A practice valuation and goodwill allocation can alter a dentist's and spouse's lives forever and therefore must be carefully considered when filing for divorce.
A timely practice valuation and goodwill allocation are essential for the dentist and spouse going through a divorce. If the divorce is taking place in an equitable distribution state, the goodwill allocation is a prime consideration for the financial future of both parties. The dentist should make sure that he or she receives both a goodwill allocation and a practice valuation from the evaluator. Irrespective of the length of the marriage, the divorce will have a serious impact on the dentist’s—and the spouse’s—finances. If each spouse is having a practice valuation prepared, its timeliness and accuracy will affect the opinion of the mediator or the court, which will, in turn, impact the future of each spouse. The opinion will be based upon the information available for review. Thus, if one of the reports is missing, the decider won’t be able to make a determination.
The Opinion Is Based on What the Mediator or the Court Sees
There is almost always a deadline for what is known as discovery: the disclosure
of the facts and data that will underlie the mediator’s or court’s decision. The court or mediator sets dates for the completion of said reports. Sometimes extensions are granted, but the deadline for presentations is known and expected to be adhered to. No one wants to exasperate the mediator or the court. On-time filings are part of the process, and delays will not help those responsible for the delay.
Finding a dental practice evaluator with the proper credentials is the first step in the process. Neither party should want a general business evaluator to prepare a dental practice valuation. An individual with prior court appearances and experience in the preparation of dental practice valuations can assist the court in determining the presentation’s credibility. The evaluator’s report and testimony will help the court understand where the money has been going and who has been responsible for the flow of funds and the growth of the practice. Gathering the necessary information accurately and on time is an expensive and time-consuming endeavor. If you have to beg the evaluator to complete his or her job on time, you’ve retained the wrong person. Careful planning, interviewing, and knowledge of the evaluator’s credentials will almost always ensure that there are no delays.
Show Me the Money and Be Honest and Impartial About the Presentation
The dentist or the dental practice certified public accountant (CPA) may argue that they know more about the value of the practice than any evaluator could possibly know. Although this may be true, courts and mediators want independent, unbiased valuations. Coercing the evaluator to deliver information that may appear to favor either party is not considered a strategy that would lead to an independent presentation. The court and other parties involved will see through such a tactic, and the evaluation, the evaluator, and the individual who retained them may lose credibility. Independence is essential, and the dental practice CPA is certainly not independent.
The Financial Considerations That Will Be the Foundation for the Rest of the Dentist’s and Spouse’s Life
The decision of the court or binding mediator will inform each spouse’s life. There are certain items that are governed by laws, such as retirement plans that include certain entitlements for the spouse, unless he or she has agreed not to do so. But for the dentist, a divorce will typically mean borrowing a large sum of money to satisfy the spouse after the court or mediator renders its decision or if there was a previously agreed-upon settlement in place. In equitable distribution states—about 40 out of 50—and depending on other asset values, a large amount of the value of the practice may go to the spouse.
If the dental practice has not previously had occasion to borrow money, going to a lender may be very upsetting. A lender will want to know why a loan is needed, how long it will take for it to be repaid, and whether the practice will be stable after the loan is made. From a tax perspective, as long as the distribution of the value of the practice is part of the marital settlement, the borrower will not incur taxes—but neither will he or she be able to deduct loan payments. Whoever is making the payments will be borrowing money without any tax benefit.
Borrowing money may be a traumatic experience for the dentist, whether or not he or she has had to borrow in the past. Therefore, choosing a dental practice evaluator carefully is very important. The evaluation’s timeliness will have a major impact on both the dentist and the spouse; hiring the least expensive services and causing delays will hurt both. Be smart, get the best, pay for it, and think of amortizing it. The result will affect the rest of your life.