This article discusses strategies regarding medical and dental practices for physicians and dentists who own private practices and may be going through a divorce process in Maryland.
Did you know that the medical or dental office that you own is most likely considered marital property and your spouse could claim a financial interest in it if you are going through a divorce? Whether and to what extent your practice or ownership interest in a practice (if you are a part owner in a practice) is considered marital or non-marital property depends on when you acquired your practice relative to the date of your marriage and/or whether any marital funds were used to pay for any loans, improvements, or for other purposes for your practice, even if you owned your practice prior to your marriage, inherited it, or if it was gifted to you.
Your spouse can almost never become a shareholder, member, or a partner in your medical or dental practice after your divorce for a couple of reasons. First, if they are not a doctor or a dentist, they do not have the required license to become an owner of medical or dental practice under Maryland law. Second, usually shareholders’ agreements, bylaws, operating agreements, or partnership agreements include provisions that restrict the transfer of ownership interest even if your spouse has the required medical or dental license. If you don’t yet have those provisions in your corporate documents then they should be reviewed and amended to provide those additional protections for you.
Your spouse’s recourse is usually to try to put a price tag on the value of your practice or your interest in your practice and then try to obtain a monetary award based on the equitable division of marital portion of your interest in the practice. Keep in mind that your spouse’s monetary award will not be the entire value of your interest in the practice because the value of your interest in the practice should be equitably divided, which could be ½ of the value, less than ½, or more than ½ of the value depending on many factors listed in Maryland Code, Family Law § 8-205(b).
Therefore, the valuation of your practice becomes crucial and can make a material difference in the outcome of your case. But the valuation of your practice for divorce purposes could be significantly lower than the valuation of your practice for the purpose of selling it. One of the major factors or defenses that you can invoke is that the substantial amount of the value of your practice consists of your personal goodwill, which in Maryland is considered non-martial property.
In Maryland, doctors, dentists, and other medical professionals are among those who could claim one of the highest levels of personal goodwill (depending on the circumstances of the case) and therefore minimizing the value of their practices for divorce purposes, which will result in great reduction in your spouse’s monetary interest in the marital portion of your medical or dental office. In Maryland, the court is also required to consider discounts for lack of marketability and lack of control if you are not the sole owner of the practice, which can further reduce the value of your practice for divorce purposes. A family lawyer experienced in representing doctors and dentists can navigate these complex issues to settle your case or litigate it in Maryland family law courts.
Finally, other than your practice you almost inevitably have other marital property, whether real or personal property, which could be used to off-set the value of your practice. For example, if you own a house that has equity or if your spouse owns an interest in a property that is more valuable than your interest, then the value of your spouse’s interest in those properties can be used to off-set the value of your practice. If you are trying to settle your case and reach an agreement with your spouse, then there can certainly be some “horse-trading” to help you reach a settlement.
Please note that this article is written specifically based on Maryland law. CLICK HERE for additional information regarding our Bethesda family lawyers if you are seeking representation in your divorce and/or child custody case. For our Rockville divorce lawyers and representation in the Circuit Court for Montgomery County CLICK HERE!
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In Strauss v. Strauss,101 Md. App. 490, 647 A.2d 818 (1994) Maryland Court of Special Appeals provided an in-depth analysis of valuation of dental and medical practices in divorce cases. The Court reiterated Maryland law that personal goodwill is not considered marital property and therefore should not be considered as part of the valuation of a practice in divorce cases. That means the personal goodwill portion of the valuation for dental and medical practices are non-marital property of the dentists or doctors who own their practices and not subject to equitable division of marital assets. The following is an excerpt of the Court’s Ruling:
“As background, we note that it is well established in Maryland law that goodwill, although an intangible asset, is nonetheless a legally protected property right. Archer, 303 Md. at 356, 493 A.2d 1074; Schill v. Remington Putnam Co., 179 Md. 83, 88-89, 17 A.2d 175 (1941); Green v. Green, 64 Md. App. 122, 134, 494 A.2d 721 (1985). Based on this status, the goodwill of a spouse’s business is to be valued and equitably divided pursuant to the three step marital property analysis. Nevertheless, when the business in question is a sole professional practice, owners have claimed that any goodwill inuring to the entity is not marital property, but, rather, a direct reflection of the owner’s reputation and skill and therefore “uniquely personal” to the holder. This rationale was first acknowledged in Maryland in Brown v. Benzinger, 118 Md. 29, 36, 84 A. 79 (1912), in which the Court distinguished between the sale of the good will of a trade or business of a commercial character where the location is an important feature of the business, and the sale of an established practice and goodwill of a person engaged in a profession or calling where the income therefrom is the immediate or direct result of his labor and skill and where integrity, skill, ability and other desirable personal qualities follow the person and not the place.”
You can find the Court’s decision in its entirety at Strauss v. Strauss :: 1994 :: Maryland Court of Special Appeals Decisions :: Maryland Case Law :: Maryland Law :: US Law :: Justf
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