When a professional person who runs a business, like a dentist, doctor, lawyer, or accountant, is in a divorce, the "goodwill" value of that business and professional value can be a key sticking point.
Professional business valuations can be thousands of dollars different depending on how, and who, does the valuations.
In this episode, Modern Law Attorney Billie Tarascio talks with Chris David, of Health Value Group (healthvaluegroup.com) about the process for setting a valuation and what factors are taken into account.
This episode is a must-listen for anyone divorcing who operates a business based on their professional training and education. It's a technical area of law that affects average people divorcing in community property states where assets are customarily split in half. How do you place a value on an accountant's book of business? What happens when one spouse has student loan debt accumulated during the marriage?
You may have to listen to this one twice, and take notes.
When a professional person who runs a business, like a dentist, doctor, lawyer, or accountant, is in a divorce, the "goodwill" value of that business and professional value can be a key sticking point.
Professional business valuations can be thousands of dollars different depending on how, and who, does the valuations.
In this episode, Modern Law Attorney Billie Tarascio talks with Chris David, of Health Value Group (healthvaluegroup.com) about the process for setting a valuation and what factors are taken into account.
This episode is a must-listen for anyone divorcing who operates a business based on their professional training and education. It's a technical area of law that affects average people divorcing in community property states where assets are customarily split in half. How do you place a value on an accountant's book of business? What happens when one spouse has student loan debt accumulated during the marriage?
You may have to listen to this one twice, and take notes.
Billie Tarascio (00:01):
Hello, and welcome to the modern divorce podcast. I'm your host, Billie Tarascio. I'm the owner of modern law, a family law firm in the Phoenix area. I've been a divorce attorney for more than 15 years. I've got four kiddos and I'm divorced myself. And on this podcast, we're going to cover everything related to divorce. Be it legal issues, financial issues, children issues, blended family issues, counseling mediation, and more. I hope you enjoyed the podcast.
Billie Tarascio (00:30):
Hello there and welcome to the modern divorce podcast. This is Billie Tarascio, and today I am joined by expert witness Christopher David. Our discussion today is going to be a little bit more technical than some of the other discussions that we've had. We're going to be talking about valuing professional, Goodwill and professional practices during divorce. Christopher, thank you. And welcome to the show.
Chris David (00:55):
Thank you, Billie. I'm happy to be here. Thanks for having me.
Billie Tarascio (00:58):
So before we dive into this fairly technical, but very important episode, anybody who is a professional, who's thinking about getting divorced really does need to hear this episode for sure. But can you tell people a little bit about your background?
Chris David (01:12):
Sure, sure. I am a certified business appraiser. I have about 21 years of experience. And prior to this, I started off as an auditor and first in young back in 1999, I like to say that I served a two year sentence and the audit audit the Ernst and young audit department of corrections. I knew that I wanted to be an Archer the rest of my life. So I migrated over to the field of valuation. And so I've been valuing businesses professionally for about 21 years. And and the past 11 years I started my own practice and I've been focusing in the healthcare space, valuing physician practices and other medical type facilities for the past 15 years. And so I'm a former CPA and I'm, what's called a I'm accredited in business valuation and I'm an accredited senior appraiser.
Billie Tarascio (02:10):
That's fantastic. So when doctors get divorced, they are either on their own and they own a practice or they are a W2 employee and they work for somebody now when you're getting divorced and you're a W2 employee, things are pretty easy. We can figure out how much money you make, and that might be an issue for spousal maintenance, but when a doctor owns a practice, things get a lot more complicated because then we're not just looking at salary. We're also looking at the asset of the practice and that is where you come in. Yeah,
Chris David (02:43):
Absolutely. Yes. So it's not so easy valuing this, this nebulous thing called Goodwill. There are Goodwill's broken up into two elements, there's professional Goodwill, which is also referred to as personal Goodwill, which is value to him personally, him or her personally. And then there's, what's called enterprise Goodwill or commercial Goodwill, which is the value that's attributed to the practice and all the other let's call it all the other intangible stuff that goes along with it. And we can talk more about that.
