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Valuation of a Medical Practice in a Divorce

On Behalf of | Jun 21, 2019 | Divorce

How do you establish the valuation of a medical practice in a divorce in North County or North County San Diego?  What is the difference between the portion of the practice which might be community property and that which is a separate asset?

Usually, the value of a business is generally established by dividing it’s present income stream or benefits by associated risk.  However, the valuation of a business such as a medical practice in a divorce may not reflect the future earnings of the spouse who owns the interest in the practice.  This issue can create substantial challenges and opportunities for the practitioner as well as their former spouse during a divorce proceeding.

In many practices, the value of any partner’s interest in the amount of a divorce or buyout is established as a fixed amount.  This is often a fictitious number plucked from air and may have no relationship whatsoever to the actual marital interest in the practice.  In many cases, the number is purposefully understated to protect the practitioner.

Another critical issue is “Goodwill.”  Basically, this is the expectation that existing patients will continue with the practitioner into the future.  Goodwill is not an obvious or easily calculable value.  It is intangible and widely fluctuates from practice to practice and practitioner to practitioner.  It is based upon the reputation and accomplishments of the practitioner, their style and interaction with patients and therefore the likelihood that patients will continue to access and recommend the practitioner’s services.

There are multiple approaches to establish the valuation of a medical practice in a divorce.  These include, but are not limited to adjusted balance sheet valuation, income-based valuation or market-based valuation.  Our family law courts will often combine all three approaches during the process of establishing valuation and the actual community property interest in the practice.

If you or your spouse is a medical professional the valuation of a medical practice in a divorce will have a substantial financial impact on everything from property distribution to child and spousal support.  We invite you to contact the Certified Family Law Specialists at Burke & Domercq or call us at 760-389-3927 to schedule an appointment.  Each of our partners has decades of experience in these complex divorce cases.  We will work to provide sound counsel, protect your interests and accomplish your objectives for the divorce.