New York Divorce Law Blog : New York Divorce Lawyer & Attorney : Law Offices of David A. Gabay, PC : Serving New York City, Long Island, Suffolk County, Nassau County

Divorce is a complicated process even under the best of circumstances. However, when your soon to be ex spouse is an attorney you can face very special challenges and problems on the way to obtaining a fair and equitable settlement or decision after trial. 

Here is a list of the top three problems faced by spouses divorcing attorneys:

1.      The Attorney is Known Throughout the Courthouse: If your spouse works regularly in Court, he or she may be well known to the Court and its staff. Even if the spouse works in a different area of the law, say criminal defense or civil litigation, judges and their staffs talk informally among themselves and Courthouse gossip is rampant. This might be the only case in a divorce setting in which the Court is familiar with one of the parties professionally but does not consider recusal. In this case, you and your attorney will have to work extra hard and be extra careful in how you handle your case.

2.        Valuation of the Law Practice: Attorneys whose spouses make a claim for a portion of the value of the law practice tend to raise the same objections time and time again: (1) that the practice has little or no value because it depends entirely on their own efforts and work, (2) that the contingent receivables can’t be accurately valued because of the uncertainties of the cases, and (3) that attorney-client privilege prevents the full disclosure of the information required to properly value the practice.  These arguments can be effectively defeated if your attorney is familiar with the specific rules and case law which govern this issue.

3.        Income “Management”: Attorneys who are planning to divorce their spouse or who know that they will be served with a divorce summons themselves use a wide variety of techniques to manage their income to their advantage. Changes to partnership agreements, decisions to reduce partnership compensation, deferral of revenue, referral and routing of work through other attorneys, and cash fees are familiar ruses designed to depress the income of the attorney and therefore lower the amount of money paid out in spousal support, child support, and equitable distribution. Like the valuation problem, this issue can be effectively countered with aggressive and thorough discovery and an understanding of how to identify and uncover income management in all of its forms.

For more information or to schedule a consultation, please visit my firm’s website at www.GabayLawFirm.com

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The valuation and distribution of the personal professional goodwill of a single owner service business or practice is a highly contentious issue. Personal professional goodwill is the portion of a business’ professional goodwill attributable to the presence or reputation of the owner or other key person. For example, suppose a medical practice has a goodwill value of $5 million, but that the doctor who owns the practice is a nationally recognized expert in his field. If the doctor left the practice, half of the patients of the practice would follow him to his new practice. In such a case, the personal professional goodwill attributable to the doctor is $2.5 million.

Although New York certainly allows for the valuation and distribution of this asset, the Courts have not adopted or required any particular valuation method. Therefore, the quality, credibility, and effectiveness of the appraiser, and the expertise and preparation of the attorney will be among the most critical determining factors in successfully presenting or defending a valuation of personal professional goodwill.

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The valuation of a professional practice in a divorce action in New York is a complex process. There are numerous legal, financial, practical, and evidentiary factors and considerations which must be identified, analyzed, and reconciled before a judge can determine the true value of a practice. 

Lee Rosen, of the Rosen Law Firm in North Carolina, recently published a concise overview of the valuation process. I thought the article did a very good job of identifying all of the steps in the valuation process and identifying the different issues which need to be addressed in a appraisal of a professional practice. The process and procedure for a valuation described by Rosen is generally the same in New York. 

The key to understanding how valuation is done in New York divorce actions is this: (1) there is no single required valuation method or technique, (2) the role of the expert appraiser is absolutely critical, and (3) the Court has enormous discretion in deciding what method to adopt, how to apply the method to the facts of the case, and in deciding the precise value of the practice. This ambiguity leaves a good deal of room for a competent, well-prepared, attorney or appraiser to effectively advance the client’s case.

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Expert testimony is required to determine the value of a party’s enhanced earning capacity based upon the acquisition of a professional license during the marriage. The quality of that expert’s work, including his methodology, assumptions, and allowance for different variables is absolutely critical to the Court in determining whether to accept or reject the testimony of that witness.

Sometimes, however, a retained expert’s work consists simply of plugging in some biographical information and income figures into a computer program and declaring the results to be his or her expert opinion. Little or no attention is paid to the unique facts and circumstances of the particular case. The Court’s reaction to such imprecise work can be devastating to the expert, the attorney, and the party who retained the expert.

In Somnnenfeld v. Sonnenfeld, Justice Robert A. Ross, the supervising justice of the Nassau County Supreme Court, reviewed and dicected the work of two expert evaluations of the enhanced earning capacities of the parties to a divorce action. The experts’ reports, which both attorneys stipulated to admitting into evidence at trial, were so bad in the eyes of the Court that it rejected them both and decided to appoint its own expert.

Sonnenfeld is an object lesson in the importance of retaining the right expert for equitable distribution purposes. It is also a reminder to attorneys that they are ultimately responsible (to the Court and their clients) for the quality and legal sufficiency of the expert’s report.

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