Billie Tarascio (03:19):
Sure. And so when you're valuing a business in Arizona, personal Goodwill is divisible as community property. So that means, you know, if you have been married a long time to a doctor and this doctor has you know, reputation and the book of business and he, or she has been, you know, a successful doctor in the Phoenix Valley for a long time that concept is going to be valuable as Goodwill. And we'll create some sort of a buyout to the non doctor spouse. That concept is just mind blowing in and of itself.
Chris David (04:06):
Right. Right. So I, and so you're saying in Arizona, the professional Goodwill is part of the marital assets. Yes. I can see where that's in some States it's not in some States they say, well, no, the, the professional gets to keep his earning potential in his own Goodwill. And so that, that can be divided amongst the spouse, but you're right. That can be aggravating in mind-boggling. But there is a way to capture that when doing evaluation,
Billie Tarascio (04:39):
Let's talk about that. How do you determine someone's Goodwill?
Chris David (04:43):
Okay, well, you can first value the practice using a multiple of earnings. So you look at the the cashflow or the EBITDA of the practice and you apply an appropriate multiple to that. And that gives you the enterprise value of that practice. So that value represents everything in that practice that generates income, that could be everything from a good reputation in the community, the physician's bedside manner, the physicians reputation and referral network, where other doctors who refer patients to him, it could be a particular trade name, or if they have a unique phone number, it also includes a, a really well-trained and competent staff of physician assistants or nurse practitioners that help produce the work. So it includes the entire all the assets that, that company has the generates that the earnings. And so would you use a capitalization of earnings approach or a, or a multiple earnings? It produces a value that includes all of the Goodwill of the company, commercial Goodwill, and the physician's professional Goodwill.
Billie Tarascio (06:09):
Now clients are always asking me, or always looking online to figure out, you know, what is the easy way to value a business? Can I take two times gross revenue? Is it a multiple of the of the taxable income? If you were to answer that question, if somebody is starting from scratch and they don't want to get a valuation, how can they get an idea of what their valuation might be?
Chris David (06:41):
Well, that's a tough question because I wouldn't say that there's a rule of thumb to use because if you look at the taxable income of a professional practice, it's going to be really low because most physician practices are structured as professor corporations and they by design bonus out most of the income so that they can report a small taxable income because it's a professional corporation, it's subject to double taxation. So I wouldn't, I would say, no, don't look at the taxable income. I think you have to look at cashflow or they call it earnings, EBITDA earnings before interest taxes, depreciation, and amortization. And you use a multiple of that on, I'm going to say, you know, just broadly speaking, three to four times, I'm EBITA and, but not figure. And again, EBIDA is earnings before interest taxes and depreciation amortization. So that's really, it's really a tough one to answer an easy, an easy way to value a business because there are also some adjustments in there you need to make, sometimes you need to adjust for the physician salary. A lot of times he's going to pay himself a lot when it should be adjusted to be commensurate with his actual productivity.
Billie Tarascio (08:13):
Sure. Because the higher, the compensation, the lower, the potential business value.
Chris David (08:19):
Absolutely. Yeah, that's exactly right. So
Billie Tarascio (08:21):
This is something that people have a hard time getting around their head around if your income is very, very high, then the total profits of course, will be lower. And if the profits are lower than the multiple of the profits is also lower. So the business value or the buyout will be lower. So determining the proper salary is another issue that we end up fighting over a lot.
Chris David (08:47):
Right. That's exactly right. So when we value a physician's practice, we look at their productivity to adjust their, so we'll look at their work RBU's or their professional collections or their number of office visits. So there's several metrics we use in the healthcare space to measure acquisitions productivity. And then there are surveys, independent surveys done for a multitude of specialties that tell you what a physician salary or reasonable compensation should be based on their productivity. And so you adjust that. And most of the time in a small physician practice, or a two or three, you know, a two or three physician practice, they're likely going to pay themselves in excess of their productivity. And so once you adjust that, you're basically adding profit to the bottom line.
Billie Tarascio (09:42):
Now, from a lawyer perspective, you really need to understand this because if the income is being written down to increase the value of the business, you need to account for that in any spousal maintenance analysis to reduce the spousal maintenance that you might have to pay. If you're buying somebody out for those same dollars in terms of a business value. So no double dipping one way or the other, you got to make sure that it's going to be fair.
