In Nevada, if one or both divorcing spouses have professional practices, the practices will need to be quantified and apportioned. Nevada statutes regard a professional practice like any other asset in a divorce.
Division of Professional Practices in a Nevada Divorce
In Nevada, a community property state, assets acquired during a marriage are divided 50-50 during a divorce. The court may make an unequal allocation of marital assets if a compelling reason exists. If one starts a professional practice during the marriage, that spouse’s ownership interest in the entity is typically considered marital property.
A professional practice started before marriage is presumed to be a person’s separate property. However, the person’s spouse may be entitled to the growth or appreciation in the value of the practice during the marriage because of the community estate acquiring an interest in the practice.
For example, suppose a physician opens his or her practice before marriage. If the practice increases in value over the course of his or her marriage, the increase in value because of time, skill, and labor must be valued and apportioned between community and separate property estates.
Professional practices can handle both community and individual money. If commingling happens, it can turn a separate asset into community property.
Valuation
Valuation experts can use widely varying standards to determine a professional practice’s worth. For instance, in a market-based approach, the value of a business is established by comparing the subject business to what similar businesses would fetch. If an asset-based approach is used, each asset is valued individually.
Goodwill Is a Factor
Professional businesses usually own few tangible assets besides minimal equipment and real property. As a result, calculating intangible assets like goodwill is critical during a business valuation in divorce. In one divorce case, the Nevada Supreme Court defined goodwill as a practice’s reputation that will likely generate future business. Goodwill can be thought of to include the value of the brand name, good employee relations, a large customer base, and excellent customer relations.
Goodwill is accrued over time as one manages his or her business or practice. That can result in a tangible value. Although it may be challenging to calculate an appropriate value for goodwill, it has to be factored into divorces in which spouses have professional practices.
Allocating interests between community and separate property can be a labor-intensive process. There are many variables entrenched in determining the value of professional practices and the marital share of each spouse. An experienced attorney can help a person ensure that he or she gets a fair deal during a Reno divorce.
