Excerpted from The Biggest Legal Mistakes Physicians Make: And How to Avoid Them
Edited by Steven Babitsky, Esq. and James J. Mangraviti, Esq. (©2005 SEAK, Inc.)
Download Free 646 Page E-book: The Biggest Legal Mistakes Physicians Make and How to Avoid Them
A multitude of physicians are involved in divorces each year and have to deal with a roller coaster of critical decisions and emotions in the break-up of their marriage, in addition to maintaining their practice and attending to the needs of patients. Many physicians make serious mistakes in their divorce, ranging from hiring inappropriate or inexperienced counsel to having unrealistic expectations about the outcome of their divorce and the length of time for it to be finished. These mistakes are likely to adversely affect the physician and his or her children and medical practice for years.
Mistake 1 Hiring Inappropriate or Inexperienced Counsel
Physicians often look to their corporate or health care counsel to represent them in their divorce. In addition, they frequently hire an attorney who is an inexperienced divorce counsel or does not have experience in representing physicians in divorce. For example, Texas is a community property state, which means that all property and income received during the marriage by one or both of the spouses belongs jointly to the husband and wife. Separate property of one spouse (which includes property owned prior to the marriage, gifts to one of the spouses, inheritance received by a spouse, and certain parts of personal injury settlements or recoveries) cannot be divided at the time of divorce. As a result, determining the character of a couple’s property as either separate or community property and the value of property is significant in every divorce. Community property may include complex property, such as real estate, professional practices, business entities, trusts, limited partnerships, employment benefits, retirement funds, IRAs, 401ks, profit-sharing plans, and stock options. In addition, divorce counsel with experience representing physicians are knowledgeable about the characterization and valuation of a physician’s practice or a physician’s interest in a practice.
Action Step Physicians should not hesitate to inquire into the experience of divorce counsel, as well as seriously consider retaining divorce counsel who is board certified in family law.
Mistake 2 Disclosing Only Limited or Incomplete Information
Physicians (and other clients) often fail to disclose up front to counsel all of their bad conduct or “warts.” Withholding damaging personal and/or business information from counsel can have devastating consequences. Such damaging information can include the existence of an affair, funds spent on the paramour, problems with the practice, as well as alcohol or substance abuse problems. Counsel who is aware of such damaging information can deal with it and frequently neutralize it. Rarely does such damaging information not come to light, and counsel cannot effectively help the physician if he or she first learns of it during a hearing, deposition, or other critical juncture in a case.
Action Step Physicians should be sure to disclose to counsel, and be completely candid about, all of their potentially damaging personal and/or business information.
Mistake 3 Not Insisting on a Confidentiality Agreement
Physicians often fail to insist on a confidentiality agreement to protect their patient list, and other confidential and proprietary information related to the practice. “Confidential information” usually means information that constitutes or contains financial or business information relating to the practice and may include any document, oral communication, or other information, the improper use of which is likely to cause injury to the physician or practice. A confidentiality agreement can limit disclosure of information except: to a party; to counsel and the counsel’s paralegal, computer, clerical, secretarial, and other employees and contract workers; to consultants or experts retained by a party or his or her counsel to whom disclosure is necessary; to a witness whose testimony is being taken either during deposition or at trial; and as evidence in a trial or hearing. A confidentiality agreement is especially important to limit disclosure of confidential and proprietary information by a valuation expert retained by the physician’s spouse.
Action Step Physicians should insist on a comprehensive confidentiality agreement to protect their patient list and other confidential and proprietary information related to their practice.
Mistake 4 Understating or Overstating the Value of a Medical Practice
Physicians often understate or overstate the value of their practice or interest in a practice. The value of a physician’s practice or interest in a practice is frequently a hotly contested issue in a divorce. In Texas (as in many states), personal goodwill is distinguished from commercial goodwill. Personal goodwill is based on an individual’s reputation, experience, training, and ability, and it attaches to the person of the physician as a result of confidence in his or her skill and ability. In Texas, personal goodwill does not possess value or constitute an asset separate and apart from the person of the physician or from the physician’s ability to practice medicine (i.e., personal goodwill is not divisible upon divorce). Commercial goodwill relates to an entity’s reputation and its ability, as an entity, to attract and retain patients, even with a change of personnel, especially physicians. Commercial goodwill is often divisible upon divorce. Personal goodwill is most significant in a sole proprietorship practice and is less significant in a partnership or professional association.
