Valuing Partnerships and Professional Practices in a Divorce

How is a share in a partnership valued in a divorce? How are professional practices valued in a divorce?

People facing a divorce are often concerned about their financial futures. One such financial concern regards how shares in a partnership are valued in a divorce. Parties may also wonder how professional practices are valued in a divorce.

Say, for example, that Taylor and Alex have shares in a financial management business. Also, Taylor owns a medical practice. Now that they are divorcing, Taylor and Alex want to know how their assets will be divided, and specifically, how the shares in the financial management business and the medical practice will be divided.

In Massachusetts, assets are divided on an equitable basis.[1] A judge’s decision as to what is equitable will not be reversed unless “plainly wrong and excessive.”[2] A court may assign all or any part of the estate of the other, including, but not limited to, retirement benefits, military retirement benefits, pension, profit-sharing, annuity, deferred compensation, and insurance.[3] The definition of estate is broadly defined, however.[4] In fact, Massachusetts courts allow the division of premarital property and post-marital property on a case-by-case basis.[5] With regard to the division of shares in a partnership, courts will generally interpret G.L. c. 208 § 34 to include partnership assets within the scope of the possible assets that may be divided in a divorce.

Shares of a partnership and business practice interests are part of the marital estate and may be valued by a valuation expert to assess the market value of the asset. A professional practice, like a medical practice, is considered in Massachusetts to be subject to division during the divorce process.[6] Massachusetts courts may order one of the parties in a divorce to relinquish their share of ownership in the business and receive payment either as a lump sum or in a series of installment payments. A court may order that the business be sold and the spouse receives the profits. One spouse could buy-out the business from the other spouse or offset the business with other assets.

During the valuation process, there are generally three valuation methods: the market approach (estimates business value by comparing the business to a similar business that is recently sold); the income approach (estimates business value by converting economic benefits into a value); and the asset approach (estimates business value based on the assets and liabilities of the business).

In the above example, Taylor and Alex have several possible options afforded to them. A Massachusetts Probate and Family Court will divide the estate equitability based upon the parties’ needs and what is most equitable based on their individual case.

Want to speak with a divorce lawyer about your case? Shedule a free consultation with our office and you’ll learn how the law applies to your facts and circumstances. Call 978-225-9030 during regular business hours or complete our contact form online, and we will get back to you at our earliest opportunity.

[1] Adams v. Adams, 459 Mass. 361, 371 (2011) (citing to Bowring v. Reid, 399 Mass. 265, 267 (1987))

[2] Adams, 459 Mass. at 371 (citing to Redding v. Redding, 398 Mass. 102, 108 (1986))

[3] M.G.L. c. 208 § 34

[4] Rice v. Rice, 372 Mass. 398, 400 (1977) (holding that an estate is all property to which the party holds title, however acquired.)

[5] Moriarty v. Stone, 41 Mass. App. Ct. 151, 156 (1996) ; Brower v. Brower, 61 Mass. App. Ct. 216, 218 (2004)

[6] Goldman v. Goldman, 28 Mass. App. Ct. 603, 613 (1990).

Exchanging Financial Information During a Divorce

Olivia and Oscar are undergoing a contentious divorce in the Massachusetts Probate and Family Court and are encountering issues exchanging financial information. Oscar is a partner in an accounting firm which is local and privately held. Olivia’s attorney has asked Oscar for his most recent K-1 form, which listed his income from the partnership the previous year. Oscar is refusing to provide them. Olivia wonders if there is a way to ensure that she will receive the documents, which she knows are important for her alimony claim.

Chances are, Oscar will need to turn over the documents to Olivia during the process of discovery, which is the exchange of information between the parties pre-trial. According to the Massachusetts Rules of Domestic Relations Procedure, the parties are entitled to “any matter, not privileged, which is relevant to the subject matter involved in the pending action, whether it relates to the claim or defense of the party seeking discovery or to the claim or defense of any other party[.]” [1] Because the requested documents are not protected by privilege (such as attorney-prepared memoranda) and are relevant to the matter, Oscar will need to turn them over to Olivia after she sends him a properly drafted request to produce them.

The Probate and Family Courts provide for automatic exchange of some information between parties to a divorce action. Within 45 days of serving the divorce complaint, the parties are required to file with the Court and to send to the other party a financial statement. In addition, each party is entitled to the other side’s pay stubs, as well as tax returns and supporting schedules and documents for the last three years (unless they were filed jointly).

The financial statement requires each party to fill in information about a slew of financial matters, including: personal information, income, weekly expenses, assets, and liabilities. For parties who make less than $75,000 annually, a short form financial statement is required; for those who make more than that figure, a long form is required.

In addition to the above, a party may serve upon the opposing party a request to produce other types of relevant documents. Some examples include the last three years’ worth of bank statements, financial statements, profit-and-loss statements, and copies of loan and mortgage applications.

Should Oscar refuse to cooperate with the discovery rules, Olivia may file a motion to compel cooperation, by which the Court may order Oscar to turn over the requested documents. The rules also provide for sanctions, such as fines to be paid by the non-cooperative party.

If you have any questions about divorce or related domestic relations issues, you may schedule a free consultation with our office. Call 978-225-9030 during regular business hours or complete a contact form here, and we will get back to you at our earliest opportunity.

[1] Mass. R. Dom. Rel. P. 26(b)(1)