Can a surgery be seen as a real estate asset or the proceeds from the business be part of a divorce settlement? What if it is a husband-and-wife team running or both working in one surgery?
The publicity given to recent divorces has highlighted the risks of not receiving specialist advice during or prior to a divorce and also of the need to have a greater awareness of wealth protection generally. Wealth protection is not limited to tax planning and making a will – consideration should also be given to how your income, capital and pension assets will be treated and divided in the event that you divorce or separate.
Taking it to court
A court can take several decisions about your financial situation on divorce, by making a number of financial orders that enable income, capital and pensions to be divided between spouses.
These orders can include maintenance for a spouse or children, payment of a lump sum, transfer or sale of property and an order to transfer some or all of a pension to a spouse.
However, many couples are able to reach an overall financial agreement between themselves or with the help of their solicitors. In those cases the order is submitted to court for approval so that it is binding upon the parties, but neither party is required to attend court.
Deciding the appropriate outcome
In order to determine the appropriate division of the parties’ income, capital and pension, both parties are required to give full and frank disclosure of all of their financial circumstances (see list at foot of article). You are also required to disclose full details of any property, which you own or have an interest in. Therefore if you own or jointly own the practice premises in which you work (or any other property or premises), that will need to be disclosed, and it is likely that the property will need to be formally valued so that an accurate valuation of your interest can be obtained. It is also possible that a formal valuation of the business as a whole may be required to
establish the value of your interest in it.
The court will then look at how the income, assets and pension should be divided, taking into account a number of factors that are set out by statute. These include the needs of any children, the length of the marriage, the age of the parties, their contributions to the marriage, their standard of living during the marriage, and their financial resources.
In addition to considering the factors set out by statute, the court will also consider any previous case law, which may be relevant. For example, if there was a disagreement about how your income should be divided, the court may refer back to various cases where this was also an issue, and use the decisions in those cases as a guide for dealing with your case.
Dividing the assets
As a general rule of thumb, it can be assumed that most courts will take an equal division as their starting point. However, there are a number of reasons why the court may depart from an equal division, which can include the needs of one party or the children, or (particularly in short marriages) the differing contributions made by the parties during that marriage.
In addition, the court will be bound to consider the practicalities of a situation. For example, the court will not necessarily divide each and every asset in two, and give each spouse an equal share in both. It will look at the reality of the situation and put in place an outcome to cater for the needs of both parties.
For a spouse who owns a share in a dentist practice, the impact of this is that the share is likely to be factored in as a future resource that will be available to that spouse (for example on retirement). This may mean that that spouse will receive less of the available capital now, or that the court orders that any money received from that asset in the future should be divided between the parties. The court would need to determine what that future division should be – taking into account all other relevant factors such as the level of maintenance paid and the quantum of the division of the other capital and pension assets.
For example, if it was the case that one party was receiving more of the immediately available capital on divorce, the court may decide that they should have a much smaller share (or perhaps no share) of any money received from a sale of their spouse’s share in the dental practice in the future.
What particular issues should I consider?
If you are a partner in the practice, there are a number of issues to consider that could potentially make matters more straightforward if you were to divorce.
Many dentist practices do not have a partnership agreement. A partnership agreement is a document that sets out the terms of the partnership, prepared by a solicitor on the instructions of the partners in the practice.
A partnership agreement deals with many issues, some of which are perhaps not relevant to this topic, but should set out how partnership profit is to be shared, how any partnership property is owned, and how each partner’s share in the partnership property will be dealt with if they leave or retire from the partnership.
In the absence of a partnership agreement, a court would have to assume that any partnership profit and any property or assets owned by the partnership is held equally by all of the partners.
If this is not the case, then in the absence of a partnership agreement a partner may struggle to disprove this assumption on divorce (or indeed in any dispute with their partners).
The impact if you and your spouse work at the same practice
Many spouses work within the same practice. This can be a very convenient arrangement, but may present problems in the future if the parties separate or divorce.
If you are both partners in the practice then you may want to give consideration at the outset to what will happen if your relationship breaks down. Will you be able to continue to work together, or will one (or both) of you need to leave the partnership?
If it is the case that one of you will need to leave the partnership, then having a partnership agreement (as above) that sets out what will happen to that partner’s share of the partnership profits and partnership property will clarify matters enormously.
It may be the case that one spouse is a partner in the practice and the other is a salaried employee. If it is the case that a salaried employee feels unable to continue to work in the practice, then consideration will need to be given to ensuring that proper employment law procedures are followed, and that that employee is given the necessary references and other paperwork to ensure they are able to find other employment.
It is of benefit to both spouses to ensure that they are both able to continue to work in well-remunerated employment. The impact of one spouse suddenly finding themselves unable to work may have an impact of the level of support that the other spouse is required to give to them, for example by way of main-tenance.
Pre- and postnuptial agreements
Prenuptial agreements are agreements entered into by the parties to a marriage before they marry and set out how they intend to divide their income, capital and pension assets on divorce. Postnuptial agreements also set out how the parties intend to divide their assets on divorce but are entered into by the parties after they have married.
While pre- and postnuptial agreements are not binding in this country they are increasingly being given more weight by the courts.
Pre- and/or postnuptial agreements are becoming increasingly more popular as a way of enabling spouses to reduce conflict and legal fees on divorce, and reach an agreement as to how all of their assets should be divided.
Full and frank disclosure
In the event that it goes to court, both parties must disclose full details of their financial circumstances. This includes (but is not limited to):
• An up-to-date valuation of your home, together with details of any mortgage or other charge secured against that property
• Up-to-date details of your bank accounts and investments, to include bank statements for the last 12 months
• Your P60 and tax return for the last financial year
• Business accounts for the last two years to date
• An up-to-date pension statement
• Details of Trusts you have put in place or of which you’re a beneficiary.