Chris David (10:14):
Yeah, that's exactly right. Yes. So if the business appraiser is going to adjust the physician's compensation, which increases the value of the business, then it, it makes sense. And it's fair to use that new, lower compensation for the position to, to compute the maintenance and child support.
Billie Tarascio (10:35):
Now, this can seem like half a half, a dozen, six, and one half a dozen. The other, it can seem like it doesn't matter, but it does matter. I recently worked on a case where this was the exact issue and two business valuators evaluated the company. And they came out over $500,000 different between one and the other. So there is a huge range of value that you can come to as a business valuator. And that difference, you know, if we're talking about a buyout or spousal maintenance can be absolutely massive, why do you think there's such a difference in where valuations can come out?
Chris David (11:13):
You know, I think the biggest difference is that the appraisers aren't using the same assumptions. I think it's important when you have opposing experts that you, at least they at least be working off of the same assumptions. If that makes any sense, I know they're both looking at the same set of financials, hopefully. But I would imagine in your case, the difference was probably attributed to the compensation physician compensation. I don't know, but I would imagine it probably was, but I would say the biggest difference would be a difference in in the assumptions being used.
Billie Tarascio (11:56):
Absolutely. And that's what evaluation is. It's a set of assumptions. What do we think the future growth of the industry might be? That's one option,
Chris David (12:05):
Right. And the other, the other issue that that I want to add is that a lot of times in small, privately owned businesses, they run a lot of personal expenses through there. And so you want to make sure that that hasn't been abused, that they're not, they're not, you know paying for vacations out of there there's several thousands of dollars of expenses for vacations and cars, and you're, you're, you're employing your son for an excess amount of money. So I think there needs to be some discretion there on adjusting that the the way I like to look at it is you know, if I were to, if I were to buy that business, that that practice would expenses what I have. I know I have to, I know I have to hire another physician. And then what other expenses will I have or will I not?
Billie Tarascio (12:57):
So this is great. And this is what people talk about. There's a lot of different business valuations approaches. And one of them is the market approach, which is what people are familiar with with houses. You'll look at comps, what are other houses in the area selling for? And what you're talking about, and this is Arizona standard, Arizona standard is what is the market value for the business? And you determine that with your exact assumption, if it wasn't you, if it wasn't this particular business owner, how would they run the business? And then we have to figure out what those assumptions might be. That's a lot of whatever.
Chris David (13:33):
Yeah. Yeah. So under the market approach, there are databases of transactions of special of, of physician practices being sold and they provide what's called a Goodwill multiple. So and it gives, this is a database where business brokers and other, I guess, other people involved in the transaction, they submit this data to the Goodwill registry anonymously, just to record the specifics of the transaction and what they provide you is a, a multiple of revenue of what the, all the intangible value is in the practice. And so that would be a market approach. So again, it's a multiple of the revenue and that gives you all the intangible value in the practice. And from that you add the accounts receivable, the cash and the value of all the furniture, fixtures, and equipment. That's the best source of a market approach in, in valuing physician practices.
Billie Tarascio (14:41):
What I often see in business valuations is that the business valuators will look at many different methodologies. They'll analyze the market approach. They'll analyze the capitalization of earnings, they'll analyze the tangible asset approach. And then they'll wait these various approaches to come up with their number. Is that what you do as well?
Chris David (15:03):
I do that sometimes what a, what an appraiser should do is you should consider all three approaches, the market, the asset, and the income approach, and then you should sort of synthesize them or wait for them. They should, theoretically, they should all be the same theoretically. If one of them is way off that you have a problem, you should go back and take a look at that, or you're missing something in this particular case. You, you can, you could possibly use all three methods. And for example, in the, in the asset approach of what they call the cost approach, you could you could begin to value the different pieces of a position practice by looking at the tangible stuff. First of equipment, the accounts receivable, the cash you need to prepays, then you can value the intangible elements in the most likely intangible elements are the trained workforce the patient medical records possibly your computer systems and your, your ER, your EMR platform that's in place. So you can build up a value that way. But, but to answer your question, you can, you can use, and you can apply all three, but you really need to sort of synthesize and make sure they're all kind of similar. And if one of them is out of whack and there's something wrong with that method,
Billie Tarascio (16:41):
At what point in a case, should people engage with an expert? Should you wait until negotiations have failed? Or should you try to do this early on? What do you think?
