Divorce is a complicated process, especially when it comes down to its financial aspects. When couples who share a professional business practice choose to end their marriage, whether that is a physician’s office, a chiropractic practice or a law office, the stakes are very high.
What happens first?
Determining its value is the first step in dividing a professional practice during a divorce. Assessing the value of a professional practice is not as easy as you might think because, unlike other assets, it also involves intangible assets like client lists, professional reputation and more.
Valuing these intangible and tangible assets often requires the skill of a forensic accountant who can adequately assess the practice’s overall health and current and future value.
The practice’s reputation
Also known as “goodwill,” the reputation of the practice and the probability that clients will continue to seek services from the office are often contentious issues when couples divorce.
There are typically two types of goodwill: personal and enterprise. The first is tied to one’s professional skills and reputation with clients and the community, and the second is associated with the practice itself.
Courts in Georgia usually consider enterprise goodwill a marital asset and personal goodwill separate property, which is not subject to division in a divorce.
Additional considerations: ownership and partnerships
If the practice is part of a more extensive partnership or group of professionals, additional problems can arise. Professionals signing ownership and partnership agreements typically include a clause that dictates how ownership interests can be transferred or sold.
In this case, the writing in the documents becomes the most important defining factor in dividing the parties’ portion of the partnership.
Additional considerations: spousal contributions
Another consideration courts often consider is whether one of the spouses was not directly involved in working within the practice but contributed to and had a significant role in its success.
A significant role can mean support that is financial, administrative and other responsibilities, including managing the couple’s household while the other spouse works to grow the practice.
Now that we have discussed special considerations let’s discuss options for dividing the practice’s value. There are several ways to do this.
- Buying out the other spouse’s part
- Both spouses co-owning the practice
- Selling the practice and dividing the proceeds
Legal guidance
Seeking legal guidance is critical in these circumstances, as there are also important potential tax implications that you must be aware of. A divorce attorney with experience in handling professional practices is crucial and can help you get through the valuation process, read current and past partnership agreements and help you decide the best method to divide your practice.