What Happens to a Professional Practice in a Florida Divorce?

By: Sarah Oquendo, Esq.

A physician builds a successful medical practice during a marriage. A dentist becomes an owner in a growing group. An accountant, architect or other licensed professional has an interest in a firm that may represent a significant portion of the couple’s wealth.

When the marriage ends, determining what happens to that professional practice can become one of the more complex financial issues in a Florida divorce.

The questions extend beyond what the practice earns. Is the ownership interest marital property? What is the practice worth? How much of that value depends on the individual professional? Can a spouse who does not hold the required professional license receive an ownership interest?

For professionals and their spouses, answering those questions often requires careful analysis of Florida equitable distribution law, business valuation principles and the rules governing the professional practice itself.

Is a Professional Practice Marital Property in Florida?

The answer depends in part on when and how the ownership interest was acquired.

Under Section 61.075, Florida Statutes, assets acquired during a marriage are generally considered marital assets unless they are established as nonmarital. The statute also provides that the enhancement in value and appreciation of a nonmarital asset resulting from either spouse’s efforts during the marriage or the contribution of marital funds or other marital assets may be marital.

That distinction can become important when a professional owned a practice before getting married but continued building it during the marriage.

For example, a physician may have entered the marriage already owning a medical practice. The original ownership interest may remain nonmarital, while some or all of the enhancement in value during the marriage may be marital if that enhancement resulted from either spouse’s efforts during the marriage or from marital funds or other marital assets.

Determining the marital and nonmarital components of a professional practice can therefore require looking well beyond the current value of the business.

How Is a Professional Practice Valued in a Florida Divorce?

Valuing a professional practice is not as simple as looking at its revenue or bank account.

Florida law now expressly provides that the standard of value for a marital interest in a closely held business is fair market value, meaning the price at which property would change hands between a willing and able buyer and a willing and able seller when neither is under compulsion and both have reasonable knowledge of the relevant facts.

Depending on the practice, valuation may involve consideration of its assets and liabilities, historical financial performance, compensation paid to owners, accounts receivable, contractual relationships and other factors affecting what the ownership interest is worth.

In a divorce involving a significant professional practice, the parties may use business valuation professionals or forensic accountants to analyze financial records and offer opinions concerning value.

Why Does Goodwill Matter?

One of the most important issues in valuing a professional practice can be goodwill.

Florida law distinguishes between goodwill that belongs to the business and goodwill that depends on the continued presence and reputation of the individual owner.

Under Section 61.075, Florida Statutes, goodwill that is separate and distinct from the continued presence and reputation of the owner spouse is considered enterprise goodwill and is a marital asset that must be valued by the court.

Florida courts have long distinguished enterprise goodwill from personal goodwill. Enterprise goodwill is associated with the business itself and exists separately from the individual professional’s reputation or continued presence. Personal goodwill, by contrast, is associated with the individual professional and is not a marital asset subject to equitable distribution.

Consider a medical practice whose patients come primarily because of one physician’s personal reputation. That may present a different valuation question from a multi-provider practice with an established name, staff, systems and patient base that can continue operating independently of one individual professional.

The distinction can materially affect the value assigned to the practice in a divorce.

Can the Other Spouse Receive Part of the Professional Practice?

Not necessarily.

Florida’s equitable distribution statute specifically recognizes the desirability, when appropriate, of retaining an interest in a business, corporation or professional practice intact and free from a claim or interference by the other spouse.

Professional licensing rules can create an additional issue.

Under Florida’s Professional Service Corporation and Limited Liability Company Act, certain professional corporations and professional limited liability companies may have ownership restrictions. Section 621.09, Florida Statutes, generally limits ownership in entities organized under the Act to qualifying professionals or professional entities authorized to render the same professional service.

As a result, a spouse who does not hold the required professional license may not be eligible to become an owner of the professional entity.

That does not necessarily mean the practice has no value for equitable distribution purposes. Instead, the value of the marital interest may need to be addressed through the distribution of other assets, a monetary payment or another arrangement that allows the professional spouse to retain the practice while accounting for its marital value.

What If the Professional Has Partners?

A divorce involving an ownership interest in a group practice can introduce another layer of complexity.

Shareholder agreements, operating agreements, partnership agreements and buy-sell agreements may contain provisions addressing transfers, valuation methods, buyouts and restrictions on ownership.

Those agreements should be reviewed carefully, but the value stated in a buy-sell agreement does not necessarily answer every valuation question that may arise in a divorce.

The structure of the practice, the professional’s percentage ownership and the rights associated with that ownership interest can all affect the analysis.

What Financial Records May Be Important?

Professional practices can involve compensation arrangements and business structures that make financial discovery particularly important.

Depending on the circumstances, relevant information may include tax returns, profit-and-loss statements, balance sheets, bank records, accounts receivable, payroll and owner compensation records, partnership or shareholder agreements and other financial documents relating to the practice.

The goal is to develop an accurate picture of the practice, the professional spouse’s ownership interest and the financial benefits associated with that interest.

Protecting the Practice While Addressing Its Value

A divorce does not necessarily mean a medical office, dental practice, accounting firm or other professional business must be sold or disrupted.

Florida law allows courts to consider the desirability of retaining a professional practice intact when equitably distributing marital assets. Depending on the circumstances, the professional spouse may retain the ownership interest while the other spouse receives different marital assets, a monetary payment or another form of equitable distribution.

For both spouses, understanding the practice’s value early can be important. Because the value assigned to a professional practice can materially affect the overall marital estate, an inaccurate valuation can directly affect the amount and form of equitable distribution.

Professional practices often represent years of education, work and investment. When one becomes part of a Florida divorce, determining what portion is marital, what the ownership interest is worth and how that value should be addressed requires careful analysis.

Henderson Franklin’s Divorce, Marital and Family Law attorneys represent individuals in complex Florida divorce matters involving professional practices, closely held businesses and significant marital assets.

If you own a professional practice or your spouse has an ownership interest in one, understanding its potential treatment in a divorce can help you make informed decisions before agreeing to a division of assets. I welcome the opportunity to discuss your circumstances and the issues that may affect your financial interests. I may be reached at sarah.oquendo@henlaw.com to schedule a consultation.