Accountants, dentists, engineers and therapists are among the successful professionals who may start their own professional practices. They go into business for themselves and offer services that require specialized education and state licensing.
Some people pursue professions due to a family legacy. A child whose parents run an accounting practice may go into the same business and take over the practice when their parents retire. Others begin their own small businesses after completing their education.
A professional practice can be a source of both personal pride and income. The practice itself is likely worth a significant amount of money in addition to representing a source of future income. If a successful professional with their own practice faces divorce, they may worry about the future of their business.
How can people protect their professional practices when they decide to divorce?
With a comprehensive financial analysis
Preparing for property division negotiations or litigation requires an understanding of current financial circumstances. Individuals with professional practices likely need to perform a valuation of the practice to estimate its current fair market value.
Taking equipment depreciation and business liabilities into account can help professionals avoid scenarios in which they overextend themselves by overvaluing their businesses. Unless the spouses have a marital agreement, some of the business’s equity is likely subject to division in the divorce.
Therefore, determining what the organization is worth is crucial for limiting how much of its value the spouse running the company has to account for in the property division process.
With reasonable concessions
Under community property rules, a professional practice is likely subject to division even if a spouse owned it prior to marriage or inherited it from family members. They have most likely reinvested in the business using marital income.
To avoid an obligation to share ownership with a spouse, a professional may need to make concessions in other areas of the property division process. By allowing a spouse to keep more home equity or a retirement savings account, a professional who runs their own practice can preserve their business equity. In some cases, agreeing to take responsibility for more marital debt can also help balance out the value of a professional practice during property division negotiations.
Those who approach divorce proceedings with an eye on their future financial stability and professional success can pursue terms that allow them to thrive after divorce. Preserving a professional practice is the first step toward rebuilding financially after the end of a marriage for many successful professionals.