Divorce is a major life event that can have a significant impact on dental professionals, particularly in terms of their finances. The process can be complicated, time-consuming, and expensive, involving various financial experts, such as lawyers and valuation specialists, who play a crucial role in removing the dentist from their practice. The initial phase requires attending settlement conferences, mediation, depositions, and potentially a trial if no resolution is reached. To navigate this difficult time, we provided a guide to prepare the dentist and their practice for the proceedings.
Seek legal advice
Before the proceedings begin, it is essential to seek the assistance of a dental CPA or a forensic accountant specialized in the dental business. Since only a few attorneys have experience dealing with dentists, these professionals are critical in preparing the dentist and their practice for the process. They can provide advice on legal issues such as property division, spousal support, child custody, and business valuation. In a divorce, forensic accountants can also help identify hidden assets or income that may not be readily apparent, such as offshore bank accounts or unreported income. They can also assist in identifying and valuing intangible assets such as goodwill and patient lists.
In addition, forensic accountants can help with financial analysis and projections to determine the long-term financial implications of the divorce settlement, including tax implications, retirement planning, and cash flow management.
On top of that, having advisors who prioritize honesty and settlement over the trial is a wise decision. Litigation should only be pursued if settlement offers are significantly divergent, leaving no possibility for a fair resolution. Dentists should be cautious of advisors who heavily emphasize litigation rather than settlement. It’s important to maintain a reasonable attitude and evaluate the cost of trial versus settlement, considering the value of assets and actual income earned.
Value your dental practice
Unlike other professional practices, dental practices are regularly bought, improved, and sold. Getting your dental practice appraised can be important in a divorce, where the value of the practice needs to be split between the two spouses. The value of your dental practice will be taken into account when determining the division of property, assets, and debts. Proper valuation of your dental practice can help you ensure that you receive a fair share of the assets and can also help you negotiate a settlement that is in your best interest.
When trying to determine the value of a dental practice, the market value is usually used as a starting point, but that can be tricky because it is often hypothetical and doesn’t always reflect the actual value. Other forms of value can be used, and there are also different methods to determine. It’s important to make sure that the experts handling your case are qualified and that the evidence you present in court won’t be used against you. There are also some common issues that can come up when valuing a dental practice in a divorce, such as transfer restrictions or buy-sell agreements. Each situation is unique, and it’s important to consider all the different factors that can impact the value of the practice.
An unbiased source is the most equitable way to establish the practice’s value. Try to obtain an independent valuation, so the value of a practice can be precisely and indisputably determined. This approach prevents a spouse from inflating the practice’s value, which would result in an unfair assessment.
Maintain consistency & value
During the divorce proceedings, it is important to keep the dental practice running smoothly despite the stress and financial burden. Maintaining consistency in staff, procedures, and patient care is critical. It may seem like every meeting or communication with professionals, and attorneys will cost more money, but it is necessary to earn enough to pay these experts to preserve as much of the practice as possible.
It is crucial to view the practice’s value positively and cultivate it for the future, even if the financial outcome of the divorce is not favorable. The dentist should continue striving for the best outcome for the practice, and if dissatisfied with the outcome of the divorce, they can put the practice up for sale. However, the newly created debt used to settle the divorce will likely decrease the value of the practice. A productive approach would be to continue working at the practice for a few years to pay down the debt, show profits, and increase the practice’s value. It may also be beneficial to explore creative options, such as deferred compensation plans, to increase the net proceeds upon the sale of the practice.
Consider a postnuptial agreement
Before starting the process, consider a postnuptial agreement. A prenup or postnup can outline how assets will be divided in case of a divorce, including dental practice ownership. This can be especially helpful if one spouse has significantly contributed to the practice’s growth. Clarifying each spouse’s financial responsibilities, such as who will pay specific bills or expenses, can reduce conflict and disagreements during divorce proceedings.
It can also protect your business interests or any inheritance one or both spouses may receive during the marriage.
Consider retirement plan impact
In many cases, retirement assets acquired during the marriage are considered marital property and are subject to division in a divorce settlement. A divorce can have a significant impact on your retirement plans, including your pensions, IRAs, 401(k), and you may need to adjust them. In this case, we recommend you assess the division of retirement assets: review the terms of your divorce settlement to understand how your retirement assets have been divided. Make sure you have a clear understanding of how much you have in retirement accounts and what portion belongs to your ex-spouse.
You can also protect your assets by ensuring that any retirement accounts awarded to you in the divorce settlement are transferred to your name as soon as possible. You may also want to consider implementing safeguards to protect your assets, such as adjusting your beneficiary designations.
And you don’t need to do it alone; a financial advisor can help you develop a strategy to protect your financial future. This professional will review your retirement plan and provide guidance on adjusting your investments, maximizing contributions, and navigating any tax implications related to your divorce settlement.
In summary, divorce can be a challenging experience for dental professionals, but with the right preparation and support, it’s possible to navigate this difficult time successfully. By seeking the assistance of experienced professionals, maintaining consistency in staff and procedures, and prioritizing self-care, dental professionals can protect their assets and plan for their future.
If you’re going through this difficult moment, you can contact our team of experts, led by Fazel Mostashari.