By Chris Lombardo, Florida Family Law Attorney
Most divorces involve the equitable distribution of assets between spouses. However, in cases where one spouse owned a professional practice, such as a medical practice, law firm, accounting firm, or other business, the division of this important asset can prove legally challenging and complicated. Multiple factors will ultimately determine the amount that each spouse has a legal right to receive. As the owner of professional practice, you likely worked years to achieve success in your business. However, as the spouse of a business owner, you also have legal rights regarding the marital assets accumulated during the course of the marriage. Learn more about your legal options during the process of your divorce by contacting the experienced family law attorneys at Woodward, Pires & Lombardo, P.A. at either our Naples, Florida office (239) 649-6555 or our Marco Island Office (239) 394-5161 today.
Professional Practices in the State of Florida
The state of Florida requires that any person that establishes a business must legally create a business entity and then pay appropriate taxes to both the state and federal government. Most owners of professional practices take a great deal of time ensuring that their legal rights are protected and that they receive the most tax benefits as they create their business. In most cases, however, these consultations with legal and tax professionals do not include adding the professional practice to any prenuptial agreements. As a result, many owners of professional practices are unsure how a divorce will ultimately impact their ability to continue their career, or how it will affect them financially. Before you make a decision about how to move forward regarding the division of your professional practice, consider visiting with an experienced family law attorney at Woodward, Pires & Lombardo, P.A.to learn how to protect your professional practice in a divorce.
Legal Process of Dividing a Professional Practice
There are several legal steps that a spouse must take during the divorce process regarding the division of a professional practice. Some of those steps may include the following:
Valuation of the Professional Practice
Your business and/or professional practice has value, both tangible and intangible. Obtaining a full valuation is a critical step to understanding the true amount that will need to be divided within the divorce. Some of the issues that may impact a valuation could include: how long the professional practice has been in business, whether or not there are any new partners or loss of partners in recent history, as well as whether the business is profitable.
Additionally, every established professional practice has goodwill, which represents that intangible aspect of the business that make the business a reputable one in their industry. These unique aspects to the valuation of a professional practice make it challenging and important to obtain a full and fair estimate of the value of your business.
Types of Valuation Standards
There are many different types of valuation options. Some of these include fair market value, going concern value, liquidation value, original cost value, replacement value, appraised value, intrinsic value, investment value, or book value. The type of valuation standard a spouse chooses to use can greatly impact the determination regarding how much they may need to pay to a spouse in a divorce. The court will require that however the valuation of your professional practice is done, it is performed by an expert that is willing to visit with the court about the process and valuation standards used to make their final conclusions and determinations.
Discovery Within a Divorce
It is important to note that whatever type of valuation standard is chosen, both spouses have a legal right to see all assets of the marriage through a process called discovery. Even if a spouse began their professional practice prior to marriage, these assets will need to be disclosed to the other spouse. If the value of a business or professional practice increases within the duration of the marriage, the spouse has a legal right to a portion of that part of the marital estate.
Options for Dividing a Professional Practice in a Divorce
While most business owners are focused on protecting their professional practice in a divorce, they will likely have to pay the other spouse a specified amount if any of the business is considered part of the marital estate. There are several legal options available to spouses that are divorcing and attempting to divide a professional practice including:
- Paying the other spouse half of the valuation amount (According to the American Bar Association (ABA), this is the most common resolution regarding the division of a professional practice in a divorce.)
- Selling the professional practice and then paying out the other spouse half of the valuation amount
- Keeping the full amount of the professional practice and giving more to the spouse through other marital assets (family home, full repayment of debts, etc.)
According to the Internal Revenue Code Section 1041, any transfer of property between a husband and wife (or a former husband and wife due to a divorce) is considered a nontaxable transaction. If you are in the process of a divorce that includes the division of a professional practice, visiting with an experienced divorce attorney can help you understand all of the tax implications of any kind of division of marital assets within your divorce.
Contact an Experienced Family Law Attorney Today
If you are considering a divorce, or are in the process of a divorce that includes the division of a business, protecting your professional practice in a divorce can be challenging and overwhelming. Decisions regarding the type of valuation, expert witnesses, tax implications, and discovery can prove complex and difficult for spouses. Consider visiting with our compassionate and experienced family law attorneys to learn more about your legal and financial rights during your divorce, and ensure that they remain protected. Contact our legal team at Woodward, Pires & Lombardo, P.A. at either our Naples Florida office (239) 649-6555 or our Marco Island Office (239) 394-5161 today.