There are several ways to value a private medical practice for a divorce, but we recommend leaving this to professionals. When we handle a divorce that includes a private medical practice, we rely on appraisers and experts who can weigh the numerous factors that are necessary to consider for determining a creditable estimate of value.
Colorado is an equitable division state, meaning not all property obtained during the marriage is necessarily joint marital property or that the property has to be divided This complicates things further, since the circumstances of your case will determine what proportion, if any, of this value will be subject to division for settling the divorce.
Appraising the Practice Is Important
Some professional spouses argue that their Practice is not marital property or that they started the Practice before marriage. However, just because only one spouse works in the Practice or because it began before the marriage does not mean that the Practice does not need to be valued.
While it may be true that the Practice was originally the property of one spouse, after years of marriage and growth and change in the Practice, this may no longer be true. For this reason, we seek help in putting a value on any professional practice that might be part of a marital estate as a part of the discovery process.
To fully understand the growth of the practice during the marriage, we sometimes need to find the value of the practice at the start of the marriage as well as the current value of the practice.
Approaches to Calculating Value of a Private Medical Practice
There are several established approaches to calculating the value of any professional practice. However, all of them require complex math and the most appropriate depends on the situation. Professionals usually consider several approaches to determine the one that gives a more accurate outcome. In general, an appraiser or other consultant should consider one or more of these options for valuing a private practice:
The income approach is perhaps one of the most commonly used ways to value a business. This approach looks at the projected future income stream of the practice and various risks inherent in the industry to determine its estimated value.
The asset approach looks at the book value of the Practice, compares it to the net assets and adjusts accordingly. This approach does not consider the potential for “goodwill” in the Practice.
Market approach uses creditable Practice data to compare the subject Practice to its peer group. This approach is difficult as comparable data may be hard to find and to adjust for the differences between Practices.
One of the most common approaches in valuing a service business like a medical practice is the excess earnings approach. This combines the “net asset” value of the Practice as discussed in the Asset Approach, with a component for “goodwill”. The combined total estimates the value for the Practice.
Other Factors When Valuing a Private Medical Practice for a Divorce
There are also questions about goodwill, and if there is value in the reputation of the Practice. This is the most complicated part of valuing a private medical practice for divorce because it is not as clear-cut as looking at the company’s tangible assets or finding comparable businesses.
It is important to note that at no time do attorneys or experts have access to confidential patient information during the discovery process. This is strictly prohibited by the Health Insurance Portability and Accountability Act (HIPAA), a federal law that protects medical records. However, this does not preclude you from obtaining the financial information of the Practice.
Let Us Help You Value a Private Medical Practice for Your Divorce
The attorneys from Shapiro Family Law work with families from all walks of life but have extensive experience with complex financial issues and high-value professional practices. We have a strong network of experts in business valuation and will not hesitate to call on them and other specialists when necessary to ensure we fully understand our client’s situation.
When Shapiro Family Law handles your Denver divorce, you can feel confident that our attorneys will work diligently to protect your assets and fight for your fair share of your marital assets. Laura Shapiro has over 30 years of experience in family law and welcomes complex cases.
Call our office today at 303-695-0200 to discuss how we can help you with your Colorado divorce.