When couples divorce, dividing assets is hard. But when those assets include a medical practice, the division of assets is more difficult and complex. In Pennsylvania, divorcing physicians may need to take action to protect their reputation or to protect a medical practice they have spent years or decades building.
Whether a Medical Practice is a Marital Asset
A medical practice may be subject to division in divorce only if it is a marital asset, and not separate property. Whether a medical practice is a marital asset will depend on the date the practice began and the growth, if any, of the practice during the marriage. Other information vital to this issue includes the corporate structure of the practice and any agreements between the partners.
Valuation of a Medical Practice
In any high net-worth divorce, the valuation of assets becomes critical and must be done by an experienced professional. The valuation of a medical practice is dependent on several factors, most notably:
- Tangible assets, such as real property or equipment.
- Intangible assets, like reputation and goodwill.
- Pending liabilities, including loans or pending lawsuits.
A professional will consider all the assets of the practice and will also consider the liabilities of the practice in determining a value.
In Pennsylvania, courts divide marital property under the equitable division doctrine and attempt to divide assets in a way that is fair and equitable to the parties. Such division of assets is not always an even division between the parties, but it should be fair.
Equitable Division Involves Both Assets and Debts
Divorcing physicians should note that equitable division involves consideration of both assets and debt. If a physician incurred significant debt to complete their medical education and internship, the court would consider this in an equitable division of assets and debts in a divorce.
Division of a Medical Practice
The ex-spouse of a doctor will generally not be awarded a share of the medical practice unless they are also a partner in the practice. The parties can divide the practice in one of three ways:
- The practice is sold, and the proceeds are divided between the parties (often not the best option for tax and other considerations).
- The ex-spouse receives other assets to compensate for the value of the practice.
- The ex-spouse may agree to future payouts over time. In these situations, the ex-spouse will often ask for life insurance in the amount of future payments.
The most important (and most overlooked) action a physician can take in a divorce proceeding may be asking their ex-spouse to sign a Non-Disclosure Agreement or NDA. If your ex-spouse has sensitive information about your medical practice or you have concerns about attempts to harm your valuable reputation, consider asking your ex-spouse to sign an NDA.