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May 30, 2018

Divorcing Dentists: There Is Good News And Bad News

by Steve Benmor

Steven BenmorThe good news is that most dentists have established a successful practice with a significant portfolio of patients and a regular stream of income. In business terms, this means that the practice is a business that has market value. Unlike most other professional services firms, dental practices are regularly bought and sold. In fact, there are brokers who specialize in the valuation and sale of such practices. Most dentists have built successful practices which they can later sell in the open market. Successful practices in large centres such as Toronto can be worth from $500,000 to $5 million. This is no small number.

That Was The Good News

The bad news is that the dental practice will be considered an asset that needs to be valued and equalized (shared) with the ex-spouse at the time of divorce. Under Ontario Family Law, the value of the practice for the purposes of equalization is determined at the date of separation. For many dentists, their practice is their most significant asset. For dentists who are separating, there are only two options. They can sell the practice and equalize the sale proceeds, or the dentist can keep the practice and pay their spouse one-half of the value of the practice.

That Was The Bad News

The equalization of assets is different than the obligation to pay spousal support. Although there is a crossover between the income from the practice and the valuation of the practice, Ontario Family Law treats these as two separate rights. That is, the dentist can both be required to pay spousal support and also be required to share the value of the practice.

The case of David v. David, 2004 CanLII 46652 (ONSC) remains one of the few reported divorce cases in Ontario dealing with the valuation of a dental practice for the purposes of divorce. The case can be found at https://www.canlii.org/en/on/onsc/doc/2004/2004canlii46652/2004canlii46652.html?resultIndex=18. This case illustrates how a dental practice is valued at separation. The valuation usually encompasses a description of the practice, patient flow, appointment and recall system, demographics, market data, office hours, facilities design, personnel and salaries, compensation for associate dentists, income, expenses, earnings, collections and bad debt, systems and record-keeping, dental equipment, financial statements, lease and comparable market values.

Any dentist, or spouse of a dentist, requires sound legal advice on the sharing of the dental practice value and income at the time of divorce.

 

Steve Benmor is an expert in Family Law and has spent the last 20 years negotiating and settling divorce cases for people with significant wealth and assets. He was counsel for Mrs. David. Steve can be reached at steve@benmor.com.