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Protecting Professional Practices in Divorce

When we say our vows, most of us mean it from the heart. However, life often gets in the way and it becomes increasingly difficult to keep a marriage together. In California, the term 'irreconcilable differences' covers everything that might cause a marriage to end, including infidelity to a couple simply drifting apart. In this no-fault state, there is no need to assign blame when it comes to dividing assets during divorce.

Apart from dealing with the heartbreak of shattered hopes and dreams, helping your children cope, and moving to a new home to start a new life, you have to consider the financial ramifications and the risk that is posed to your professional practice.

As the owner and operator of a professional practice, you have an additional worry while handling the changes that divorce heralds. You worked hard to build your business and to establish your professional reputation. Professional practitioners stand to lose much in a divorce. A divorce should not damage your business, future earnings, financial status or your credibility.

Sadly, a business - which is often the cause of spouses spending a lot of time apart in the first place - can often become a contentious part in a bitter dispute when it comes to division of assets. Having the best legal representation on hand can ensure that you make the right decisions that will affect your financial, professional and personal life positively.Additionally, you must consider your spouse's involvement in the business operations, and the impact your divorce may have on outside business partners. If your spouse wishes to remain involved in the business against your other partners' wishes, this is an issue that will have to be resolved. It may become a complex legal matter, for which you will need excellent legal representation from a law firm that specializes in these types of cases.

Since California is a common law state, a business owner's spouse is entitled to half of a business that was created during the marriage, or half of the appreciated value that accumulated during the course of the marriage. California law considers a closely held professional practice a marital asset, which means that your business is subject to division in the event that you file for divorce. This fact should not be taken lightly, as a business can be a couple's most lucrative asset and a complex one to divide equitably.

Our San Diego Divorce Attorney expert will examine the following aspects of your professional practice during your initial consultation:

  • What is the fair value of your professional practice and the business real estate?
  • What are the economic forecasts for your business in terms of appreciation and depreciation?
  • Is a portion of your practice entirely separate, or is it all considered marital property?
  • To what extent did the value of your practice appreciate during your marriage, and to what percentage of that value is your spouse entitled?
  • How could tax obligations affect the property settlement?
  • To what extent did your spouse contribute to your career and professional practice?

As a licensed professional, such as an engineer, accountant, veterinarian, doctor, chiropractor, dentist or lawyer - to name a few - you have probably spent years building your practice and invest a significant amount of time and money in your continuing education. The attorney who acts on behalf of your spouse may argue that your earning capacity is significant, due to your professional license and advanced degrees. While that may be the case, it should not mean that you have to lose what you have built so far, even if your spouse contributed to the process.

Don't let the divorce affect your professional practice. Speak to an expert lawyer at San Diego Divorce Attorney who specializes in protecting professional practices - a firm which licensed professionals and other lawyers turn to when they are faced with complex division of property issues.

Protecting Professional Practices During Divorce

As a professional practitioner who spent time building a practice as your primary investment and income stream, divorce can put the future of your business at stake. Matters can be complicated when both spouses own a professional practice together, particularly if no pre-divorce safeguards were put into place from the start. For that reason, divorce lawyers recommend that spouses who are sole owners, shareholders or partners in a professional practice, see a lawyer with a divorce attorney and accountants who have significant experience in limiting the taxes and personal liability that could arise in the event of divorce even before they are married.

A comprehensive prenuptial agreement can be used to help spouses agree upon how assets - including the professional practice - will be divided in the event of a divorce. An enforceable prenuptial agreement has to adhere to the following standards:

  • The prenuptial agreement must be in writing;
  • Both parties must sign the prenuptial agreement of their own free will and not under duress;
  • The prenuptial agreement must be signed well before the wedding so as to avoid rendering it coercive. A prenuptial agreement signed a few days or the night before the wedding could cause the court to consider it coercive and it may be invalidated;
  • The prenuptial agreement must not contain any immoral or illegal clauses;
  • The prenuptial agreement must not prevent one party from seeking child custody, visitation or child support.

If you have started your professional practice after the wedding, you and your spouse can still enter into a postnuptial agreement, which serves the same purpose as the premarital agreement. It protects both spouses’ interests and limits liability in the event of a divorce.

Structuring Your Professional Practice

Professionals in private practice don't always take a salary from their businesses, so there is no pay stub with the typical tax deductions, as is the case with an employed individual. As such, the entire value of the professional practice has to be quantified in order for the assets to be divided according to the agreed-upon formula.

While prenuptial and postnuptial agreements provide a first line of defense against losing assets for which you have worked hard, they may not be applicable to all professional practices or family businesses. Making your professional practice divorce-proof is a complex process that requires professional legal advice.

