience handling complex divorce cases involving physicians and other professionals.
If you're a doctor getting divorced, you probably expected to divide assets. What you may not have expected was a dispute over the value of your medical practice.
For a physician who owns all or part of a practice, that valuation can become one of the most important financial issues in the divorce.
A medical practice can't be valued simply by looking at its annual revenue.
Depending on the practice, a valuation may involve its assets and liabilities, historical earnings, overhead, accounts receivable, ownership structure, compensation, and other financial factors.
Then there's goodwill.
A successful medical practice may have value beyond its physical assets. Determining that value, and what is actually attributable to the practice, can become a significant part of the valuation process.
This is particularly important for physicians.
You may earn substantial income because you're a highly trained doctor working long hours. That doesn't necessarily mean your medical practice itself has an equally substantial value.
Your compensation may be relevant to alimony or child support, while the value of your ownership interest in the practice may be relevant to equitable distribution.
Those are different issues, and they need to be analyzed that way.
If an expert says your interest in a medical practice is worth $1 million, don't focus only on the $1 million.
Ask: "How did the expert arrive at that number?"
What assumptions were made about future revenue? Were the practice's debts and overhead properly considered? How was physician compensation treated? What growth assumptions were used?
A relatively small change in an assumption can sometimes produce a very different valuation. That's why the methodology matters.
Many physicians aren't sole owners. You may own a percentage of a group practice, have other physician partners, or be subject to an operating, shareholder, or partnership agreement.
Those details can matter. The value of your ownership interest isn't necessarily determined by simply taking the theoretical value of the entire practice and multiplying it by your ownership percentage.
The actual structure of the practice and the rights associated with your ownership need to be examined.
If you owned an interest in the medical practice before you got married, don't automatically assume that its entire current value is marital property.
When the interest was acquired, how its value changed during the marriage, and other facts surrounding the practice may become important in determining what is subject to equitable distribution.
Financial records can be especially important when a professional practice existed before the marriage.
Medical practices can be complicated businesses.
When a practice represents a significant asset in a divorce, a qualified valuation or forensic accounting professional may be necessary to analyze the financial records and determine whether a proposed value is supportable.
I work with financial experts when appropriate to understand the numbers, examine the assumptions being made, and challenge a valuation when the evidence doesn't support it.
The goal isn't to find the lowest possible number. It's to determine a value that can actually be defended.
Your medical practice may represent years of education, work, investment, and risk. If its value is going to affect your divorce settlement, you need to understand exactly how that value was determined.
Don't assume the other side's number is correct. But don't assume it's wrong simply because you don't like it, either.
Understand the methodology. Understand the financial records. And understand how the practice fits into the rest of your divorce settlement.
I created my free Divorce Smarter Course to help you understand property division, alimony, negotiation, and other major issues you'll encounter in a New Jersey divorce.
Until next time,
Steve