Chris David (16:54):
Well Ted's really sort of an attorney question or for the, for the club, for the clients, but it seems to me that at the point where both parties vehemently disagree on the value of the business, then I think it's a good idea to, to hire an expert. And the expert is there to be a third party, independent expert to assist the court. And so I think at the point where the parties just vehemently disagree on the value of third, if they're too far apart,
Billie Tarascio (17:29):
That's a great point. You know, if you and your spouse are looking at the, at the practice, and you're looking at all the numbers, the spousal maintenance numbers, the buyout numbers, and you're within, you know, 50 grand, you probably don't need a business expert. If one spouse thinks this business is worth $3 million and the other, and the other spouse is thinking, it's something like $300,000, that's when you really have to bring in an expert. And then at that point, I think it's probably better sooner rather than later,
Chris David (17:56):
Right? Yes, that's right.
Billie Tarascio (18:01):
So, and then when you're doing these various approaches, well, actually before I go onto that, I want to ask you when people are working with an expert, what are some tips for how we can best utilize someone like your expertise?
Chris David (18:21):
I would say the more documents and the more data, the better, if if an appraiser has enough information to make an informed judgment and decision on the business that would be that that would be best. Yeah, I think that's, that's probably the best way to answer that is having enough information. If one side is not very cooperative and is not giving all the information then the appraiser can only do as, as best as he can with the limited information he has.
Billie Tarascio (19:02):
Okay. Okay. And how long does it typically take you to complete a evaluation?
Chris David (19:09):
It's three to four weeks from the time that I received all the information that we need. So yeah, and then a lot of times, Billy, when we get documents, then that generates more questions. We look at the documents, they will have more questions, but I'd say three to four weeks. From the time that we get all the data, all the financial statements, all the proper documents that we request. Okay.
Billie Tarascio (19:38):
And how often are you getting into a business valuation and then finding hidden accounts or hidden money? Does that happen a lot?
Chris David (19:48):
No. Billy, because as an appraiser, our job is not to find those things. If we stumble upon it, you know, we, we could probably disclose it, but we don't have a duty to audit or to find fraud. We're just providing an opinion. We do evaluation and we issue our opinion on the value of that business. I mean, what we do see is a lot of spinning or non-business related things.
Billie Tarascio (20:20):
Well, yeah. I mean, you got to travel for your education, you know, they happen to hold a lot of conferences in Hawaii, of course, with your family. I mean, it's all very logical and, you know, it's really allowed with the IRS, but it may make an impact on, on the value of the business. So it's not surprising that those are things that people end up fighting over a lot. Right. Do you find yourself working for the practice or the spouse more often?
Chris David (20:50):
It's a mix of both. I don't, I don't normally I don't hold myself out from one side or the other. It's just, it's a little bit of both.
Billie Tarascio (21:00):
Okay. And is your, do you find that your strategy is very different if you're hired as a rebuttal expert, as opposed to the initial valuator?
Chris David (21:14):
The rebuttal experts, if I'm hard as a rebuttal expert, I'm usually, I guess, poking holes in the other experts report where I think their shortcomings or their problems, that's really what what I do as a rebuttal expert. And so it's not a full blown business valuation. They're just points to challenge in possibly negotiating gambits, because evaluation is an estimate, you know, fair market value is not one precise number. It's an estimate. So it's a range. So I believe that fair market value is within a reasonable range. There's no one right number, but there's plenty of wrong numbers. Yeah. And so an appraiser will always use judgment and estimates and and approximations. And so as a rebuttal expert, I will identify those elements that that are contestable, but in most cases I'm working on a couple of right now, the other side is, is getting their own expert in generally what I hear is, well, you know, your experts submit their, their report and you submit your report and then the judge will likely split the difference. I hear that a lot.
Billie Tarascio (22:40):
Absolutely. Are there any red flags that you think people should look for if they get evaluation back? That just doesn't seem right.
