How Divorce Could Affect Your Medical Practice

Dennis G. Murray, MA

Disclosures

July 17, 2013

In This Article

How Your Partners and Employees Could Be Affected

The practice valuation process could in some cases create fear for your partners (or yourself). It's not unheard of that in some practices, some cash payments are not reported, and the physician is actually earning more than he or she is reporting.

"If there is a belief that there is fraud occurring in the practice, and there is unreported income, this could create a blackmail scenario," says Schiller. "If a doctor says he's making $150,000, but the spouse says, 'I know you're really making much more,' through the discovery process, the accountant may go through the books and uncover this." There have indeed been cases where financial fraud was uncovered during the discovery process, says Schiller.

Your staff might feel the sting, too. Word of an impending divorce is bound to make your employees nervous. They may fear the practice will have to close, move, or be absorbed by another practice, making some of their jobs redundant and possibly ripe for the chopping block.

As such, you may have to exercise some damage control if word of your split comes out. If you live in a small community and there's a nasty, drawn-out battle, your reputation may suffer, and, by extension, your practice may suffer as well. And, unless you practice solo, there will be your partners to consider: The mud-slinging could affect the flow of patients, especially via referrals, and even the ability to recruit new physicians and ancillary providers.

Getting an Accurate Assessment

To divide the value of your medical practice fairly, you'll need to get an accurate appraisal that takes into account the accounts receivable and the physical assets of the practice (diagnostic equipment, supplies, computer hardware and software, capital improvements, furniture, and the like) as well as any intangible assets, such as goodwill, office location, payer mix and type of contracts, or the skills and experience of your employees.

"Goodwill has both a professional component -- the doctor's ability to generate referrals, for instance -- and a practice component, which would include things like the quality of the workforce, the electronic medical records system, or the number of patient charts," says Kaden.

Even the phone number can be included among the intangible assets, Kaden says. To determine this, you'll need a professional, someone with experience in assessing the value of businesses and medical practices specifically. The appraiser will examine the income the practice has generated over the past 3-5 years and factor in any "add backs," for the purposes of determining the doctor's support obligation. These would include perks that may have been paid through the practice, such as health insurance, auto expenses, and club memberships. If you're in a solo or small practice, expect to pay between $6000 and $8000 for an appraisal and written report of this depth.

Adds Schiller, "For a solo practice, courts are increasingly saying that there is no good will." All of the positive benefit of the practice resides with the practice owner, and if he leaves, there is no remaining good will.

In order to value the practice fairly, it's important to get the right expert and for both parties to trust this person. A good place to start is with the National Association of Certified Valuators and Analysts (800-677-2009; www.nacva.com) or the American Society of Appraisers (800-272-8258; www.appraisers.org).

Does each spouse need his or her own valuation? "I've seen couples who started with one expert, then one or the other questioned the fairness of the assessment, and they each wound up going out and hiring their own expert," says Kaden. "It's much more harmonious -- and a lot cheaper -- for the doctor and spouse to agree to use one person. It makes it very difficult for the parties to settle if they wind up with 2 separate appraisals that are far afield from each other."

Conclusion

There are plenty of practice issues to address in a divorce. It's often difficult to know in advance where the sore points will be, but there will surely be a few.

Mediation is an option for some couples, says O'Donnell. She has seen it work successfully for some doctors; sometimes, it's used to divvy up the value of a medical practice and sometimes it's used for custody and other "noneconomic" issues. "However, if the couple can't agree on the value of the practice, or at least settle on a value range, mediation is going to be a challenge," O'Donnell warns.

To borrow an old saying, an ounce of prevention is worth a pound of cure. If you're considering -- or are currently in -- a serious relationship, check out Medscape's article, Doctors and Marriage: Should You Have a Prenup?

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