Two individuals meet and marry. One spouse gets a professional degree and builds a successful practice. Years later they divorce.
How does that professional practice figure into divorce proceedings? Are professional credentials considered a marital asset?
Characterizing and valuing a professional practice in divorce
This can be a complex and contentious issue for divorcing couples. The spouse who has the professional degree may feel that it represents their own blood, sweat and tears. I’m the one who went to grad school (or law school or medical school). I put in countless nights and weekends. It’s my license and it’s non-transferable and non-negotiable.
The other spouse may not see it the same way. I worked two jobs to put you through grad school (or law school/med school). I helped do your books. I schmoozed and entertained like a faithful spouse. I watched the kids and ran the house while you did your thing. I shelved my own career so you could have yours.
What does the law say?
A professional license belongs to the individual whose name is on the diploma. It has no intrinsic value. It can’t be traded for other assets. (You keep your CPA and I’ll take the Jaguar.) But it can be valued in terms of earning capacity. Thus a professional license can come into play in the determination of alimony and child support, even if the licensee is not currently practicing.
If the spouse has a professional practice or is a partner in a professional association, it may be considered a marital asset.
- Was the practice formed before or after the marriage?
- Were any marital funds “commingled” with the practice, such as taking out a second mortgage or paying expenses from their personal savings?
- Did one spouse make tangible sacrifices to support the other obtaining their advanced degree or establishing their professional practice?
- Does the “good will” value of the practice exceed the outstanding liabilities (loans, staffing and overhead)?
Typically a business valuation specialist will be brought in to put a dollar value on the practice for purposes of equitable distribution of marital property. Sometimes the spouses will agree on a neutral evaluator. Sometimes they each hire their own experts.
In the simplest terms, a spouse’s professional practice (like any business) is presumed to be a marital asset unless proven otherwise. If the professional wants to retain the full value and full control after divorce, he or she must compensate the spouse in some other way – a buyout of their share, alimony payments, the house, or a bigger chunk of retirement assets.
You will want to consult a lawyer who has experience with high-asset divorce, business valuations and the nuances of separate vs. marital property. Litigation is not a foregone conclusion, but divorces involving professional practices often end up in court.