Chris David (22:53):
You know, those, those red flags would come up. If you don't use a, a certified business appraiser, I would encourage people that are in divorce and that have sizable assets. That's really a subjective we're there, but I don't know if you have a business that's, you know, worth 500 to seven 50 or higher, then I would suggest using an appraiser who is who is certified and trained in valuing businesses. A lot of divorce attorneys they'd like to use a local accounting firm or a local CPA who could do a calculation there. You would find some red flags because those are those people are not have not been officially trained. And don't have credentials. I'm saying, if you use someone who doesn't have credentials, then you may see some red flags I would completely with you. And
Billie Tarascio (23:46):
I think that there is a lot of people who do valuations, but valuing professional corporations is, is different. And it is a real niche. It's not the same as valuing a landscaping company or, or a construction company. And so one of the things I wanted to ask you about is what is the difference between valuing a professional corporation that's taxed as a corporation and an LLC that is not taxed as a corporation, but has passed her income?
Chris David (24:14):
Well, the big difference there is is the, is the tax, the tax issue. And so every appraiser's a little different and it may be, I'm not certain, but it, it may be within each state's tax code, but we call it tax effecting. So do you tax affect the earnings? The earnings are not even if you're a taxable PC professional corporation, or if you're an LLC, we first look at the earnings pre-tax we first look at the earnings pre-tax and so the value would come out different if you tax the earnings and then apply your, your multiple. So again, that's the difference. And perhaps that should be agreed upon by both sides. Is, should we tax effect the business or should we not? If you have to. So if you have two appraisers, I think that's a very important assumption to agree upon upfront. I tend to use taxable income.
Billie Tarascio (25:21):
Okay. So let's, let's flesh this out. We, I've got a doctor who's a client and his business is taxed as an S corporation. What that means is that the business doesn't pay individual tax, but the income from the business flows through to my client's individual tax return.
Chris David (25:46):
That is correct. So, yes, the corporation, the escort does not pay a tax. They don't have a corporate tax you're right.
Billie Tarascio (25:52):
So his annual income, his annual taxable income is $300,000. Let's say he has a salary on top of that, of $150,000. So his total compensation is $450,000 a year. When you're valuing that practice. Do you take those numbers that $450,000, or do you take the $300,000 less whatever tax he would have to pay on that?
Chris David (26:21):
Let me think about that for a second.
Speaker 4 (26:29):
Sure.
Chris David (26:30):
If I'm valuing the entire practice, I would probably tax effect, add a tax to the 300,000 to the taxable, or we call it, we'll call it a pre-tax income on that escort physician practice. So I would, I would probably tax effect it.
Billie Tarascio (26:51):
Okay. So that's going to make a massive difference in the value. So this, this assumption is, could really make a huge difference in the value, because if we take a multiple of the 300, right, if we take a multiple of the 300 and we, and we put that multiple at three you're at $900,000, if we take a multiple of the text portion and let's take out a third now we're now it's, you know, three times two we're at 600,000. So we have a $300,000 difference based on this one assumption,
Chris David (27:21):
Right? Yeah. It could have a sizable impact. And again, I think that's an assumption that something that both parties should agree on and the experts should weigh in on.
Billie Tarascio (27:33):
Well, let's take this example a little bit further. How does the issue of Goodwill effect this particular hypothetical's value?
Chris David (27:45):
Well, you still start with the value of the corporation. And again you, you would, whether you use a taxable income or not your multiple of earnings and would have to reflect a taxable earnings or not. So we, we typically will use a discounted cash flow methodology with an appropriate discount rate that discount rate should reflect either taxable cash flow or non taxable cash flow. So again, we first value the entire entity and that gives us the entire value of all the Goodwill. So you know, again, in the state of Arizona, if, if all the Goodwill is part of the marital estate, then we don't have to carve out the professional Goodwill, right? So I'm not sure if that answers your question, but, but the Goodwill is what it is when you value the enterprise. So it goes back to do we use a taxable earning string or a non taxable earning stream. So of course the higher the value, the higher, the likely Goodwill,
Billie Tarascio (29:07):
Right? So in real life, in our example, if the physician who's making a total compensation of $450,000, and we're calling 150 of that salary and the rest of its profits from the business, the, the Goodwill number is part of what leads you to be able to make that $300,000 above and beyond your salary. Right? So that's where the Goodwill is already baked into the earnings methodology. Yeah, sure. Because this is a hard thing to get my head around. So in our example, where the doctor has $300,000 in profits that pass through to his taxes and he makes $150,000 salary, the $300,000 in pastor profits is a product of Goodwill.
