High net worth divorces can frequently involve a spouse’s professional practice. When a physician, lawyer, dentist or accountant goes through a divorce, there are a few issues he or she needs to understand as to how the law treats cases like this.

To find out, I spoke to Steven Rubinstein, Attorney At Law In Bergen County, New Jersey.

According to Mr. Rubenstein who practices in Bergen County, New Jersey here are some of the basics that spouses who have professional practice as part of their assets need to be familiar with.

Steven was kind enough to write the article below:

Jay P. Granat, Ph.D., Psychotherapist, Licensed Family Therapist, Author, Founder, www.HighNetWorthDivorces.com

Other lawyers who want to join the site and comment on this topic or related topics can reach me at info@expandyourpractice.com or at 201 647-9191.

A professional practice, as any other business owned by one of the spouses, may be an asset of the marriage. Initially, a determination needs to be made that the practice is subject to distribution. If the practice was started during the marriage it is considered to be an asset of the marriage. If the professional started the practice prior to but engaged in it after the date of marriage, the increased value, if any, will be subject to distribution. If, during the marriage, the professional was made a partner, or otherwise acquired an ownership interest, in a practice, the value of the partnership/ownership interest needs to be determined. That value will be distributed as part of the equitable distribution of assets incident to a divorce.

The value of a professional practice is determined by a forensic accountant. It is often a very difficult and complicated procedure. Depending on the level of cooperation between the spouses, and the funds available to pay the expert, they can agree on one forensic accounting expert (a joint expert), or they can each retain their own, independent experts. The forensic accountant(s) will need to examine all of the books and records of the practice. He or she may also want to interview the parties to gain whatever insight into the operation of the practice they may be able to provide. The accountant(s) will need to determine the revenue and expenses of the practice and make determinations about its profitability. He or she will apply one of several standard formulas and, based on the one used, will offer an opinion about value. There is no “one size fits all” method for valuing or distributing the value a professional practice. Forensic accountants utilize one of several accepted valuation methods depending on the unique facts of each case. In addition to the assets and liabilities of the practice, the forensic accountant will need to determine the value, if any, of “good will”. Good will is calculated based on the profitability of the practice and how it compares to other, similar practices.

If it is determined that the practice or an ownership interest in it was acquired during the marriage, or that the value of a professional practice which was started prior to the marriage, increased during the marriage, the value then gets included, along with the other assets acquired during the marriage, in the distribution of all the marital assets. Usually, there are other assets which the couple has acquired, such as a house, retirement plan(s), investment accounts, etc. Typically, the owner of the professional practice will trade its value for some other asset(s) that the other spouse will receive, such as some or all of the equity in the marital residence, or an unequal division of retirement assets, so that each party receives a fair share of the value of the marital assets. If there are no other assets, the parties will need to determine a method by which the owner spouse can pay the non-owner spouse for his/her share of the practice which is subject to distribution.

    Steven Rubenstein, Esq.