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Valuing a medical practice in a divorce

On Behalf of | Jan 3, 2024 | Divorce |

The emotional bonds of your marriage may have already broken – but your financial bonds with your spouse still have to be addressed before you can finally move on. For many couples, that’s no more complicated than selling the house, splitting up the cars and dividing the savings. 

When one spouse is a partner in a medical practice, however, the division of the marital assets can get very complicated. Valuing a medical practice in a divorce is crucial for ensuring a fair and equitable distribution of assets. 

Why is valuation necessary?

A medical practice is a significant asset, and its value must be determined accurately to ensure a fair distribution of the marital property between divorcing spouses. Absent a prenuptial or postnuptial agreement that carves out any exceptions, the valuation of the medical practice can affect:

  • Spousal support: Also known as alimony, spousal support is often a key component of divorce settlements. The value of the medical practice plays a crucial role in determining the appropriate amount of support that one spouse may owe to the other. A precise valuation ensures that the financial responsibilities are fairly distributed.
  • Child support: Child support, too, can be affected by the business valuation. It can provide insights into how much income should be attributed to the parent with the practice, which can then dictate their obligation to financially support their children.
  • Future financial planning: Valuing a medical practice provides clarity on the financial standing of each party post-divorce. This information is essential for either the parties or the court when it comes to making informed decisions about future financial planning, such as retirements, investments and lifestyle adjustments.
  • Protecting the business: For the spouse who owns the medical practice, a proper valuation can help safeguard the business’s integrity. It ensures that the value of the business is not overestimated, leading to unrealistic financial expectations by the other spouse. 

Without a proper valuation, one spouse may end up with an inequitable share of the assets, leading to financial imbalances that can long affect their future financial stability.

How is a medical practice valued?

Hiring experienced professionals, such as forensic accountants or business valuation experts, is crucial to this process. These experts have the knowledge and expertise to assess the value of a medical practice accurately. It’s further recommended that you find someone who specializes in the valuation process for medical practices since they are not like other businesses.

Some of the things that have to be considered are the accounts payable, any loans or other debts that the business has, the contractual agreements the practice has with any hospitals or health plans, the overall number of patients using the practice and the “goodwill” established by the practice over its existence. That’s much more complicated than simply looking at earnings, assets and comparable market prices.

By engaging professionals and following a thorough valuation process, both spouses can gain a clearer understanding of their financial standing during and after the divorce. This transparency contributes to more amicable settlements, facilitating a smoother transition into the next chapter of their lives.