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An Overview of the Obstacles Doctors Face in Dividing Assets in a Divorce in Arizona
Most doctors have a high net worth relative to many other people facing a divorce. Retirement accounts, investment accounts, real property, precious metals, artwork, and a medical practice must all be valued and divided in a divorce in Arizona.
Many doctors are surprised to learn that their practice of medicine may be valued in a divorce even if you work for an employer and do not actually have your own separate medical practice depending upon a variety of factors.
So, let’s dive right into what you should know about the division of assets in an Arizona divorce.
What Doctors Should Know About the Division of a Medical Practice in a Divorce in Arizona
One of the first questions your attorney should ask you is whether you started your medical practice before or after you were married.
If you started your medical practice before you were married, that practice is your sole and separate property; although the community may have a community property interest in a sole and separate practice through a community lien.
If you started your practice during your marriage, the practice will very likely be considered a community asset and its full value will be divided in your divorce.
What Doctors Should Know About a Division of the Value of a Community Lien in a Medical Practice Owned Prior to Marriage in Arizona
Any property owned prior to marriage is the sole and separate property of the spouse who owned the property unless that spouse gifted that property to the community or commingled some portion of that asset, such as a business bank account, with other community property.
Also, an increase in value during marriage of a sole and separate asset that is attributable to the efforts of either spouse can create a community lien in the increased value of that sole and separate asset.
One of the things you will need to consider is whether your medical practice increased in value after you were married and whether that increase in value was attributable to your efforts or the efforts of your spouse.
For example, let’s assume an appraiser would have valued your medical practice to be worth $500,000.00 at the time you were married. Let’s also assume you medical practice increases in value to $1,250,000.00 at the time you are going through a divorce. Some or all of that $750,000.00 increase increase in value may be attributable to “community” effort and be subject to a community lien.
There are many factors affecting that $750,000.00 increase in value that may or may not be attributable to community effort. Some of the increase in value may be attributable to factors outside the control of the doctor and would not, therefore, be subject to a community lien.
It will take a thorough analysis from a business appraiser to determine how much of that increase in value was attributable to the efforts of either or both spouses and how much is attributable to market and other forces to determine the value of the community lien.
What Doctors Should Know About Using a Business Appraiser or Obtaining a Comparable Market Analysis from a Business Broker
If your medical practice was built entirely during the marriage or you owned the practice before marriage but your spouse is claiming a community lien against your practice, you are going to have to decide how best to value that practice or the potential community lien against that practice.
Generally, you have two options; hire a business appraiser or obtain a comparable market analysis (a.k.a “comps”) to determine the value of that claim. A comparable market analysis is much less expensive than a complete appraisal, but it lacks the level of detail found in a complete business evaluation completed by a qualified business appraiser.
Although you may be more inclined to choose the less expensive option of a comparable market analysis, you should be aware most judges prefer a complete business appraisal over a “comp” when valuing a medical practice in a divorce in Arizona.
You then need to decide whether you are going to jointly retain an expert with your spouse to value the practice or community lien, either as a complete business appraisal or a “comp”, or whether you hire your own expert.
The advantage or jointly retaining an expert with your spouse is that it cuts down on the overall cost of each spouse retaining their own expert. Reputable experts will not be influenced to provide one spouse more favorable findings and assumptions in the appraisal process than the other spouse, so it should not, in theory, matter whether you jointly retain an expert or hire your own appraiser.
What Doctors Should Know About the Affect of the Division of Assets on Spousal Maintenance and Child Support in Arizona
The division of assets can affect a spouse’s claim for spousal maintenance and child support. If a spouse receives enough assets with which to support themselves, they may not be entitled to spousal maintenance at all or their need for spousal maintenance may be lower.
Assets received as a division of assets in a divorce may reduce a spouse’s living costs, such as a paid off home, or can be used to generate income for their support, such as investment income.
A financial expert may be obtained to provide an opinion on what a spouse may receive as a reasonable rate of return they can expert to receive when all the community assets are divided. That rate of return can be used to offset that spouse’s financial need and, therefore, lower or eliminate their need for spousal maintenance.
That rate of return can also be included as income for the purpose of calculating how much that spouse may need for child support. The more the other spouse can provide for their child’s needs, the less they need from the other spouse for child support.
What Doctors Should Know About Disclosing Financial Documentation During a Divorce in Arizona
The Arizona Rules of Family Law Procedure requires each spouse to disclose certain financial information to the other spouse in a divorce, such as copies of deeds to property, bank account statements, investment account statements, and business tax returns and financial statements.
The timeframe for which you will have to disclose these financial documents will depend upon the specifics of each case.
A case involving the valuation of a business interest in a medical practice may require the past three years of such financial statements.
A case involving other assets, such as bank and investment accounts, may only require a year of less of those financial statements.
You will also have to ensure you do not breach any confidentiality or non-disclosure agreements you may have if you have partners in a medical practice by either agreeing to or having the judge impose appropriate protective orders pertaining to the disclosure of the financial information to your spouse or an appraiser.
Likewise, your Certified Public Accountant has a duty of confidentiality that may need to be preserved. So you should consider the extent to which your CPA is involved in the disclosure of financial information.
What a Doctor Should Know About Appointing a Trusted Person to Accumulate All Necessary Documents
A physician’s work schedule is oftentimes very demanding. It can be very arduous to work while trying to gather and organize all the documents you will need to disclose in a divorce or legal separation in Arizona.
You may consider appointing someone you know and trust to work with your attorney to take over the responsibility of locating, copying, and disclosing the documents your attorney will need, so you can focus on being a physician.
A well organized disclosure of all of the financial documentation and information to your attorney will not only streamline your case but will also save you money spent going back and forth with your attorney with several requests for supplemental information and documentation.
It is always much less costly to provide all of the documents needed in one organized disclosure than through numerous supplemental disclosures.
The attorneys at Hildebrand Law, PC have many years of experience successfully representing doctors and their spouses in dividing community property and other family law matters.
Our attorneys have over 100 years combined experience in helping spouses divide community property and other family law cases and have received the Us News & World Report distinction of “Best Lawyers – Best Law Firms” for their Arizona divorce practice.
Call us today at (480)305-8300 or reach out to us through our appointment scheduling form to schedule your personalized consultation and turn your divorce or family law case around today.
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