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    Why divorce makes selling practices so complicated

    When going through a divorce and a practice valuation, there are a host of issues to contend with.

     

    In the first instance, if all of the goodwill was considered to be a personal asset, that amount would then not be part of the marital estate. The non-dental spouse would receive nothing from the dental practice that was attributed to goodwill. On the other hand, if the entire amount of goodwill were to be considered as practice goodwill, the non-dental spouse would then receive the entire amount of that allocation. We are discussing the economics of the distribution of the assets of the dental practice and not any type of tax allocation. The parties should know that from 70 to 80 percent of the total asset value of a dental practice is typically attributed to goodwill.

    How goodwill affects divorce proceedings

    For a valuation prepared for the purpose of a divorce, if no goodwill analysis is part of that appraisal, then it falls short of serving the divorcing parties. It also limits the judge or mediator in determining what should go to the non-dental spouse and what the dentist should be allowed to keep as part of the dental practice distribution.

    There are key tests when preparing the summary of the valuation for the divorce. Examples include, but are not limited to, to items such as the name of the dental practice — since if the name includes that of the dentist, there is a strong indication that attribute of goodwill should have a strong bias towards the personal goodwill of the dentist. If the dentist’s name and/or picture are prominently displayed on the dental practice website and in almost all of the marketing, that should also give a strong indication of personal goodwill.

    Related article: 5 things you need to know about divorce, goodwill and dental practice valuation

    In states where there is equitable distribution, the personal goodwill of the dentist is not a marital asset. The goodwill allocated to the staff is almost always an enterprise or dental practice asset. That is considered marital property. The location, if there is more than one office, will usually be considered enterprise goodwill and is included in the marital estate. These are just some of the examples of how an allocation supports whether an asset is of a personal goodwill nature or that of the enterprise and therefore a marital asset. Those familiar with valuations of dental practices where the purpose is for a divorce will use testing of the assets to make sure the allocation of the goodwill is accurately presented.

    Bruce Bryen, CPA, CVA
    Bruce Bryen is a certified public accountant with over 40 years of experience and is a part of RKG Tax & Business Services LLP, an ...

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