Dividing a Medical Practice in a Texas Divorce
In Texas divorces, marital property is divided equally between the parties, because under community property laws, marital property is considered to be owned equally by spouses. Marital property includes assets or funds that have been acquired during the marriage. Separate property (i.e. assets obtained before the marriage) is not subject to division.
A medical practice that was established during a couple’s marriage is community property, which means that it is subject to division in a divorce. However, because of Texas’ Corporate Practice of Medicine, ownership cannot be divided unless both parties are medical professionals.
Texas’ Corporate Practice of Medicine
The Corporate Practice of Medicine (CPOM) is a legal doctrine that limits who can provide medical services and practice medicine. Under this doctrine and Texas Administrative Code §177.17, you cannot own or operate a medical facility or employ medical professionals if you do not have the proper licensing and credentials to practice medicine yourself. This rule applies to individuals, corporations, entities, or any other party considered a non-physician.
Thus, if one spouse is not licensed to practice, they cannot have any ownership of the medical practice as that would violate CPOM. Violating this doctrine can lead to serious consequences, including but not limited to facing disciplinary actions from the Texas Medical Board and having the practicing spouse lose their medical license (temporarily or permanently).
How to Divide Ownership of a Medical Practice During Divorce
If a medical practice is marital property and either party is not a licensed medical professional, there are a few ways the property can be divided, including:
- The physician spouse can buy out the spouse’s share of the business. If the practice is owned by other physicians, you may buy out your spouse to protect your partners.
- The practice can be sold and the profits can be equally divided. In this case, neither spouse will retain the practice, and each party gets payment.
- The physician spouse can offer to compensate the other spouse with assets of the same value. If you have partners in your medical practice, this option may be a way to preserve your partnership. You can negotiate with your spouse (in mediation or via your lawyers) to come to an agreement on what terms are fair.
Valuing a Medical Practice in a Texas Divorce
Working with a valuation expert or forensic accountant, you can determine the value of the medical practice. It is important to get professional help because valuing the business too low or high can lead to unfair property division terms for either party. Business valuation methods that may be used to determine the value of the medical practice include (but are not limited to):
- Annual or cash income value. Using this method, the practice’s value will e based on the practice’s current and future projected income. This determination can be made using a flat revenue percentage, which is a multiplier of the business’s annual gross income, or a formula-based income approach, which reviews the business’s expected income based on risk assessments, return on investment (ROI), and cash-flow data.
- Fair market value estimates. Using this method, a valuation expert will determine what a potential buyer would pay for the practice based on the current market.
- Goodwill. Using this method, the practice’s value is determined by calculating the difference between the business’s purchase price and its fair market value based on its assets and liabilities.
Get Legal Help
At The Clark Law Firm, we are committed to helping our clients protect their interests in their divorce. Whether you plan to file contested or uncontested, our attorneys can advise you of your legal rights and options. If you or your spouse own a medical practice, we can help you protect our personal and business interests.
Backed by over 35 years of combined experience, the attorneys at The Clark Law Firm are here to help you. Schedule an initial consultation today by calling (817) 435-4970 or reaching out online.