Introduction
Divorce is not a pretty word in any context. It can create scars that last a lifetime and have a ripple effect on children, relatives, friends, and, if you own your medical practice, even your employees.
We asked experts to walk us through what could happen to a medical practice during a physician's divorce proceedings. While other issues during this difficult time are surely important (kids, retirement assets, home equity, etc.), our aim in this article is to focus on the things that will affect how a doctor will continue to earn a living.
Determining Where You're Vulnerable
Whether or not your practice value is up for grabs will differ depending on where you live. Unless your practice is considered marital property in a common law or community property state, your practice may not even be on the table for discussion.
If you already had the practice when you married and you didn't put it in your spouse's name, it's typically considered a nonmarital asset. If, however, you began in your practice while you were married, a divorcing doctor will retain varying percentages of the practice's value, depending on the factors surrounding the marriage and the situation.
If you live in 1 of the 9 "community property[1]" states (including California and Texas) that generally require a straight 50-50 split of assets accumulated during the marriage, the value of the practice itself or the increase in the practice's value since the marriage are amounts that will be contested and disputed during a divorce.
"There's no set percentage as far as how much the physician retains of the value of the practice; if the marriage began while a person was in medical school, the spouse has a much greater claim than if the person married at an older age and had an already-established practice," says David J. Schiller, Esq., tax attorney in Norristown, Pennsylvania. "Key factors are the duration of the marriage and the stage of the marriage at the time of divorce."
It sounds logical, but it can get tricky. Your spouse's lawyer will argue that a devoted spouse -- one who gave up a potentially promising career to further the physician's aspirations or who worked in the office part-time at reduced pay or without pay -- is entitled to a larger share of the pie. And a judge may agree, increasing the spouse's share of the property to be divided or alimony entitlement.
New Jersey, for instance, allows for several types of alimony, including "reimbursement alimony," says Barbara L. Feinberg, a family law attorney in Rockaway, New Jersey. "Reimbursement alimony," she explains, "can be awarded if the non-doctor spouse helps put his or her partner through medical school then divorces before being able to enjoy a better lifestyle—or, as the law says, the 'fruits of the earning capacity' associated with the medical degree."
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Cite this: How Divorce Could Affect Your Medical Practice - Medscape - Jul 17, 2013.
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