The Divorcing Dentist: What You Need to Know

No one enters a marriage thinking it will end in divorce. However, the reality is that more than a quarter of married dentists will get divorced.[1] As high-earning professionals who often own their own practices, dentist divorces can be particularly complex, involving issues that do not apply to other divorce cases.

In our experience, the most common, big-ticket questions that most dentists ask when facing a divorce are (1) what will happen to my practice? and (2) will I have to pay “alimony” and, if so, how much? Each is discussed below.

Divorce and the Dental Practice

According to the American Dental Association, nearly three-quarters of dentists in private practice own their own practice.[2] For dentists facing divorce, the question of what will happen to their practice is often one of their main concerns.

Because Arizona is a community property state, each spouse is generally entitled to an equitable distribution of all of the assets that the couple acquired during marriage. For dentists, this means that your spouse likely has a claim to part of your practice. This doesn’t necessarily mean that you’ll suddenly have to become business partners with your spouse. Instead, the court will typically value the practice, add that to any other assets the couple has acquired during marriage, and then order that the assets be divided equitably. This can also be accomplished through a negotiated settlement between the parties, but even in the context of settlement, the practice will likely need to be valued in order to see how it stacks up against the value of other assets available for distribution.

Since the dental practice is often the biggest asset a dentist has, the value of the practice can be a hotly contested issue in divorce proceedings. A dental practice valuation often requires a review and analysis of factors like marketability, transferability, and return on investment, and can be done using one of several different methodologies, like an asset-based approach, or an income-based approach, all of which can yield different values.

The valuation process not only looks at the physical assets that are easy to value, like equipment, but also the intangible assets of the practice, like goodwill. In fact, goodwill is often the most important, and most difficult, item to value. Goodwill often makes up 80% or more of the value of a practice, but is based on more subjective factors than valuing physical items like dental chairs or digital x-ray machines.

In addition, questions that might be asked during the valuation process include:

• When was the practice established? The longer a practice has been around, the more reliable future projections of income may be.
• How was the practice initially capitalized? If community assets were used to buy or start a practice, or if the marital community is liable for debt on the practice, that would tend to reinforce that the practice is a marital asset
• Is the dentist spouse the sole owner of the practice or does he or she have other partners in the practice? If the practice has other members, is there a buy-sell provision that could be triggered by the divorce? This is especially important if the dentist’s divorce triggers a mandatory sale of the dentist’s interest in the practice.
• What are the practice’s and the dentist’s debts, and when were they acquired? In recent years, these questions have become more important, as dental school debt has increased and student loans linger for years and years afterwards. The answer often depends on when the debt was incurred and when the marriage took place. An even more complicated question arises when the marriage took place part-way through dental school, as part of the debt may be treated as a community debt, while part may be treated as the separate debt of the dentist spouse.

Even using credible and defensible methodologies, expert witnesses hired by each side’s lawyer can often differ by hundreds of thousands of dollars, depending on how they are evaluating the practice. So, the main takeaway for dentists is the importance of selecting the right expert and using the right method for valuing the practice.

Spousal Maintenance (Alimony)

Alimony, now called spousal maintenance in Arizona, can be a contentious issue, especially if the other spouse is not a dentist or other high-earner.

Arizona courts look at several factors in deciding whether to award spousal maintenance, which include:

• Whether the spouse lacks sufficient property to provide for his or her “reasonable” needs;
• Whether the spouse is able to obtain employment that will make him or her self-sufficient, which can include considering whether the spouse has been out of work while raising children, or is currently caring for young children;
• How long the marriage has lasted and whether the non-dentist spouse is of an age that may preclude the possibility of the spouse becoming financially self-sufficient;
• Whether the non-dentist spouse has made contributions to the dentist’s educational opportunities; and
• Whether the non-dentist spouse has reduced his or her own income or career opportunities to benefit the dentist spouse.[3]

Once the court has determined that spousal maintenance is appropriate, the next question is determining how much, and for how long, it must be paid. For this, Arizona courts look at several factors, including the couple’s standard of living, the length of the marriage, the comparative financial resources of the non-dentist spouse, and whether the non-dentist spouse needs additional education or training in order to become financially independent.

Courts have a great deal of discretion in determining when, how long, and how much spousal maintenance to award. In the context of dentists, these factors will often apply where one spouse has worked to support the other spouse during dental school. Another situation where spousal support may be ordered is where the non-dentist spouse works in the dental practice at no pay or low pay.

In any case, given the court’s broad discretion and the vague guidelines on spousal support, this is another frequently-disputed issue between the parties and their lawyers and expert witnesses. Given the court’s discretion, this is also a situation where credibility, being prepared, and having a good handle on your finances is extremely important.

As one final note, Arizona allows parties to agree that a decree of spousal maintenance can be non-modifiable, regardless of a change in circumstances. Agreeing to this can place dentists in a difficult spot later on if their practice’s production drops, or they suffer a disability and are no longer able to practice dentistry. Conversely, if the spousal maintenance remains modifiable, a change in circumstances, such as disability or other change in your ability to earn income, could allow you to ask the court to revisit the maintenance award.

Conclusion

For dentists facing divorce, our goal is to preserve their practice and livelihood, as well as to minimize the disruption that the divorce process can cause. These are just a few of the many issues that we see in dentist divorces. There are also potential issues with child support and parenting time that can further complicate the landscape. It is often a draining and uncomfortable time and some degree of inconvenience is, unfortunately, unavoidable. However, if you have a plan and work with appropriate counsel and experts from the start, you can protect your practice and keep your business moving forward.

DISCLAIMER: The information in this article has been prepared for informational purposes only, does not constitute legal advice, and anyone reading this article should not act on this information without seeking individualized advice from an attorney. The author and publisher shall not be responsible for any damages resulting from any error, inaccuracy or omission contained in this publication.

Pat Stanley, Esq. is a Phoenix-based healthcare attorney and founding member of Comitz | Stanley PLLC. Contact Pat at 480.998.7800 or .

[1] Will Parrish, Divorce and dentistry: Why is rate of divorce high among dentists, and how can they avoid it? Part 1, Dentistry IQ, July 6, 2016.

[2] American Dental Association Health Policy Institute analysis of Distribution of Dentists survey and Survey of Dental Graduates.

[3] See A.R.S. § 25-319.