Divorce is divorce, right? Wrong. Each divorce presents different facts, concerns, goals, and complexities. When a physician or dentist is a party in the divorce, unique issues are presented within each category that must be addressed. Those issues relate to the doctor’s work schedule, determination of his/her income, and in the event the doctor owns a practice (or an interest in a practice) valuation and protection of that asset.
It is important to understand that in general, there are 4 categories that encompass a divorce matter: (1) the “divorce process” itself; (2) support for children and/or a spouse; (3) custody; and (4) the division/sharing of the marital estate. Each category presents a plethora of detailed items that must be considered and evaluated.
Divorce Process. The “divorce process” relates to the procedural and filing requirements involved in terminating a marriage. This is essentially the same in each divorce. The divorce process begins with the filing of a Divorce Complaint. That document outlines the basis for the divorce and ancillary claims to protect your rights as the matter moves forward. This is not a situation where a party is setting himself or herself up for a battle in court. In fact, when dealing with issues specific to physicians and dentists, maintaining control of your matter by staying out of the courtroom is often more beneficial to you. Once this filing is served on the other party, there is some time and breathing room to address the other issues. Once the issues are resolved, the request is made for the Divorce Decree which represents the actual end of the marriage.
Custody. Custody encompasses legal and physical custody. Legal custody is the decision-making for your child. This is shared in nearly all cases as the court encourages (by requiring) the parents to discuss and address issues that are important to their child’s well-being and care. These decisions include medical care, education, religious upbringing, and various other activities and education related to the social growth and integration of the child within their communities. The day-to-day decisions remain with the parent having physical custody.
Physical custody is an emotional issue for parents for many reasons. In situations where one, or both, parents are physicians, time at home may be limited. With the obligations of patient care and continuing education, it may be difficult to be home to get the children to school and attend or coach them in their activities, let alone be present at night for the end of day routine. Because one parent may have had to focus on his/her practice, the other parent may have focused on the children. To change that focus suddenly presents unique issues to be addressed and resolved. Whatever the emotional pull is in these situations, the goal is consistent: to put in place a schedule that is flexible and that is in the best interests of the child, or children; and to ensure a smooth transition as the family unit and day-to-day routine changes.
Support: Spouse and Child/Children. Support is a complex issue. This is not simply because the parties income must be determined but because there is an emotional component to paying/receiving support, and a direct link to custody. There may be many reasons that the lesser-earning spouse is not working such as he/she cut back on his/her career or completely let go of his/her professional goals to be present in the household. Thoughts of how one would have/should have preserved their earning ability come to mind, but it is too late to change the situation if you are in the throes of a divorce.
Child support is intended to equalize, to a degree, the incomes of the households so that the children can enjoy similarity in their standard of living at both homes no matter who earns the higher income. A summary view of support for a spouse can be looked at as having two prongs. The first prong is known as alimony pendente lite, APL for short. The second prong is alimony.
APL is intended to assist the lesser earning spouse in having an income stream that can provide for their day-to-day expenses and to assist them financially as they proceed through the divorce process. These payments are usually paid monthly and are determined by what is called a “guideline calculation.” The inputs to determine the monthly payment are: the income of both parties (or his or her earning ability/capacity); the cost of medical insurance premiums; and the custody schedule (read that as “overnights” in each household). Alimony is intended to provide the lesser earning spouse support in an amount that is more representative of the standard of living that he or she enjoyed during the marriage.
Income can be a very cut and dry issue. However, when working with physicians, determining income is often more complex and time consuming. While a physician or dentist may be in a private practice and receiving a traditional income, or perhaps receiving distributions from that practice, income may be received from other sources and other methodologies. For instance, income may be received from a larger institution such as one of the many hospital groups employing physicians, with each having their own rules, pay plans, employment agreements, etc. Income may be received because the physician owns an interest in a practice but the physician is not working daily in that practice for various reasons. Being sure to correctly calculate the physician’s income sets the stage for future calculations as support is fluid. It may change over time, especially in the case of child support. Also, income does not simply affect support. Support is linked with custody and the overall division/sharing of the marital estate. The link to custody arises because the more time the higher earning spouse (say, the physician) has with his or her child/children, the lower the child support payment. Because of this, there are many battles over custody related to money and not related to caring for the child/children. The link to the division/sharing of the marital estate arises because the parties’ incomes are a factor for consideration in the overall division of the marital assets and debts. Generally speaking, the higher earning spouse will receive less of the marital estate to “make up the difference” in his or her higher earning ability and ability to save more money for retirement because of his or her higher earnings.
Division/Sharing of the Marital Estate. The division/sharing of the marital estate very simply is the equitable division of the assets and debts acquired during the marriage. It is important to note that the division is equitable and not necessarily equal. The final division is determined by the formal factors set forth in the statute 23 Pa. C.S. Section 3502(a). Often, counsel and the court will take into account the overall goals of the parties if there is a division that differs from the statutory result but is still reasonable based on the facts of particular situation. Specific to physicians and dentists, there may be a private practice owned solely by the “physician/dentist spouse” who is one of the parties, or an ownership interest in a physician practice. When dealing with this particular asset (which may also involve debt) there are two issues to address: (1) the valuation of the practice or ownership interest; and (2) the protection of the continued life of that practice/ownership interest.
The valuation brings with it many questions such as: when was the practice established; how was it capitalized; is there a pre-marital component; are there formation documents outlining ownership/buy-outs/continued capitalization and debt obligations; vesting of ownership, lease agreements; related entities; etc.? The valuation likely includes assets and debts/liabilities. Assets will have tangible and intangible aspects such as real estate, equipment, office furniture, receivables, intellectual property (i.e. reputation, name identification, goodwill), etc. Liabilities may be in the form of debt, payables, capital contributions, insurance, employee expenses, taxes, loans, etc. Any and all items have a value that must be determined. If you and your spouse cannot reach an agreed upon value, other professionals such as forensic accountants will be retained to determine the value of the particulars related to that practice and any related entities that the physician or dentist may own. Bear in mind that this process can come at a great cost emotionally and financially to both parties if they find that there is no meeting of the minds as to valuing these assets. However, accurately valuing the physician’s practice is of paramount importance.
The importance of the practice valuation leads to the second issue, protection of that practice. You must address how the practice will continue in the future based on the specifics already outlined. Can that practice continue as it did before? Will the practice have to move in a different direction? You will not know many of the questions, nor the answers until you are involved in that particular practice during the divorce process. Remember, you are not only valuing the practice for the division of the marital estate, you are protecting the practice for the physician or dentist and preserving his/her means to continue his/her career. This asset, and the work required to accurately value it may be one of the largest, if not the largest, financial event of the physician’s or dentist’s life . . . both currently and looking ahead into retirement.
As a doctor, you, with your counsel must ensure that thought, attention to detail, and direction are given to the unique circumstances arising in a divorce matter due to your specific profession.
Carla Marino is co-chair of Lamb McErlane’s Family Law Department. She concentrates her practice in complex family law matters which include prenuptial agreements, postnuptial agreements, divorce, support, custody, and the division of the marital estate. firstname.lastname@example.org 610-701-4413.