Should You Consider A Buyout Of Your Spouse’s Interest In Your Medical Practice?
Divorce is difficult for any professional, but when a medical practice is involved, the stakes are even higher. A medical practice is not just another asset—it is a career, a livelihood, and, in many cases, a life’s work. In New York, a business established during a marriage is generally considered marital property, even if only one spouse is a licensed medical professional. This means that during a divorce, the non-physician spouse may be entitled to a share of the practice’s value.
Deciding whether to buy out a spouse’s interest can have long-term financial and legal consequences. Understanding the legal framework surrounding asset division in New York and how it applies to a medical practice is critical before making a decision. If a buyout is the right option, structuring it properly can help protect both the practice and financial stability moving forward.
How New York Divorce Law Treats Medical Practices
New York is an equitable distribution state under Domestic Relations Law § 236(B), meaning that marital assets are divided fairly but not necessarily equally. If a medical practice was started during the marriage or if marital funds contributed to its growth, it is considered marital property. Even if the practice was established before the marriage, the appreciation in value during the marriage may still be subject to division.
A key issue in these cases is determining what portion of the practice’s value is marital property. Courts consider:
- The direct and indirect contributions of the non-physician spouse
- The value of the practice at the time of marriage and at the time of divorce
- Whether the practice’s growth was due to the physician’s efforts or external factors
The law does not allow a non-physician spouse to own an interest in a medical, but they may still be entitled to financial compensation for their share of the practice’s value.
Determining The Value Of A Medical Practice
Before negotiating a buyout, it is necessary to establish an accurate valuation of the practice. This process typically involves:
- Reviewing financial statements, tax returns, and revenue records
- Examining patient goodwill and reputation, which can be significant intangible assets
- Assessing physical assets, such as medical equipment and office property
New York courts often rely on forensic accountants or business valuation professionals to determine a fair market value. The valuation method used can significantly impact the final number, making it important to have legal and financial professionals involved in the process.
Structuring A Buyout Agreement
If a buyout is the preferred solution, it must be structured carefully to minimize financial strain and tax consequences. There are several ways to complete the buyout:
- Lump-Sum Payment – The physician’s spouse pays the full amount upfront. While this provides closure, it may not always be financially feasible.
- Structured Installment Payments – Payments are made over time, easing the immediate financial burden. The agreement must specify payment amounts, terms, and conditions.
- Asset Trade-Offs – One spouse keeps the practice, while the other receives other marital assets of comparable value, such as real estate, investment accounts, or retirement funds.
It is critical to structure the buyout in a way that protects both parties while ensuring the continued success of the medical practice. A poorly structured agreement can create financial instability or tax liabilities that impact long-term financial health.
Tax Considerations And Financial Planning
Dividing a medical practice in a divorce can have significant tax implications. Certain payments may be treated as alimony or income, which can have tax consequences for both spouses.
Consulting with a financial professional is necessary to understand:
- Whether the buyout will be taxed as a capital gain or ordinary income
- How installment payments affect future tax obligations
- Whether any deductions are available for payments made as part of the divorce agreement
A well-structured buyout agreement ensures that both parties understand the financial and tax impact before finalizing the settlement.
Legal And Practical Challenges
Even when a buyout is agreed upon, challenges can arise. Disagreements over valuation, financial arrangements, or the impact of the divorce on the practice’s operation can complicate the process. Additionally, non-compete clauses may be necessary if both spouses worked in the practice or if the non-physician spouse was involved in management or operations.
Protecting the integrity of the medical practice while ensuring a fair financial settlement is the ultimate goal. A buyout must be structured to provide security for both parties while allowing the practice to continue operating successfully.
New York Divorce Law FAQs
Is My Spouse Entitled To A Share Of My Medical Practice If They Never Worked There?
Yes, if the practice was established during the marriage or if marital funds contributed to its growth, your spouse may have a claim to its value under Domestic Relations Law § 236(B). Even if they were not involved in the day-to-day operations, courts recognize indirect contributions such as supporting your education or handling household responsibilities.
How Is The Value Of A Medical Practice Determined In A Divorce?
The valuation process includes reviewing financial statements, tax records, patient goodwill, and physical assets. Courts may appoint a forensic accountant to determine a fair market value based on income, business assets, and industry comparisons.
Can I Be Forced To Sell My Medical Practice During A Divorce?
While a court may award a financial interest to a non-physician spouse, it cannot order the sale of the practice due to Education Law § 6509-a, which prohibits non-physicians from owning a medical practice. Instead, financial compensation is typically awarded in place of ownership.
What Are The Tax Implications Of A Buyout?
A buyout may be taxed differently depending on how payments are structured. Lump-sum payments may have capital gains tax consequences, while installment payments could impact annual taxable income. Consulting a tax professional is necessary to understand potential liabilities.
What If My Spouse Disputes The Value Of The Practice?
If there is disagreement over valuation, each party may hire their own financial expert. If the dispute remains unresolved, the court may determine the final valuation based on the evidence presented.
Can My Spouse Claim Future Earnings From My Practice?
Courts do not typically award a percentage of future earnings, but they may consider projected income when determining spousal maintenance. This is particularly relevant if the non-physician spouse supported the medical career during the marriage.
How Can I Protect My Medical Practice From Being Divided In Divorce?
A prenuptial or postnuptial agreement is the best way to protect a medical practice from division. If no agreement exists, maintaining clear financial records and keeping business assets separate from marital funds can help reduce claims against the practice.
What Happens If I Cannot Afford A Lump-Sum Buyout?
If a lump-sum payment is not possible, structured installment payments or asset trade-offs may be an option. Courts will consider financial feasibility when approving a settlement.
Can My Spouse Be Required To Sign A Non-Compete Agreement?
If your spouse played a role in the practice, a non-compete agreement may be included to prevent them from opening or joining a competing practice in the same area.
Should I Settle Or Take The Case To Trial?
Settling through negotiation can save time and legal fees, but if an agreement cannot be reached, litigation may be necessary. Courts will evaluate financial evidence and make a ruling based on equitable distribution laws.
The Best Legal Advice At The Best Price
At Jonna Spilbor Law, we understand how critical it is to protect your medical practice while securing a fair financial settlement in divorce. A buyout may be the best way to ensure business continuity while providing equitable compensation to your spouse. If you are facing divorce and need guidance on structuring a buyout, we can help you evaluate your options and create a strategy that protects your interests.
For dedicated and experienced legal assistance, contact our Fishkill divorce attorney at Jonna Spilbor Law by calling (845) 485-2529 to receive a free consultation. We represent clients throughout the Hudson Valley, Dutchess County, Putnam County, and New York City.
