Divorce and The Impact on a Dental Practice
The divorce process is never easy and has a large impact on the parties to the marriage, including not only their mental health, but their financial health as well. In order to understand how a divorce can impact the financial health of the parties we must first examine the law in Ohio regarding the division of assets and liabilities.
In Ohio, all assets and liabilities that have been acquired during the marriage are to be equally divided between the parties, often these assets and liabilities are referred to as “marital property” and “marital debts.” There are a few exceptions to this definition but they will not be discussed in this article. How assets and liabilities are divided can greatly impact the determination of spousal support (formerly called alimony), particularly when one party to the marriage owns, or has an ownership interest in, a business, including a dental practice.
The division of marital assets is highly relevant to any closely held corporation, limited liability company, or other business entity, including a dental practice. The inclusion of a dental practice in the marital property that is going to be divided between the parties must be addressed with care.
Prior to the division of the dental practice, a fair or Living Trust can provide some peace market value must be assigned to it; this Trends & New Software of mind that your surviving spouse and can be done either by agreement of the children will be provided for after your parties or by having the dental practice death and including certain provisions independently appraised for the purpose can also provide some tax savings of dividing marital property. Dividing depending on the tax laws in effect at the the appraised value of a dental practice time of your death. can be accomplished in the following manner: if a particular dental practice
$1,000,000.00, and assuming that one party to the marriage owns 100% of the Dentists as the owner of a business practice, then both parties are entitled to interest have a unique opportunity to receive $500,000.00, provided that all plan now for the transfer of the wealth of the practice is considered a marital accrued from the value of their dental asset. This division of marital property practice to make certain it is passed on to can be accomplished by awarding more their family in the event of their untimely of other property to the non-owner death.
Dental practices have value not spouse, for example awarding a larger only in the equipment, furnishings and portion of a 401(k) to take into other tangible assets used in the practice, consideration the value of the practice; but also in the “going concern” and or it may mean that the owner of the reputation of the business (the patient practice has to pay the other party base and continuation of income stream $500,000.00. This can particularly from patient treatment).
Business affect a dental practice because in Ohio succession planning will include that the only a licensed Ohio dentist can own a owners or his or her estate’s interest in dental practice and therefore there is no the practice will be purchased and can other method to divide the practice, assure that a fair market value is paid for unlike real property that can be sold and that interest. Unfortunately, if a the equity equally divided, retirement succession plan is not in place during the accounts that can be equally distributed, etc.
To further complicate this issue, there is the possibility that a Court may allow “double dipping” of marital property. Double dipping arises when an asset is divided between the parties and then the future income stream from the same asset that is being divided is used when calculating support. For example, if wife owns 100% of a dental practice valued at $750,000.00 (using an income based method) and she retains ownership of the dental practice, but husband receives an asset of equal value, such as the equity in the marital home, the parties have equally divided those assets.
In this example, the double dip arises when the future income wife receives from the dental practice is taken into consideration when calculating spousal support. Unfortunately, the law in Ohio is currently unclear regarding the double dipping issue, with some courts permitting a double dip on a case by case basis. Until this issue is resolved, there is still the potential for double dipping to occur in the division of marital property.
Divorce can impact a dental practice, or any closely held business, in a much more direct manner. It is possible for one spouse in a divorce to name the other spouse’s business as a party to the divorce action. This maybe done to allow for full financial disclosure, to prevent wasting of the asset, to prevent the business owner from hiding money, or to simply frustrate business operations (although this is generally not in anyone’s best interest as disrupting a business also disrupts its income and value). Making the dental practice a party to the divorce can add additional expense in legal fees for an attorney to represent the practice and exposes the financial information of the practice.
There are several ways to minimize the impact a divorce can have on a dental practice. The most comprehensive manner is prior to the marriage to enter into a prenuptial agreement that may exclude the dental practice from the definition of marital property. It can also include pre-divorce planning in consultation with an attorney. Retaining legal counsel early in the divorce process can help identify potential issues and minimize them as they arise.
Lastly, there are 10 questions every owner of a dental practice should ask his/her attorney at the beginning of the divorce process:
- Is my business an asset that can be divided in the divorce?
- How will the business be valued?
- What if I only own a portion of my business?
- How will this affect my business partners? Do I have to inform them of my divorce?
- What if I owned all, or part, of my business prior to the marriage?
- What if my business has debt? What if I have personally guaranteed the debts of my business?
- What information regarding the business will my spouse be entitled to as part of the divorce?
- How will support be calculated if my income is based on production or collection?
- How does profit distribution get factored into the support calculation?
- Do I have to sell my business or should I delay a planned sale?
It is important to address how a divorce will impact a dental practice prior to actually filing for divorce and to consult with an attorney. The attorneys at Thomas Law Group can assist you with any pre-marital planning (prenuptial agreement), pre-divorce planning and representation in a divorce action.
Chad P. Hanke, JD