Safeguard Your Medical Practice from Divorce Ramifications

After Investing Significant Effort into Building a Medical Practice in New Jersey, Doctors May Face Unwanted Financial Disruptions in the Wake of Divorce

Years of medical school, post-graduate studies, residency, specialization, and the Medical Boards lead doctors to a profession they spent years preparing for.  Building a private practice can take years.  It takes a significant financial investment and hard work to accumulate a base of regular patients while attracting new ones.  The infrastructure of the practice location, attractive and modern, is also a requirement.  Years and years of preparation, labor, and dedication have gone into what is now a flourishing practice. But what happens to your practice when you are going through a divorce?

A medical practice is akin to a business; divorce could seriously affect a physician’s bottom line. Divorce is a significant event in a marriage, and its financial result can have economic repercussions for several years.  It can be especially disruptive for someone whose work requires long hours and disciplined dedication.  An amicable split can still result in a financial settlement, but if the divorce is acrimonious, more time and money must be spent to reach an agreement.

Understanding the Value of a Medical Practice vs. a Medical Degree in NJ

The work done or practice built on the shoulders of that medical degree may be subject to alimony or the value of the medical practice in the distribution of assets, but not the medical degree itself.  The New Jersey Supreme Court supported this in Mahoney v. Mahoney 1982.  This case involved a husband who stopped working to obtain his MBA.  While he studied, his wife supported them financially. A year after he obtained his certification, the couple divorced.  The wife wanted to be paid for all the financial support she was obligated to provide while he got his degree.

The Court said an enhancement of one’s skills or education cannot be assigned a monetary value and, therefore, cannot be considered property because it cannot be sold.  Moreover, determining future earnings based on those studies would require a spouse to pay for a job or career that may or may not come to fruition.  Simply because the degree or license is obtained does not obligate the recipient to be a professional in that field.

Grounds to Recognize Your Medical Practice as Marital Property

If the medical practice was started before or during the marriage and experienced considerable growth, it can be viewed as a marital asset.  Doctors work long hours and benefit from the support of a partner who can manage more of the household duties.

Unique Divorce Dilemmas for Doctors in New Jersey

Many doctors fear turning over their practice to their spouse or being obligated to co-own it with their soon-to-be ex.  New Jersey does not allow non-medical owners of medical facilities, so unless the spouse is a doctor, the court will unlikely require some split.

What will most likely happen is that the spouse who owns the practice will have to buy out the other spouse.  If the seller doesn’t have enough liquidity to offer that kind of settlement, the spouse will receive property equal to their portion of the business.  If Dr. Dan has a practice worth $2.1 million and the court awards their spouse a third of the practice. Their summer Cape Cod home is worth slightly less than $700,000. The dispute could be resolved if the spouse accepts the house in lieu of a cash payment.

Then there is the subject of alimony, which is determined by numerous factors, including the recipient’s contributions to the building of the practice to the detriment of their own career or earning power.  The amount of alimony can be decided according to the length of the marriage, the earning capacity of each spouse, parental responsibilities, the age of the spouses, and their earning capacity.

Appraisal Approaches for Medical Practice Division

Before a practice can be divided, it must be appraised.  Different methodologies are used to determine a medical practice’s monetary value.  The first is an asset approach.  This requires a summary of all debts:  medical school loans, leases or purchases of equipment, staff salaries (for a larger practice), rent or a mortgage of the property, utilities, malpractice insurance, and others.  Once the liabilities have been calculated, the income can be assessed.  The appraiser will examine the practice’s cash flow in recent years and how it relates to the practice’s profits.

Another method is fair market value.  This is the price a buyer would agree to pay for the practice were it placed for sale.  Medical practices aren’t frequently put on the market, so determining a valuation in this manner can prove challenging.  That notwithstanding, if there are medical practices for sale in an area close to the one to be sold, a comparable price could be set based on a comparison to the specialty, size, or location of the practice.

The third methodology is goodwill.  Goodwill is the ability of a business to earn more than a normal rate of return, and it can be based on many factors, such as the age and health of the doctor(s) in the practice, the reputation of the business, experience, location, specialization of the practice, and the growth potential.

Distinguishing Between The Practice Value and Practice Itself

Your spouse is entitled to a portion of the value of your practice.  Determining that value may take some time and will require hiring financial specialists to crunch the numbers.  The practice itself is a living, breathing entity.  It is a business that provides medical services by doctors and specialists.  The practice cannot be owned by anyone not licensed in the health industry; in that vein, it is different from other businesses.

Detailed Information You Should Provide to Your Attorney

Your attorney will require detailed information about your practice’s tangible and intangible assets, debts, and expenses.  They will need to know when your practice began in relation to when you got married and what your spouse’s role is in building the business.  Your attorney may also hire a forensic accountant and an appraiser.  Attention to detail is of the utmost importance when financial determinations that could be life-altering are made.

Outlining a Contingency Plan to Protect Your Medical Practice in the Event of a Divorce

No matter how hard you try, your divorce will affect your medical practice.  It is up to you as to how much.  The best solution is to develop a contingency plan to maintain the daily operation in case of disruptions or issues because of the divorce.  Settle as many financial matters as possible and ensure access to sufficient funds to keep the trains running on time.

Trusted Divorce Lawyers Securing Your Professional Medical Practice in Ridgewood, Montclair, Woodland Park, and Other Northern New Jersey Areas

If you are a doctor with a thriving practice in New Jersey, our firm has the tools and experience necessary to represent you during this challenging time.  You need a divorce attorney who is equipped with access to forensic accountants and appraisers who can calculate the value of your practice and negotiate a fair settlement in your divorce.

Divorce doesn’t have to be devastating.  Our attorneys at Montanari Law Group know that each divorce comes with its unique set of circumstances. We develop a strategy to protect your rights and your practice. Let us offer our best to help you get through this challenging time in Ridgewood, Woodland Park, Pompton Lakes, Ringwood, Millburn, Montclair, Short Hills, and towns in and throughout Northern New Jersey.

Call today at (973) 233-4396 or complete the contact form so that we can contact you and provide an absolutely free and confidential consultation.