Valuing Medical Practices in Divorce

Medical practices not only help people protect and maintain their health, but they are also often extremely lucrative. As such, when a person who owns a medical practice decides to divorce, the value of the practice is often a key issue that must be resolved. Valuing medical practices in divorce can be particularly challenging, however, due to the specialized nature of these businesses and the interplay of personal and professional interests. If you or your spouse own a medical practice, it is wise to talk to an attorney about what you can do to protect your financial health during divorce. At McClure Law Group, our assertive divorce attorneys have extensive experience assisting clients with complicated dissolution proceedings, and if we represent you, we will work diligently to help you safeguard your interests.

In Texas, the valuation and division of assets, including medical practices, are governed by the Texas Family Code (the Code). Texas is a community property state, which means that all property acquired or increased in value during a marriage is presumed to be community property, subject to division in a divorce. A medical practice established before the marriage may have separate property components, but any growth or increased value during the marriage could be deemed community property.

Valuing a medical practice involves identifying and quantifying both tangible and intangible assets. These include physical assets such as equipment, medical supplies, and office space, as well as less tangible elements like accounts receivable, patient lists, and contracts with insurance providers. Additionally, the value of a medical practice often hinges on its goodwill, which can be divided into personal and enterprise categories.

Texas law, however, excludes personal goodwill—reputation or relationships tied directly to the practitioner—from community property. Only enterprise goodwill, which pertains to the business itself, is divisible. This distinction is critical and often the subject of dispute, as separating personal contributions from the practice’s inherent value requires expert analysis.

Valuing medical practices during divorce requires a comprehensive approach that accounts for their unique financial and regulatory characteristics. A medical practice’s income stream, profitability, and operational expenses must all be carefully analyzed to assess its worth. Courts may rely on expert testimony from forensic accountants, certified valuation analysts, or business appraisers to provide an objective valuation.

Texas courts recognize three primary methods for valuing businesses: the asset-based approach, the income-based approach, and the market-based approach. The asset-based approach focuses on the total value of a practice’s assets minus its liabilities. The income-based approach evaluates the future earning potential of the practice based on historical financial performance and growth trends. The market-based approach compares the practice to similar businesses that have recently been sold.

Each method has its advantages, and the chosen approach often depends on the specific nature of the practice. For example, an income-based approach might be most appropriate for a thriving practice with consistent earnings, while an asset-based approach may be better suited for a practice with significant physical assets. Disputes can arise over which valuation method to use, particularly if one spouse believes a particular method better supports their financial goals.

Once a medical practice’s value is determined, dividing it can be challenging due to Texas’s restrictions on non-physicians owning medical practices.

If the practice is jointly owned by both spouses, one spouse may choose to buy out the other’s interest, offsetting the value with other marital assets, such as retirement accounts or real estate. Alternatively, one spouse may retain full ownership of the practice while the other is awarded additional community assets to ensure an equitable distribution.

Selling the practice outright and dividing the proceeds is another option, though it is less common due to the personal nature of medical practices. Additionally, continued joint ownership may not be viable due to the highly personal and professional aspects of running a medical practice.

The court’s primary objective in dividing property is to achieve a “just and right” division pursuant to the Code, which takes into account factors such as the length of the marriage, the financial circumstances of both parties, and each spouse’s future earning potential.

Valuing medical practices in divorce requires a detailed understanding of both Texas family law and the financial complexities of professional businesses. If you or your spouse own a medical practice and are facing divorce, you should consult an attorney. The experienced Dallas divorce attorneys at McClure Law Group are proficient at handling complicated divorce cases, and if we represent you, we can help you navigate any challenges that arise during the process and protect your financial future. Our main office is located in Dallas, and we also meet with clients by appointment at our Collin County office in Plano. We regularly assist clients in divorce cases throughout Dallas, Fort Worth, Rockwall, Frisco, McKinney, Irving, Richardson, and Garland, as well as in cities across Dallas, Denton, Collin, Rockwall, Tarrant, and Grayson Counties. Contact us today by calling 214.692.8200 or completing our online form to schedule a confidential consultation.