Prenuptial Agreements Can Help Divorcing Physicians And Others Avoid Conflict Over Their Practice’s Value

The National Center for Health Statistics states the divorce rate for first marriages is 43%, but the rate for marriages where at least one spouse is a physician is up to 20% higher, according to marriage counselor Mary Sotile, who along with her husband, Wayne Sotile, PhD, wrote The Medical Marriage: A Couple’s Survival Guide, published by the AMA.

An important issue in a physician’s divorce is valuing his or her practice. (This is true in any case where a professional such as an accountant, architect or engineer is involved in a professional practice, but we’ll use physicians in this post).  A prenuptial agreement is a separate financial agreement between the couple which can be used to avoid the need for a forensic accountant to determine the value of the practice and the practice’s “goodwill.”  Absent a prenuptial agreement which establishes the professional practice is the separate property of the physician, the physician’s spouse has a right to a community property interest in the “value of the practice.”

Forensic accountants typically use a formula to determine goodwill, such as taking three months gross revenue averaged over the last two to three years.  Fighting over the value of the practice can be the most expensive aspect of the divorce process as dueling experts, one for each spouse, give opinions on the value. 

The prenuptial agreement can state that income from the business can be community property, but the value of the business will be separate property.   Already married?  It is possible to contract with your spouse after you are married to either treat the value of the business as separate property or to agree on a value.  Either alternative is much preferred to expensive litigation over the issue of practice value which usually occurs without a prenuptial or postnuptial agreement.

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