By Bruce Bryen, CPA, CVA
During the early stages of a divorce involving a dental practice, the dentist and the spouse often think they can settle the financial aspect of evaluating the practice on their own. That means that they each have their own feelings about what the value of the practice is.
The spouse typically assesses the dental practice value at a much higher amount than the dentist’s own assessment of its value. These differing amounts come with the probability of no support from either the dentist or the spouse such as profitability, gross revenue or the state of art of the equipment. In other words, it is almost always an emotional response to the prospect of a divorce and hearsay on the part of the spouse.
Often, the dentist may be trying to offer little in the way of reality as to his or her practice value because of the fear of the financial consequences of the divorce or intimidation of the spouse. When the battle reaches this point of going nowhere, one or both parties typically decide it is time to go ahead with some authority to their voices. The points of disparity are so far apart in financial terms that there does not seem to be any middle ground to discuss.
The emotions and the aggravation and time involved—lawyers, experts, mediators, costs of litigation, and the court room.
Now that direct negotiations between the parties are probably over, the emotions and the contact with the attorney will most likely occur. As the lack of supportable evidence did not exist up to this point in the discussions, the attorney will begin requesting documents and testimony that will make his or her side the winner of the financial settlement terms of the divorce. This is where the emotions, aggravation, time and money will begin to take place. The attorney will need expertise in working with the dentist since it is an unusual lawyer who has worked among the dental profession in cases other than professional claims. Because of this factor, the attorney will want to find out as much as possible about the dental practice as soon as possible.
The first item on the lawyer’s agenda would be to engage a dental practice evaluator to assist in determining the value of the dental practice. Since both parties to the case were so far apart in their own understanding of the worth of the practice, the lawyer will want an objective opinion about what the fight was about in terms of financially settling the case. This is so important to the attorney since whether the other party agrees or not, at least the attorney will now understand its value from an objective third party assessment. The explanation in the dental practice valuation of the moving parts comprising the valuation will allow the attorney to question the evaluator and the dentist about everything that it means and why the dentist was so far astray in his or her own valuation. A typical answer from the dentist is that it was because of the pending divorce and the financial hardship it would cause the dentist.
The spouse’s attorney will have the same job as the dentist’s lawyer. Determining the value of the practice is the first item of business. When going to court, the judge will want to know how much the fight about the dental practice is, in terms of the judge reaching a decision or about the parties settling the case. The spouse’s attorney should be looking for a dental practice evaluator immediately. Finding the evaluator and analyzing his or her dental practice valuation will at least allow the lawyer to understand what the practice is all about and will allow a discussion with the attorney for the dentist who will be able to use that valuation to debate with the other attorney.
The costs of this effort in terms of time and money.
The dentist and the spouse of the dentist know the time, effort and how much the cost of their experts have been since they are almost always receiving bills on a current basis. These invoices must be paid to these people to enable them to continue handling their cases and to proceed with the additional effort on work that will continue to arrive that they need to complete to assist with the completion of the case. They probably didn’t realize how much time and effort they would be putting into their own cases.
Of course, there is no one paying them for their time and effort. They can only guess what it would cost to have someone do this work for them. The dentist does know how much revenue is being lost based on the time away from the chair or from consultations where there could have been billing but now there is none. How much the total will be for the attorney and the other experts is usually unknown. There is probably a range of charges that would be similar to preparing your own tax return on TurboTax compared to retaining a CPA firm to handle it for you. TurboTax may be good and inexpensive, but you are not getting assistance with complex issues that a CPA can assist with by accessing a library. Also, others in the CPA office with the type of background and experience can be spoken to for help. Of course, the charges will be similar compared to their disparity in knowledge between something like TurboTax and a CPA firm.
What should the dentist and the estranged spouse do to get the best quality and pricing structure available?
The interviews with the attorneys are certainly a good starting point. Find out what the attorney knows or does not know about the financial aspects of dentistry. Discuss the qualifications of the experts that the lawyer will be calling upon to assist in the case. Get copies of their resumes. Interviewing these experts separately or being involved with the interviews that the attorney has arranged will be a big help. Don’t be shy about what their charges will be. Hopefully this will be a once in a lifetime situation and the dentist and spouse can go on with their lives once the mess has been sorted out and completed.
Editors Note: Bruce Bryen is a certified public accountant with over 45 years of experience and is a part of Baratz & Associates CPAs. He is a regular contributor to Dentistry Today and more articles on finance and practice acquisitions can be found at dentistrytoday.com. Bryen specializes in deferred compensation, such as retirement planning design; income and estate tax planning; determination of the proper organizational business structure; asset protection and structuring loan packages for presentation to financial institutions. He is experienced in providing litigation support services to dentists with Valuation and Expert Witness testimony in matrimonial and partnership dispute cases. You may contact him at [email protected].