Chris David (30:00):
Yes, absolutely. Yes.
Billie Tarascio (30:03):
When you're looking to carve it out, it's already baked into this additional profit that you're receiving.
Chris David (30:10):
Yes. That is correct. The, the earnings of that business. It already has the Goodwill baked in, because think of it this way, Billy it's, everything, all, all the elements, everything apart, everything of that practice helped generate that, earn those earnings, his Goodwill, or his name in the community, his relationship with people at the country club or his referral networks, et cetera. So you're right. That 300,000 that the company that's a practice earned, it flows through to his tax return, includes his, his Goodwill.
Billie Tarascio (30:47):
All right. Now let's say this husband doctor has recently gotten a DUI and might lose his license and might go to jail. How does that impact Goodwill or the value of the physician practice?
Chris David (31:07):
Wow. Okay. So we would call that a, we call that a specific company risk at that point. There's a, there's a great deal of risk for the practice, if it's assuming this is a single physician practice, and we know at the time of the valuation that you said he had a DUI and he might lose his license, he might. Yeah. of course valuation is, is forward-looking. So we have to look at the potential income that that practice can generate. Well, if we know that there's a really good chance that that the physician is going to lose his license. Yeah. That would lower the value of that practice, depending on if we have the valuation date as of today. And we know that, that he may potentially lose his license if all those events line up at the proper valuation date. Yeah. If that's an existing fact at the time of the valuation, I would say that's a significant risk factor
Billie Tarascio (32:17):
And would therefore lower the value.
Chris David (32:19):
Oh, absolutely. Yeah. If there was a true legitimate risk that he's going to lose his license. I mean, who's to say that he just has to pay a fine and, and that's it.
Billie Tarascio (32:31):
Right. So how big of an impact that makes on the value is really a judgment call. You have to make
Chris David (32:38):
Yeah. Let's but I, to be an informed judgment call, I needed, I need input from the client. What's our true risk here. I mean when's the doctor going to, you know, go into court and is he really, really likely to lose his license? You know, I've never had that question asked and it's, I mean, it's a legitimate risk factor and we'd have to explore it more, but yeah, I mean, if, if that risk was truly legitimate
Billie Tarascio (33:09):
[Inaudible] all right. The other thing I wanted to ask you about a student loans, so many times professionals like doctors or lawyers or other professionals will have a massive amount of student loan debt. How does that impact the value of the business?
Chris David (33:30):
I've never run into that really. If it's not on the, on the books of the business, we, we normally don't pay attention to it. So it's, if we don't see it on the books of the business so it wouldn't be, it wouldn't be reflected.
Billie Tarascio (33:48):
So to me, this is a real opportunity for a divorce attorney to be paying attention to these two numbers, because in Arizona, at least student loans are paid by the person who has the degree, but if I own my, my you know, I own a law practice, but let's say I'm a doctor and I own my own doctor's practice and there's a value and I have to buy out my husband, but I also have to pay off my student loan debt. Arizona is an equitable distribution state. And I would ask that the judge in Arizona take a look and offset, perhaps the value with how much is owed in terms of the student loan. Because if you think about it, a student loan is sort of a business loan. I know it's not technically a business loan, but I think you can, one can make the creative argument that this is a loan you took in order to be able to to, to practice, to work in your profession and you have to pay it back.
Chris David (34:42):
Yes. You know, this is not specifically a business valuation question, but I can definitely weigh in with my opinion on this. You know, if, if the physician's professional Goodwill is, is part of the marital estate, I would tend to say that the student loans go along with that, because it's those loans that helped him or her achieve that Goodwill. Absolutely. Yeah. Would be my opinion.
Billie Tarascio (35:15):
I don't know that there's any case law on it, but you and I, we think we should make some law.
