What happens to a Dental Practice in a Divorce?
Sustaining a successful dental practice requires a lot of hard work and personal investment. The same could be said about sustaining a successful marriage. But the two don’t always go hand in hand. Like their counterparts in every other profession, occupation, or walk of life, dental practice owners get divorced. The end of a marriage affects almost every aspect of a person’s life, and when one of those aspects is a thriving dental practice, the line between business and personal can quickly become blurry.
That’s because the ownership and value of a dental practice are very much in play during divorce proceedings. Unless a valid prenuptial agreement says otherwise or the spouses reach an understanding during their divorce proceedings, an owner’s interest in their practice in Illinois is subject to equitable distribution between the spouses, just like other marital assets.
But unlike other marital assets like a home, retirement accounts, and personal property, valuing a dental practice and determining how that value will be distributed between the spouses can be much more complicated. If the divorcing practice owner is part of a partnership or professional corporation, the treatment of their ownership interest can become even more sticky.
Equitable Distribution of a Dental Practice
As a preliminary matter, it is important to note the distinction between “equitable” and “equal.” If property were divided “equally” in a divorce, it would be a fairly simple exercise; split the assets 50/50, and everybody is on their way. But distributing property “equitably” can be significantly more complicated and contentious and involves numerous factors that a judge will weigh when deciding who gets what.
The first step is determining which assets are “marital property” and which ones are “separate property.” Equitable distribution only applies to the former - property acquired during the marriage. Property that each spouse brought into the marriage or which one spouse obtained by gift or inheritance during the marriage is “separate property” and will not be reallocated, divided, and distributed between the parties - with one crucial caveat.
Accordingly, if a dentist started their practice while married, the dentist’s interest in the practice is unequivocally marital property. But even if the dentist had already launched their practice before getting married, any appreciation in the value of the practice (or the dentist’s interest in the practice) during the marriage can be marital property if that appreciation was caused in part by the efforts or contributions of the other spouse. Those efforts don’t need to be direct, such as working at the practice. If the spouse facilitated the dentist’s career and practice in other ways, or if marital funds were used to open or run the practice, it will be subject to equitable distribution.
Valuation Is The Critical Issue
Determining the value of a dental practice and deciding how to divide this value between spouses during divorce can be a complex undertaking. Spouses and their attorneys usually work with appraisers and other financial professionals when valuing a practice, and much time and effort can be spent sifting through competing valuations. The value of a practice subject to equitable distribution includes the personal goodwill of the dentist, the fair market value of the practice, how much it is expected to appreciate or depreciate, and accounts receivable, among other elements.
Finding Equivalent Value Elsewhere
In many divorces where one spouse owns a business or part of a business, equitable distribution can involve dividing that ownership interest between the spouses. But in Illinois, as in most states, non-dentists cannot hold an ownership interest in a dental practice. As such, in most cases, the dentist spouse will retain ownership of their practice, and the value distributed to the other spouse will be made up for with other marital assets.
Protecting a Dental Practice From Equitable Distribution
The best time to protect a dental practice from equitable distribution in a divorce is before the marriage begins. A valid and well-crafted prenuptial agreement can account for any present or future practice and take it off the table if and when the marriage ends. Once divorce proceedings commence, however, the practice (or its appreciation in value) is very much on the table.
If you are a dental practice owner considering or in the midst of divorce and have questions about how it will impact your practice, please contact Grogan Hesse & Uditsky today at (630) 833-5533 or contact us online to arrange for your free initial consultation.
We focus a substantial part of our practice on providing exceptional legal services for dentists and dental practices, as well as orthodontists, periodontists, endodontists, pediatric dentists, and oral surgeons. We bring unique insights and deep commitment to protecting the interests of dental professionals and their practices and welcome the opportunity to work with you.
Jordan Uditsky, an accomplished businessman and seasoned attorney, combines his experience as a legal counselor and successful entrepreneur to advise dentists and other business owners in the Chicago area. Jordan grew up in a dental family, with his father, grandfather, and sister each owning their own dental practices, and this blend of legal, business, and personal experience provides Jordan with unique insight into his clients’ needs, concerns, and goals.
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