Valuing And Dividing A Professional Practice In An Arkansas High Net Worth Divorce

Divorce can be complicated when one or both spouses own a professional practice. Whether it’s a medical clinic, law firm, dental office, accounting practice, or other type of professional business, they often represent both a livelihood and a significant marital asset. In Arkansas, courts must determine how to value the practice and then decide how to fairly divide or account for it in the divorce settlement. 

Legal Framework in Arkansas

• Marital Property:  Under Arkansas law, most property acquired during the marriage is considered marital property, subject to equitable division between the divorcing spouses.

• Professional Practices:  Even if only one spouse is licensed to operate the practice, the practice itself (including goodwill, equipment, and accounts receivable) may be considered marital property if it was built during the marriage.

• Equitable Division:  Arkansas courts divide property equitably, which usually but does not always mean equally—it means fairly, based on the facts and circumstances.

How a Professional Practice Is Valued

Valuing a professional practice is complex and often requires expert testimony. Common valuation methods include:

• Asset-Based Approach:  Focuses on tangible assets like office equipment, furniture, and accounts receivable.  Useful for practices with significant physical assets.

• Income Approach:  Examines the practice’s earning potential, often using capitalization of earnings or discounted cash flow.  Reflects the ongoing profitability of the practice.

• Market Approach:  Compares the practice to similar businesses that have been sold.  Can be difficult if there are few comparable sales in the region.

• Goodwill Consideration:  Personal Goodwill (tied to the professional’s reputation) is generally not divisible in Arkansas.  However, Enterprise Goodwill (value of the practice beyond the individual, such as brand recognition or staff) may be considered marital property.

Options for Dividing or Dealing with the Practice

Because one spouse usually cannot simply “hand over” part of a professional practice, Arkansas courts and couples often use creative solutions:

Buyout Arrangements

• The professional spouse keeps the practice.

• The non-professional spouse receives compensation (cash, property, or a structured payout) equal to their share of the marital value.

Offsetting Assets

• Instead of splitting the practice, the non-professional spouse may receive other marital assets (e.g., real estate, retirement accounts, etc.) to balance the division.

Structured Payments

• Courts may order ongoing payments to the non-professional spouse, similar to alimony (spousal support), to reflect their share of the practice’s value.

Co-Ownership (Rare)

• In very limited cases, spouses may continue co-owning the practice, though this is uncommon due to licensing restrictions and practical difficulties.

Practical Challenges

• Licensing Restrictions:  Only licensed professionals can own or operate certain practices (e.g., law firms, medical clinics, etc.).

• Valuation Disputes:  Experts may disagree on the value of the business, leading to contested litigation.

• Emotional Stakes:  The professional practice often represents years of effort, making negotiations highly charged.

Conclusion

Valuing and dividing a professional practice in an Arkansas divorce requires careful consideration of both financial and legal factors. Courts rely on expert valuations, distinguish between personal and enterprise goodwill, and often use buyouts or asset offsets to achieve fairness. For professionals and their spouses, understanding these options can help protect both the practice and the equitable distribution of marital property.

Matt House can be contacted by telephone at 501-372-6555, by e-mail at mhouse@jamesandhouse.com, by facsimile at 501-372-6333, or by regular mail at James, House, Swann & Downing, P.A., Post Office Box 3585, Little Rock, Arkansas 72203.