Chris David (35:19):
Yeah. Again without that education, that position couldn't have developed that, that professional Goodwill. Right. Absolutely. But let me ask you a question now, and Billy, if I may you know, my experience with divorces that you know, you, you throw everything in a pot, we throw all of our assets and we throw all of our liabilities in the pot. We just divide it up. You take this debt, I'll take this debt. If you're going to take this car, you take the car note related to that, and I'm going to take the Mercedes and I have to take the car note related to that, and you just kind of divide it up. So how would it be any different?
Billie Tarascio (36:01):
Well, it's a great point. Typically student loans are attached to the person the same way the loan is attached to the Mercedes. So typically I walk away with my law degree or my medical license, and I am responsible for paying the loans in my name that I took out to get that degree, which makes perfect sense, but not if you're also buying out Goodwill at a practice. So this is where I think lawyers have a real opportunity to at least capture this argument. So that the, the, the impact to the business owner can take into account that existing loan.
Chris David (36:39):
Okay. Well, let me let me ask you one more question, Billy. So how long have you been practicing?
Billie Tarascio (36:43):
I've been practicing since 2005. So I think we're at 16 years.
Chris David (36:46):
Okay. So, so you've got 16 years, so you've got some professional Goodwill that you've built up. What if you and I get married tomorrow, and then we get divorced next year. Am I entitled to your Goodwill that you developed before our marriage? What is Arizona state law? What is the state statute that to the Goodwill that you developed in that net, a separate property claim.
Billie Tarascio (37:09):
So in Arizona, this gives rise to a [inaudible] claim. And this is the concept that if, if I own a separate property business or I have any separate property, and then I get married without a prenup, which I do not advise, but let's say you do that. Some portion of the growth during the marriage could be attributed to my effort during that time and effort during that time would be community efforts if I don't have a prenup. So the bottom line is this is a significant risk that business owners need to think about before they get married. It's easy to assume I owned it beforehand. So it's all mine and in Arizona, it's simply not that simple.
Chris David (37:50):
Yeah. Now that would be a hell of a task. Look at the growth in the Goodwill value. Do you have a, if you have a professional to gets married late in life after they've already been practicing for 20 years in developing their Goodwill, and so will they get married and they stayed married for 10 more years while he or she works. Yeah. That, that you'd have a hairy case in your hands.
Billie Tarascio (38:15):
We do. That's why we have a lot of case law on it. And there's not a lot of lawyers who have, who have had this particular fact pattern, but it is one that we've litigated at modern law. I would like to know from you, we just have a couple of minutes left. What else do you want people to know about valuing physician practices, value and professional practices and working with experts?
Chris David (38:39):
I would say if definitely if you're in a situation to well, fortunately if your value of physician practice and Goodwill, I think you should hire a, an a, an, a business appraiser who has credentials has been trained and certified in business valuation and not just a CPA or an accountant that, and then I would say have the experts for both sides, agree on the particular assumptions, which approaches are you going to use, which approach which approaches do does the state statutes disallow? I know that in one state that I'm working at now, I'm working on a case now the state statute, doesn't like an earnings approach to determine Goodwill they'll. They like to see only a market approach where they've seen another physician pay Goodwill for a practice. So I would say agreeing on the methods and any other significant assumption for the, for the, for the practice.
Billie Tarascio (39:53):
Well, this has been absolutely great. Thank you so much. We're going to make sure that your contact information is in the show notes so that lawyers and individuals can contact you directly. Now, do you typically get hired directly by individuals or often through lawyers?
Chris David (40:08):
A little bit of both. So most of the time I get hired on the attorney client privilege, I guess. So yeah, I prefer or under attorney client privilege.
Billie Tarascio (40:23):
All right. Well, that sounds great. Thank you so much for your time today. It's been fantastic. I know my head's spinning. So we're going to get this all written out into a nice and easy digestible format, but thank you so much for coming on the
Chris David (40:33):
Show. Thank you for having me.
Billie Tarascio (40:37):
Thanks so much for listening to the modern divorce podcast. Remember anything you've heard today or anything you read online is not the replacement for actual consultation with an attorney and does not create an attorney-client relationship, even if you've called in and spoke to you, you are anonymous and we don't have your details, and you've not become a client. However, we would love to speak with you, or you should seek out the advice of legal counsel counseling or any other expert interview. And if you have an idea for a show topic, or you need to speak Arizona, you can reach me at info. I N F O at my mother-in-law dot com.