Going through a Divorce, Part 1: What Now, Financially?

November 2, 2016
DMD Staff

Part 1: Implications for your dental practice that are worth considering when you’re going through a divorce.

With rare exceptions, divorces are difficult emotionally. There may be children involved, there may be acrimony on both sides, and there may be a great deal of uncertainty about what your post-divorce life will look like.

While financial concerns may not be on the top of your mind, the reality is that many different issues must be dealt with, and many of them sooner rather than later. Some of them will likely involve an attorney, but some may also involve a financial advisor as well. Here’s a look at some of the matters you’ll want to keep in mind, over two parts. In part 1, we’ll look at practice implications. In part 2, personal finance implications.

What is the impact to the practice?

If you’re a dentist who owns your own practice or is a partner, a divorce introduces a whole host of potential issues. The following factors will be paramount:

· Whether or not there was a pre-nuptial agreement

· How much of the practice you own

· How much the practice appreciated during your marriage

· State laws regarding business assets and agreements.

If you have partners and if the practice assets may be in dispute, you will likely want to prepare them for pending legal action. And you will absolutely want to speak to an attorney—preferably one with experience handling divorces of small business owners. The complications involved in dividing up the assets of the practice will likely mean you’ll pay more in legal fees than would a typical person going through a divorce. There may also be some contention around disclosing the assets of the business, so that your partner can ensure that there is no hiding of assets through the business.

One thing that catches divorcing dentists off guard is the concept of “double dipping.” This is strategy under which a divorcing spouse seeks not only a portion of the assets of the business, but an ongoing income stream from the practice. State laws vary widely on the legality and practicality of double dipping, but obviously the stakes can be very high.

In short, this is complicated stuff. You’re best served by not going it alone, even if the divorcing parties seem to want an amicable resolution. Retaining legal counsel early in the divorce process can help identify potential issues and minimize them as they arise.

In your discussions with your attorney, also seek guidance on the following questions:

1. How will the practice be valued?

2. How will my business partners be affected if I only own part of the business?

3. What is the risk to my future income?

4. Do I have to disclose to my partners the specifics of the divorce or the pending divorce agreement?

5. What if the practice is worth about the same as before I got married?

6. What if there is business debt or leftover dental school debt?

7. How will support be calculated if my income changes from year to year (as is the case with many dental practices)?

8. Should I look into selling my ownership stake?

Frankly, these questions are just the tip of the iceberg. Sit down with an experienced professional early on in the process to scope out all the issues of concern.