Divorce and Family Law Issues For Doctors
Divorces involving doctors are unique.
When a physician or dentist is a party to a divorce, there are several issues that have to be addressed properly, often in tandem:
(1) the doctor’s work schedule, desire to have his/her practice uninterrupted, and protection of his/her right to joint custody, if desired;
(2) determination of the doctor’s present and potential future income, for purposes of calculating support obligations, if any;
(3) in the event the doctor owns his/her practice or is a part-owner of a practice group, accurate assessment and protection of that asset; and,
(4) if the doctor owns medical/dental office buildings or surgery centers, accurate valuation and protection of those assets.
The Divorce Process for Doctors
Depending on the circumstances, a divorce case involving a doctor will likely involve many of the same issues as a standard divorce, such as child custody, child support, spousal maintenance, and division of assets. However, due to the nature of a doctor’s work, these issues are more complex than in a standard divorce.
If a doctor owns a practice, or is a partner in a larger group, the doctor’s income can be highly variable. In addition to a traditional salary or draw, doctors may receive practice distributions, income from hospital groups, and income from passive investments. All of this must be accurately valued in order to determine a fair amount, if any, for spousal maintenance, as well as child support.
Even if a doctor is not a practice owner, his or her compensation may be based on production or collections, or on a per diem basis, which can require looking at past income and creating projections of future income to accurately assess earning potential.
Since Arizona is a community property state, each spouse is generally entitled to an equitable distribution of assets the couple acquired during marriage. For a doctor who owns part or all of a practice, the value of the practice, as well as any investments in medical offices and surgery centers, is often included as part of the assets to be divided.
This is often an area of disagreement between the parties. Determining the present and future value of a practice is not a precise science, and care must be taken to ensure the practice’s value is accurate, and not artificially inflated.
A practice valuation can be determined through one of several methodologies, and is based on a number of objective and subjective factors, depending on which methodology is employed. For example, an asset-based approach would compare both the tangible and intangible assets, such as goodwill, accounts receivable, real estate, equipment, and furniture, against the outstanding liabilities, such as loans, employee expenses, accounts payable, and taxes. An income-based approach may look at historic cash flows, capitalization rates, and earnings before income, taxes, depreciation, and amortization (EBITDA), as well as production metrics like RVUs and CPT or CDT codes.
In addition, for doctors especially, the valuation process must also include additional analysis answering the following questions: (1) was the practice established in whole or part before the marriage; (2) was it capitalized, in whole or part, by separate property; (3) are there corporate documents outlining ownership/buy-outs/continued capitalization and debt obligations; (4) is ownership vested now or at a future date; and (5) what are the practice’s present and future liabilities in terms of debt, payables, capital contributions, insurance, employee expenses, taxes, loans, etc.
Asking the right questions, determining the right valuation method, and properly interpreting the data in the valuation process, can have a significant impact on a doctor’s liability to a non-doctor spouse in a divorce proceeding. Therefore, having an attorney who actually understands the business of healthcare/commercial transactions is often critical for achieving the optimal result in divorce proceedings.
As an additional wrinkle, many group practices and surgery centers treat divorce as a triggering event for a mandatory buyout of the doctor’s interest in the practice or surgery center. Therefore, if asset valuation and division is not handled correctly, you can potentially lose lucrative future earnings from these investments.
How We Help
We understand the healthcare industry and practice valuations.
Our firm regularly represents doctors in nearly every aspect of their professional lives, including buying and selling practices and real estate, ensuring regulatory compliance under federal and state laws, negotiating and drafting group practice and joint venture agreements, and developing and defending asset protection plans to preserve assets against creditors’ claims. Therefore, our attorneys are well-versed in the economic reality of medical and dental practices, which is rare to find in the divorce context.
We also understand that, in addition to achieving the best result in the courtroom, our clients also look for someone who can minimize the disruption that the divorce process causes in their lives. We know that for many of our clients, one of their principal goals is the preservation of their practice and their livelihood so that it can continue to generate income in the future and ultimately retire.
As a result, we have developed unique industry expertise that allows us to see the big picture, recognize the present and future value of assets, and explain the downsides of forced-sales or forced-division of certain assets to opposing parties and counsel. Our broad experience places us in a unique position to both protect our clients’ practices and secure the assets and investments they want to keep on their side of the ledger.
We welcome you to contact our Firm so that we may assist you in securing your goals.