Careful structuring of the business' operating documents can also be used to prevent your divorcing spouse - or that of a major shareholder, partner or co-owner - from issuing claims against your professional practice. Speak to a San Diego lawyer who specializes in LLC, shareholder, or partnership agreements or buy/sell agreements.

You could also take certain steps during your marriage to prevent your business from being considered community property in the event of a divorce. Steps include taking a salary from your professional practice and avoiding commingling your business funds with personal funds. A portion of the business' proceeds may still go to the spouse during the marriage, but this practice may help prevent the transfer of ownership in the event of a divorce.

Using marital assets to support the growth of a professional practice can also lead to disputes. Sometimes, one spouse may give up his or her career to raise the children and or help operate the business on a full-time or part-time basis, which gives that spouse a claim against the business assets. Having shareholder investors or business partners can further complicate matters, as they have a stake in the outcome of your property division after divorce and they may be opposed to certain suggested resolutions. A lawyer with significant experience in protecting professional practices in divorce will be able to help you navigate this treacherous situation.

The Value of a Professional Practice

During divorce, spouses may agree that it is in everyone's best interest to continue operating a business together even though the marriage has ended. However, the first step is to determine whether the professional practice is considered community property. A business that was started - or which grew significantly - during the marriage, is typically considered part of a marital property settlement and its value must be divided fairly.

The spouse who is the primary owner and operator of the private practice will want to avoid an inflated evaluation that increases his or her liability. Your attorneys will use fair and independent means to obtain proper valuations of the professional practice in order to reach an equitable division. It can be particularly difficult to obtain the value of a professional practice, as much of its worth may be tied up in goodwill. How do you put a price on the reputation of a business?

Goodwill is an intangible concept, and attorneys often have to enlist the services of experts to obtain a fair value. Some of the factors specific to your professional practice that are considered during the valuation of your business include:

  • the location of your office real estate
  • value of the building fixtures and equipment
  • business inventory
  • goodwill of the practice (and whether that is marital property)
  • accounts receivable
  • bank accounts
  • tax consequences
  • non-transferable assets, such as the owner's skill set

Other factors that are relevant to the valuation of a business, include:

  • industry challenges and opportunities
  • market stagnation or stability
  • growth potential based on economic conditions relating to your business operations

After the overall value has been established, parties must agree on how much of the business belongs to each partner separately, and how much is considered community property. Again, this can be complex. In many cases, if a business was created by one spouse before they were married, that would be considered separate property.

However, it's not uncommon for professional practices to evolve over time. You may partner with another professional, and the partnership may dissolve after some time. A professional practice may reorganize multiple times over the course of the professional's career. It is therefore important to speak to an attorney with experience in dividing professional practices and who can help you determine the value of goodwill that had been transferred from one individual to the next.

In addition to dividing the assets of a professional practice when a marriage ends, the community estate may be entitled to reimbursement for training and education costs that may have been incurred during the course of the marriage.

Mediators work together to reach a settlement that is acceptable to both spouses, and protects your best interests. There are several ways in which a compromise can be reached once the value has been determined, including:

  • the primary business owner could buy out the other spouse;
  • spouses could trade assets and debts to reach an equal division;
  • spouses could remain co-owners;
  • they could sell or liquidate the practice and divide proceeds.

Other options may also be available, depending on your personal circumstances and the type of business. Working with a lawyer who has experience in resolving complex division of property matters can help protect your professional practice.

Professional Practice and the Law

Working with our experienced firm at San Diego Divorce Attorney can provide the assistance you need to litigate and resolve property disputes including but not limited to:

  • Professional practices that are classified as separately owned property;
  • Professional practices that have benefited from commingled community property or marital assets;
  • Valuation of professional practices;
  • Calculation of the value of professional licenses;
  • Professional practices or businesses that are co-owned or operated along with investment partners;
  • Businesses that are co-owned and operated along with investors;
  • Calculations of and division of debt obligations of the business;
  • Overseas business investments and operations;
  • Business interests that are provided for in prenuptial agreements.

Help with Protecting Professional Practices in Divorce

If you need help with protecting professional practices in divorce, speak to the experienced team at San Diego Divorce Lawyer, who collaborates with a team of subject experts to evaluate your professional practice and act in your best interest to reach an equitable division of property agreement that suits both spouses and the future of your professional practice. We have helped countless engineers, accountants, veterinarians, doctors, chiropractors, dentists and lawyers to protect their professional practices in divorce and we can do the same for you.

Call us today on 858-529-5150 to book an initial case review today.

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