How New York Courts Value a Professional Practice During Divorce

The allocation of property between separating spouses becomes an even more difficult task when one of them owns a professional practice or business. Under New York law, courts are required to make a determination on both the marital property and its appropriate value and division. In this article, we’ll review one landmark decision concerning how professional practices are valuated. This case continues to be extremely relevant for New York divorces with regard to professional practices.

Background of the case 

The couple got divorced after being married for several years. During their marriage, the husband started a lucrative veterinary practice. The question arose of how the value of the business would be determined and whether its expected profitability was to be considered marital property for equitable distribution.

During the court proceeding, the lower court granted the former wife an interest in the husband’s business based on the value that was assigned to the business, which included the value attributed to the practice since the former husband had a considerably higher earning power than the wife. The former husband appealed the decision on the grounds that the lower court undervalued his businesses and essentially double-counted income.

This case went all the way up to New York’s highest court.

The appeal 

The New York Court of Appeals considered the problem of differentiating between the real value of a professional practice and future gains that may have been taken into account when determining maintenance. The court recognized that a professional practice can include a number of intangible elements (goodwill, reputation, earning capacity) having considerable value within equitable distribution.

At the same time, the Court of Appeals was careful about what it called “double counting.” This term is applied to situations where the same income flow is counted twice, once for evaluating the value of the marital property and then again for determining the amount of spousal support. In this case, the Court of Appeals concluded that although a professional practice could be equitably distributed between the spouses, care had to be taken not to double-count future earnings.

The final decision involved the correction of some parts of the trial court’s financial determination.

Key takeaways

This case is still a significant New York case for equitable distribution and professional practice valuation.

The first point is that the consideration of a professional practice requires not only an overview of the income and assets of the business, but also intangible assets such as client goodwill.

The second issue to learn from the case is that the court should consider expert evaluations very cautiously, especially in high-net-worth divorces. There usually exist conflicting opinions about the value of the property.

Finally, courts should remember to avoid double-counting income while calculating equitable distribution and spousal support.

Talk to a Rockland County, NY, Divorce Attorney Today

The Law Office of Robert S. Sunshine represents the interests of Rockland County residents during their divorce. Call our Rockland County family lawyers today to schedule an appointment, and we can begin discussing your case right away.

Source:

case-law.vlex.com/vid/holterman-v-holterman-885085598