Professional Practices & Texas Divorce: What You Need to Know
Divorce proceedings require spouses to address a number of issues, nearly all of which are dependent on the unique facts and circumstances of the marital unit being dissolved. Property division, specifically, can range from essentially no-asset cases (where spouses own little to no property together) to high net worth divorces involving large marital estates and unique assets, including rights to a professional practice.
If you are a licensed professional or the spouse of a professional, your divorce and division of property will entail unique and challenging issues not typically found in most divorce cases. When a professional practice is involved, property division is commonly one of the most contentious aspects of divorce because the professional practice requires proper valuation, an understanding of specific laws and regulations, and tailored legal strategies to secure a resolution in your best interests.
At CokerLegal, we have cultivated a reputation as a divorce and family law firm equipped with the experience, insight, and resources to tackle even the toughest matters inherent to divorce, including complex issues of property division and the division of professional practices. By leveraging over 70 years of combined experience, our attorneys assist a range of professionals and non-professional spouses across Texas, including:
- Physicians and medical specialists
- Psychologists and mental health professionals
- Certified Public Accountants (CPAs)
Whether your case involves a licensed professional who owns and operates a solo practice or has ownership interests in a partnership or professional business, or even two professionals who own a practice together, we can help. We know businesses are among the most valuable assets in divorce, and we know the resolutions we secure are essential to the personal and professional futures of our clients.
Special Considerations in Divorce Cases Involving Professional Practices
When determining if and how a professional practice is subject to division, there are a few special considerations. These include:
- Texas splits the value, not the practice. Under Texas law, the value of a professional practice is subject to property division in divorce proceedings. That means a non-professional spouse has rights to a portion of the value of the practice—not the practice itself.
- Non-Professionals can’t own a practice. In many cases, legal ownership of a practice can’t be split in a divorce. Under Texas laws, including laws prohibiting corporate practice of dentistry or medicine, individuals can’t own a practice in an area in which they are not professionally licensed. Often, non-professionals don’t seek ownership of a professional practice for the simple fact that they are unfamiliar with those areas and operations. These factors are largely why it is the value of a practice that’s divided in divorce.
- Not every practice has value. Professional practices don’t always have value in terms of divorce. That’s due to the principle of “goodwill,” which is the intangible value a practice has based not on its physical assets, but things like its reputation, legacy, and referrals. A general way to determine if a practice has value would be to consider whether it would end or continue to operate if a professional were to leave. If the practice would likely cease to exist when a professional leaves, it would carry less value than if it continued operating.
Valuing the Professional Practice
Determining what is subject to division and the value of divisible property are critical factors in divorce cases involving professional practices. They also entail unique challenges and issues:
- Distinguishing community property – Texas is a community property state, which means assets acquired during a marriage belong to both spouses equally, and must be divided in divorce. Property acquired before a marriage, or by gift or inheritance, is considered separate property. As such, if a professional practice was established during a marriage, Texas courts will presume its value to be community property, unless proven otherwise. Even when professional practices were founded or owned before marriage (which would make it separate property), any income it earns during a marriage is also community property.
- Valuing the business – Valuation is incredibly important in any divorce involving businesses, and it can vary depending on business structure. The process of valuation can be highly complex, as it requires careful evaluation of the overall value of a business, value a pre-marital business accrues during a marriage (appreciation), issues involving loans and financial obligations, and actual physical assets such as real estate or industry-specific equipment. It also requires review of intangible assets such as trademarks, copyrights, and intellectual property, contingent fees, and other factors such as goodwill. Valuation is a case-specific matter, as every practice is different.
- Goodwill – When it comes to valuation of a business in divorce, Texas only considers goodwill attached to a business, though individuals can also have personal goodwill. This is the intangible reputation, referrals, and legacy attached to the practice itself. In many cases involving professional practices, business goodwill must be distinguished from any goodwill associated with the professional and their license. For example, there may be little, if any, commercial goodwill associated with a business owned by a solo-practitioner. However, professionals who operate under businesses that don’t feature their name may have ownership interests that include a portion of the businesses’ goodwill.
Resolution & Division
Just as with many other elements of divorce and property division, final resolution is dependent on the unique circumstances involved, including the goals each spouse has, their ability to negotiate and compromise, and whether or not they intend to litigate certain issues at trial. While there may be options for selling and dividing a practice, or allowing spouses to co-own a practice even after divorce (provided they are both licensed), it is much more often the case that buy-outs are used to resolve property division matters involving professional practices.
In a buy-out, the spouse who owns a professional practice buys out their non-professional spouse’s community property share of its value, which is why valuation becomes such an important factor. This can done through mutual agreements over a fair price, or the use of spousal maintenance to offset the other’s share. There may also be situations when a disproportionate share of assets is justified, such as when one spouse contributed to the other spouse earning their professional license or degree.
Trust Proven Divorce Attorneys with Complex Issues of Division
Ultimately, your unique situation and goals will influence the outcome of property division matters involving a professional practice, which is why our team of award-winning lawyers at CokerLegal prioritize personalized service and attention. We take the time to listen to your story, educate you about your rights and options, and discuss the strategies for valuation and negotiation that protect your rights and interests.
If you have questions regarding divorce and a professional practice—whether you have a professional practice or are a non-professional spouse, our team is here to protect your rights. We proudly serve clients in Denton County, Collin County, and the surrounding areas of Texas. Contact us to speak with a member of our team.