The valuation of the professional practice — such as that of a lawyer, physician, or professional engineer — is one of the most time-consuming and potentially expensive tasks in a divorce case. This valuation can be complex and expensive, but it is critical in a divorce.
Factors Affecting Valuation
The spouse who is in a professional practice will often complain about “double dipping,” in the sense that the same earnings which are used to calculate spousal and child support are used to find a value for the practice. The professional may also argue that the methodology used to prove a value is flawed because a willing buyer for a practice might not even exist.
To further complicate matters, if a professional is part of a partnership, it may raise concerns about an inequitable valuation.
There are a myriad of ways to attempt to establish the value of a professional practice. And there are almost as many ways to establish the “goodwill” of the practice. Some of those factors may include:
- Price sensitivity, or how cost conscious the clients of the practice are
- Professional reputation and skill, which emphasizes the practice’s goodwill over its tangible assets
- Strength of referral network, or how many of the practice’s clients refer their friends and family to the practice
- High intangible asset base, which can account for the most valuable assets the practice has (even more so than tangible assets)
- Licenses and protected market, which can affect the practice’s competition and number of potential clients
- Client relationships and practice sale, or how easily the clients can continue using the service after the practice is sold
- The practice’s life expectancy and value, which is particularly important since many professional practices have shorter lifespans than other businesses