Practice Valuation: Special Considerations for Physician’s Seeking a Divorce
April 9th, 2017
A great deal of what is done in divorces (ones that don’t involve custody disputes) is the equitable distribution of the marital assets and debts. When one, or both spouses owns a business, the importance of proper representation is magnified. When that business is a medical practice, it complicates things exponentially. Some medical practices have an actual value, like a store, family restaurant or factory. But that is not always the case with Physicians.
Here is an example to demonstrate the point. Take a surgeon who’s a partner in a group. The group is paid a set rate of compensation by the hospital—similar to a hospitalist. In this hypothetical, there is no measurable value to the practice. The value is in the Surgeon’s skill, or good will. If, however, that Surgeon has an ownership interest in his practice, the analysis would be significantly different. Similarly, some medical offices have assets to value. Imagine a radiology practice that owns an MRI machine. These machines have a used market values more than $1,000,000. Questions to ask: Were marital funds used to buy the MRI machines? Did the spouse co-sign the loan?
What about the partners? Contrast a medical practice with to a restaurant. The one spouse owns a 50% share in the restaurant with a partner. That 50% share could be split into two 25% shares between the spouses. They could continue to own and operate the restaurant. Medical practices in Illinois can only have partners, or shareholders who are physicians. They are not transferrable. The reason is that part of the value is in the skill of the Doctor herself. But what if the spouse paid the Doctor’s way through medical school? You can see the complications.