How Divorce Could Affect Your Medical Practice

Dennis G. Murray, MA

Disclosures

July 17, 2013

In This Article

What Gets Divided, and How?

A few states, including New York, have formulas to determine what such "intellectual property" -- in this case, a medical degree -- might be worth in a divorce settlement. But many experts, including quite a few in New York, say the law has gone too far because it forces professionals like doctors and lawyers to give up money they haven't earned yet. They'd like to see this part of the law abolished. And it may yet happen.[2]

What happens in cases where both spouses are physicians? Does the division of medical practice assets trend closer to 50-50 even if they don't live in a community property state?

The situations would differ depending on whether the divorcing physicians are in private practice or are employed and on the amounts of their relative incomes. Being partners in a private practice changes the situation.

The division of medical practice assets would generally be close to 50-50 if the couple started the practice together or became partners in it around the same time, says Sparta, New Jersey, attorney Jacqueline M. O'Donnell, a principal with O'Donnell & Dumbroff. She adds that the couple can avoid splitting up this shared asset if they simply agree to continue working together after the divorce, admittedly a rare scenario.

"If that's not likely to happen," she says, "one of the doctors will have to be compensated for that portion of the practice that's deemed to be marital property. The same would apply to a doctor who works as a salaried physician in another practice: He or she would be entitled to a share of the equity in the spouse's practice."

What Happens to Your Office?

The goal of divorce proceedings isn't to break up your office but to value it accurately so that the spouse can get an appropriate financial value of his/her share.

"Usually the claim is against the value of the practice, not the practice itself," says Schiller. "The spouse is not interested in getting a portion of the practice but in getting a compensatory amount; the spouse is not getting a part of the business, like an owner selling an NFL team. All we're really talking about is money in terms of a buyout."

Any real estate that you own will have to be appraised separately from the practice assets. While the office's value is considered fair game in a divorce (minus any outstanding mortgage and other building-related debts), it's not something that comes under the umbrella of the typical practice assessment.

"The building is considered a 'non-operating' asset," says Monica Kaden, MBA, a healthcare entities valuations expert and senior appraiser with Fischer Barr & Wissinger in Parsippany, New Jersey. To put a fair value on it, you'll need a real estate appraiser with experience in commercial properties -- preferably someone with experience in medical real estate, which often can't be easily reconfigured for other uses. To find a pro in your area, start with the Appraisal Institute (www.appraisalinstitute.org; click on "Find an Appraiser.")

"You might also need to consider whether there's rental income being paid by the practice, other tenants, or both," says attorney Barbara Feinberg. "That'll have to be factored in as well."

What if you're divorcing and don't want to relocate your practice? You don't necessarily have to sell and move, but the court will expect you to compensate your spouse for a portion of your equity in the building. There are a number of ways you can do this. For instance, you could sell your portion of the building to your partners and rent space back from them -- and then compensate your ex based on the money you received for your portion of the building.

A commercial properties expert can help you establish a fair monthly rent. "There’s no actual transaction," Kaden explains. "It's just to get a number for the couple to work with." There may be other possible arrangements permitted under the laws in your state, so ask your attorney. But whatever you decide, both parties to the divorce must agree to it in writing.

Comments

3090D553-9492-4563-8681-AD288FA52ACE
Comments on Medscape are moderated and should be professional in tone and on topic. You must declare any conflicts of interest related to your comments and responses. Please see our Commenting Guide for further information. We reserve the right to remove posts at our sole discretion.
Post as:

processing....