Spouses often help each other attain professional degrees and business practices. The sacrifices that one spouse makes so the other can reach this status may seem difficult to quantify. Nonetheless, a spouse may ask the judge tasked with how to divide marital assets and whether to award spousal maintenance to take into consideration the value of these degrees and practices. Can courts do so?
Knowing the answer to this and similar questions is important to protecting your rights during divorce. The Kansas City divorce attorneys of Joseph, Hollander & Craft take a closer look at this issue.
How Missouri and Kansas Handle Property Division in Divorce
Missouri and Kansas are both equitable distribution states. This means that when family courts divide marital assets and debts, they do so on the basis of what is fair (equitable), not necessarily what is equal. Courts will take into account the age of the spouses and the duration of their marriage as well as the economic circumstances of the spouses and the contributions each made to the acquisition and growth of marital property. The application of these factors to professional degrees and practices will yield interesting results.
Are Professional Degrees Considered Marital Property in Kansas City?
Neither Missouri nor Kansas considers professional degrees to be marital property, but a degree can affect the financial aspects of a divorce in other ways. For example, one spouse’s business, including his or her professional practice, may constitute marital property subject to division. A professional degree may also impact earning potential, which can affect spousal maintenance in various ways–from standard of living expectations established during the marriage to expectations that a non-working spouse’s marketability in the workforce post-dissolution. Also, if one spouse supported the other in attaining their degree (for example, by being the primary income earner while the other spouse attended school), this can also be a consideration in assessing the couple’s financial circumstances.
Dividing a Professional Practice in Divorce
A professional practice will not necessarily have to be sold due to divorce, nor will a court force you and your spouse into a co-ownership relationship. But the value of one spouse’s business will likely have to be accounted for in dividing assets and setting alimony.
Proper valuation is an important consideration, and attorneys usually turn to professional appraisers to ascertain the fair market value of the practice. Your Kansas City divorce attorney should understand the role that these appraisers play and be prepared to use their professional input to your advantage.
Enterprise vs. Personal Goodwill in Kansas City Divorce Cases
In Kansas and Missouri, a professional practice’s enterprise goodwill is divisible. “Enterprise” goodwill essentially means the value of the practice in the absence of the person with the degree. In other words, if the professional spouse left with business, what would the value of the remaining business be? Courts should exclude personal goodwill, which is the value of the practice attributable solely to the individual spouse (e.g., customer loyalty, the spouse’s personal reputation, and anything else tied directly to the spouse’s name or skill).
When One Spouse’s Actions Devalue a Business During Divorce
Courts may take into consideration any spousal misconduct that results in the waste or dissipation of marital assets, including actions affecting professional practices. For instance, a spouse who intentionally defames the business online with bad reviews, and therefore turns away its customers, may directly cause the practice to decline in value.
Valuing a Minority Ownership Interest
Not all spouses are the sole owners of professional practices, but instead have a minority ownership interest. In these situations, the court does not simply value the business by that spouse’s ownership percentage. Valuation is more complex and must take into account the spouse’s lack of control (which makes the interest less valuable), the difficulty selling the interest (lack of marketability), and the restrictions that buy-sell and operating agreements impose. All of these result in discounts to the total value of the ownership interest. Moreover, the court must still consider minority ownership in light of other factors like enterprise goodwill.
Options for Dispensing With the Business Interest
The judge may not order a sale of the business, especially if it could impact the ability of the owner spouse to continue earning a living and afford alimony, child support, and personal financial obligations. What the judge may instead do is compensate the non-owner spouse with other marital assets as a means of achieving a more equitable distribution of the total marital estate.
How Our Kansas City Divorce Attorneys Can Help
Fairness should always prevail in an asset division case. We understand the manner in which both Kansas and Missouri handle equitable distribution. We have experience on both sides of the equation, having represented business owners and non-owner spouses in actions for divorce.
You have options, and we’re prepared to discuss each one with you. That’s the level of service you can expect from the family law attorneys of Joseph, Hollander & Craft. Get started today by completing our online contact form. For your convenience, we have offices in Kansas City, Overland Park, Lawrence, Topeka, and Wichita.
