When a doctor divorces, a medical practice is often one of the most financially and legally complex assets the couple must address. Both spouses may have questions about who owns the practice and how the court will treat its value. The answer depends on when the doctor started the practice, how the couple funded it and how it grew during the marriage.
When a practice may have a community interest
Under California law, spouses generally share property and income they acquire during marriage. If a doctor started a practice during the marriage, the practice may qualify as community property.
A doctor may have owned the practice before marriage. In that situation, the practice may remain separate property. However, the court may need to examine changes in value during the marriage.
For example, marital income may have paid business debts, purchased equipment or funded expansion. A spouse may also have helped the practice grow through financial support, office work or household responsibilities.
How courts determine the practice’s value
The court needs a clear picture of the practice’s finances. A valuation may examine income, expenses, assets, debts and other financial records.
Medical-practice goodwill may be enterprise goodwill, potentially community property or personal goodwill, generally separate property. Courts distinguish between the practice’s business value and the doctor’s individual reputation, skills and relationships, which can significantly affect valuation.
Factors that can affect division
The division of a medical practice can depend on several factors surrounding its ownership, development, finances and the spouses’ respective contributions throughout the marriage. Several facts can change the outcome:
- Start date: The court may treat a practice started before marriage differently from one created during marriage.
- Growth: Changes in the practice’s value during marriage may create a community interest.
- Marital funds: Money from the marriage that supports the practice can affect the property analysis.
- Spouse’s contributions: Work, financial support and household contributions may affect the analysis.
- Business structure: The practice’s ownership and legal structure can affect how the court evaluates it.
Evaluating these factors helps determine how a court may divide the practice or its appreciated value during a divorce.
What happens to the practice?
Divorce does not always require spouses to sell or physically divide a medical practice. One spouse may keep the practice while the couple addresses the other spouse’s interest through other assets or financial arrangements.
The court may need to examine when the practice began, how the couple supported it and how its value changed during the marriage. These details can help spouses see the financial issues involved in a medical-practice divorce.
