Goodwill and Why It’s Helpful for Valuing Your Dental Practice in a Divorce

An experienced Alabama family law attorney details strategies about how dentists can use goodwill to value a dental practice in divorce.

If you’re a dentist facing a divorce, you’ve probably already heard how your dental practice could be at risk. You’ve also probably heard how complicated valuing a dental practice can be, especially when it comes to goodwill, which involves an inexact science involving multiple factors. The good news is twofold: (1) you’re in good company among your peers, and (2) you don’t have to go it alone because there are lawyers skilled in helping dentists divorce to assist you, especially when it comes to goodwill and why it’s helpful for valuing your dental practice in divorce. 

Why is it important to accurately value your dental practice in a divorce?

Dentists have somehow developed a bad reputation for having a divorce rate higher than the national average, estimated somewhere around 50%, a number, incidentally, which is increasingly coming under scrutiny for being misleading. In reality, dentists have a divorce rate of 22.5%, placing them among the professions with the lowest divorce rates. Still, that’s a lot of dentists facing divorce. But why?

The first reason that comes to mind is that dentistry, with its long hours, often requires dentists to be married to their work, not only their spouse. Another reason is the amount of debt attending dental school could require an individual to accrue and the stress associated with paying off this debt while building a dental practice.

The fact that more dentists are men could play a further role in explaining why the divorce rate among dentists is so high. According to research from the American Dental Association, as of 2019, 33.4 % of dentists working in dentistry are female. Given that men remain the primary breadwinner in most marriages, dentists often find themselves under a lot of financial stress, one of the leading contributing factors to a divorce, according to Insider. If dentists aren’t careful, these financial stressors can continue long after they’re divorced. 

Like other assets such as the marital home, artwork, and retirement accounts, dental practices are subject to division in a divorce. This means you could potentially compromise or lose much of the value in the dental practice you worked so hard to build. 

That’s why valuing your dental practice accurately from the beginning of the divorce process will be crucial for obtaining a fair and equitable divorce settlement. One of the best ways to value your dental practice is by estimating how much its goodwill is worth. 

What is goodwill, and how do you measure it in a dental practice?

Goodwill is an intangible asset that facilitates cash flow for the dental practice, thus creating revenue and net income for the practice owner. A dental practice’s goodwill represents the largest source of its value, estimated to make up 70 to 80% of its worth.

Personal goodwill differs from practice goodwill in how a court will distribute assets in a divorce. Personal goodwill, which describes the goodwill linked directly to the dentist, will not become part of the marital estate, meaning the dentist’s spouse is not entitled to any of it. Conversely, if you live in an equitable distribution state like Alabama, practice goodwill will be subject to equitable distribution just as other assets would be in a divorce. 

How do you determine what goodwill is in a dental practice?

A dental practice’s goodwill valuation is not black and white; it’s not personal goodwill or practice goodwill. Instead, it’s generally some combination of percentages of both. Factors to consider when assessing goodwill in a dental practice can turn on the dentists’: 

  • Work ethic
  • Physical and mental health
  • Personality
  • Age
  • Education
  • Ability to manage the office staff
  • Interaction with patients
  • Office location
  • Practice name
  • Level of equipment (whether it’s state of the art)
  • How comfortable the dental office is
  • The rental cost for office space compared to other local practices

Because so much of this criteria rests on the dentist personally, and divorce can place a dentist under incredible stress, dentists going through a divorce should take measures to protect the value of goodwill in their practice, starting with finding a lawyer with experience handling dentists’ divorces. 

Why do you need to find a lawyer who is skilled and experienced in dentists’ divorces?

Your ultimate success in valuing your dental practice and, in turn, emerging from your divorce with a fair outcome will begin with finding the right divorce lawyer, one skilled and experienced in handling dentists’ divorces. Knowing your future is in good hands will allow you to continue focusing on your work, caring for your patients, and preserving your practice. And by that, caring for yourself, including your financial picture now and post-divorce.

A lawyer familiar with issues common to dentists seeking a divorce will have access to the professionals you need to support you through the divorce process and after it. One of the most important of which will be a forensic accountant well-versed in valuing dental practices in a divorce. 

If you don’t currently have an office manager on staff, you might want to consider hiring one now to assist you in organizing and maintaining procedures in the office. The same goes for a bookkeeper who can help organize documents for a forensic accountant. Your legal team can provide more specific details about who you should hire and what kind of policies you will need to put in place to protect your interests, thereby moving the needle in your favor. 

Finally, a lawyer familiar with the issues affecting dentists going through a divorce will have access to mental health professionals specializing in the everyday stressors dentists typically experience during this turbulent time. Reliable recommendations will help you pinpoint the person best suited to your personality who can support you emotionally, saving you even more time and, of course, money.

Taking control of your practice and emotions will go a long way toward preserving your dental practice’s goodwill throughout the divorce process and afterward. Contact our office today. Our team has vast experience in handling dentists’ divorces. We are here to listen and help. Located conveniently in Birmingham and Huntsville, we are here to assist you. Contact us today to schedule a consultation and secure the future of your dental practice. 

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Summit Family Law
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