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Whether you’re approaching midlife or are already there, getting a “gray divorce” could affect your medical practice. The term describes those who are nearing retirement and getting divorced, said Erin S. Stone, a divorce and family law attorney in Atlanta. “Usually, their kids are out of the house or grown or just finishing high school,” said Stone. “They’ve earned pretty much what they’re going to earn and are splitting what they’ve earned.”
Surprisingly, while divorce rates have declined modestly over the past few decades, gray divorce has been on the rise. Recent stats reveal that 1 in 3 people getting divorced are older than 50 years old, and 1 in 4, older than 65.
Because divorce entails the legal separation of marital property and assets and can present thorny issues for doctors with medical practices, physicians should know how their practices are valued, how to protect them, and what to keep in mind if they’re facing the dissolution of their marriage.
About Medscape Insights
Medscape continually surveys physicians and other medical professionals about key practice challenges and current issues, creating high-impact analyses. For example, the Medscape Self-Employed Physicians Report found that
- 42% of US physicians surveyed work in a private practice.
- 68% of those doctors said autonomy was the best thing about owning their practice.
- Almost 1 in 2 doctors surveyed reported being very concerned or concerned that uncontrollable events, such as a divorce, could change their income.
A Special Challenge for Physicians
While divorce is sad, stressful, and upending for nearly everyone, it can place a substantial burden on divorcing doctors. “I represent a lot of doctors and a lot of doctors’ wives, and one of the challenges with doctors who own their own practice is that the practice is so demanding on their time,” said Stone. “They’re running their small business — their practice — and taking care of their patients. Putting the demands of a divorce on top of that is really challenging for them. The divorce process also demands a lot of their time.”
Loss of control and privacy is another issue. “You’re going to be asked all kinds of personal questions…about your spouse and your sex life and money and investments…doctors who run their own practices are used to being in charge and in control. Divorce is a process where you’re not in control for a while,” said Stone. “It can be hard for them to let me, as a lawyer, run their case and let them get back to what they should be doing — taking care of their patients.”
Divorce’s Impact on Your Practice
Determining the value of the practice and whether it’s a marital asset are critical issues for physicians who own their practices. “The medical practice is often one of the most complex assets to value because it blends personal income, enterprise value, and goodwill,” said John E. Roach, Houston-based family law attorney and legal content reviewer at LawDistrict.
Several established methods may be used to value your practice. “One common approach is an income-based valuation, which looks at historical earnings and projects future income, then separates the physician’s personal compensation from the underlying business value,” said Roach. A market-based approach that compares the practice to recent sales of similar practices in the region may also be used — though this can be a difficult challenge to value solo or highly specialized practices.
Less commonly used is an asset-based approach that focuses on tangible assets like equipment and receivables; this can understate the true value of an ongoing practice. “A critical legal distinction in many states is between enterprise goodwill (the transferable, intangible value of a business independent of its owner), which may be divisible, and personal goodwill, which is tied to the physician’s individual skills and reputation and is often excluded from marital property,” Roach added. “That distinction frequently drives the outcome more than the headline valuation number (the total transaction value before accounting for debt, cash, and working capital).”
“We spend most of our time talking about enterprise goodwill and personal goodwill,” agreed Jason Sposeep, a senior partner and family law attorney at Schiller DuCanto and Fleck in Chicago. “If a practice can’t realistically survive without a physician, Illinois courts will find there is no enterprise goodwill.” In that instance, the goodwill is considered personal and not a marital asset.
Other practice-related property may also be assessed as marital property. “We look at the medical practice, but we look at other assets connected with the practice,” said Stone. Once agreed upon, the value of the practice can be divided by “horse-trading” (trading other marital assets with a similar value) or a buyout over the course of time, said Sposeep. If the doctor can’t afford a buyout, a payment plan may be added to maintenance and child support or created separately.
Misconceptions About Protecting Your Practice
Attempts to protect the value of your practice from divorce usually fail. Incorporating your practice or paying yourself a salary won’t protect it from being included as an asset in divorce, for example. The courts will look at factors like income history, ownership structure, buy-sell agreements, and whether the practice could be sold or transferred. These all factor into valuating it, added Roach.
What You Can Do If Divorce Is on Your Radar
If you’re anticipating divorce, you should make sure you’re up to speed on your personal and professional investments. “Educate yourself on your family finances,” said Stone. “I find that doctors are so busy that they tend to hand over the management of their household to their spouse.” The problem is, when they get divorced, they don’t know how much their retirement fund is or what their mortgage payment is. It makes it difficult to get a handle on the finances. She suggests sitting down with your spouse at least once a year to review your spending and savings.
“If a physician comes to me and is contemplating divorce, the first thing they need to do is get educated in terms of their practice and its potential value,” said Sposeep. “You also figure out how to stabilize the practice as much as possible before entering into divorce.” Manipulating numbers or income isn’t recommended and may lead to additional legal expenses; however, you may want to clean up your accounting and consider how liquid your assets are. “Without liquidity, it’s hard to buy out the other individual or have options,” he said. “Consider that before dumping money into new devices or new technology [for your practice].”
Documentation is also important. “Keeping clean financial records, separating personal and business expenses, and obtaining periodic independent valuations can make the divorce process far more predictable and reduce the likelihood of extreme or speculative claims,” said Roach. “Waiting until divorce begins to sort this out almost always makes things harder and more expensive.”
Consider Your Legal Options
Take your time finding a lawyer you trust and then let them do the legal heavy lifting. “Divorce is a time-hungry and money-hungry animal,” warned Stone. “If you don’t let the lawyer handle it, it will eat up so much time and energy.”
You may also want to consider collaborative divorce, which lets you address your legal issues without going to court. It’s more private and less stressful than litigation.“The best outcomes for my doctor clients involve proceeding with valuating and dividing the medical practice through collaborative divorce,” he added. “I’ve seen much more holistic and thoughtful outcomes with it.”
Finally, if gray divorce is going to be your new reality, consider whether you have any say in when you divorce. “For physicians over 50, timing matters,” Roach said.
“Divorce can affect retirement planning, deferred compensation, and long-term income assumptions in ways that are difficult to reverse.”
Kelly K. James is a freelancer, content manager, and author of The Book That (Almost) Got Me Fired: How I (Barely) Survived a Year in Corporate America. She covers health/wellness, business/career, and psychology topics from her home in the Chicago suburbs.
