When you and your spouse divorce in New York, all marital property must be distributed in a fair and equitable manner. If you own a professional practice, such as a medical, dental, legal, or accounting business, it is subject to division regardless of when you started or joined it. It’s a process that can be especially complex, as there are so many variables involved that experts usually have to be called in.
The valuation process begins with the discovery period, where attorneys for you and your spouse will review the practice’s financial records. If you were involved with the practice after getting married, then its entire value is part of the marital estate. If, however, your involvement began before the wedding, only the increase in the practice value during the marriage is subject to distribution.
Professional practice valuation methods
There are different methods of valuing a professional practice. They include:
- Original price: The purchase price or start-up cost of the practice.
- Fair market value: The amount the practice would sell for on the open market.
- Book value: Adding up all assets belonging to the practice and subtracting any liabilities.
- Liquidation value: The amount you would receive in the event circumstances forced you to sell the practice. It is practically always lower than the fair market value.
Courts typically use the fair market value method, although any liens or debts associated with the practice will also be taken into account. Other factors that come into play when determining an ultimate value include:
- Accounts receivable
- Tangible assets
- Employment-related pensions such as IRAs and 401(k)s
How are practices divided?
In New York, professional practices are never divided in a manner that makes each spouse a shareholder, partner, or owner, as it is illegal under New York law for a non-professional to own a share in a professional practice. It is also unusual for a court to force one spouse to sell their practice so that the proceeds can be divided. The usual procedure is that the spouse who owns the practice will keep it while the other receives either a cash amount equivalent to their share of the practice or other types of marital property whose worth equals the same value.
If you own a professional practice, be sure to engage the services of a New York divorce attorney who understands the myriad factors involved in the valuation and divisions processes. Due to all of the ambiguity inherent in the process, a skilled and experienced attorney is crucial to helping determine a fair and reasonable value and ensuring that you leave the marriage with a percentage of assets that reflects what is rightfully yours.