Action Step Physicians should recognize that the value of a physician’s practice or interest in a practice is often a hotly contested issue in a divorce. They should work closely with divorce counsel (and their valuation experts) to distinguish personal goodwill from commercial goodwill.
Mistake 5 Assuming Equal Division of Marital Property
Physicians often assume that marital property will be equally divided between spouses by the courts or that their spouse will be entitled to no more than 50% of the marital property. In Texas, marital or community property is divided in a manner that the court deems just and right, having due regard for the rights of each party and any children of the marriage. A spouse may be awarded a disproportionate share of the marital or community property for the following reasons:
- Fault in the breakup of the marriage (e.g., adultery or cruelty)
- Fraud on the community or marital estate
- Benefits the “innocent spouse” may have derived from the continuation of the marriage
- Disparity of earning power of the spouses and their ability to support themselves
- Health and ages of the spouses
- Education and future employability of the spouses
- Community or marital indebtedness and liabilities
- Tax consequences of the division of property
- Earning power, business opportunities, capacities, and abilities of the spouses
- Need for future support
- Nature of the property involved in the division
- Wasting of community assets by one or both of the spouses
- Credit for temporary support paid by a spouse
- Community or marital funds used to purchase out-of-state property
- Gifts to or by a spouse during the marriage
- Increase in value of separate property through community efforts by time, talent, labor, and effort
- Reimbursement claims
- Expected inheritance of a spouse
- Attorney’s fees to be paid
- Creation of community or marital property through the use of a spouse’s separate estate
- Size and nature of the separate estates of the spouses
- Creation of community or martial property by the efforts or lack of efforts of the spouses
- Actual fraud committed by a spouse
- Constructive fraud committed by a spouse
- The spouse to whom custody of the child or children is granted
- Needs of the child or children of the marriage
- Excessive community-property gifts to the parties’ child or children
Action Step Physicians, with the assistance of their divorce counsel, should evaluate and consider the various factors that could affect a division of the community or marital property and develop an appropriate strategy to address those factors.
Mistake 6 Having Unrealistic Expectations
Physicians often have unrealistic expectations about the outcome of their divorce and the length of time it takes for the divorce to be finished. Divorce counsel frequently hear predictions of what should or will happen in divorces based on the experiences of friends, colleagues, or family. However, every divorce is unique based on the characteristics and circumstances surrounding the spouses, the children, and the property. In addition, most states have a waiting period between the time one spouse files for divorce and the time that the court may grant a divorce, whether contested or uncontested. (In Texas, for example, the waiting period is 60 days. However, very few divorces involving physicians are completed within 60 days and may last for up to six months to one year, if not longer.)
Action Step Physicians should discuss the possible range of outcomes and their expectations, as well as a time line, with their divorce counsel at one of their initial meetings so that they will know what to expect.
Mistake 7 Disregarding Deadlines and Requests for Information
Physicians are and should be focused on their patients and their practice. As a result, they often fail to respond timely to requests from divorce counsel for pertinent information and documents. Physicians are very busy, and working on their divorce (by meeting with divorce counsel, working on discovery, gathering documents and other information, and attending depositions) is probably a low priority. However, divorce counsel must often respond to discovery requests from opposing counsel with deadlines imposed either by statute or by the courts. Disregarding deadlines and requests for information and documents, as well as withholding information from divorce counsel and not making time to work on their divorce, will only make the process more difficult and ultimately more expensive, and could also result in monetary or other sanctions.
Action Step To the extent possible, physicians should attempt to respond in a timely manner to requests from divorce counsel for pertinent information and documents and to provide the most complete information possible. In addition, physicians need to be actively involved in their divorce, make time to work on their divorce, and avoid the temptation to delegate most of the work to another, such as a staff person.
Mistake 8 Not Using Experts
Physicians often fail to consider that they will need additional expert advice in their divorce (e.g., a valuation expert to value their practice or interest in a practice or a certified public accountant to assist with scenarios for the division of community or marital property, to advise them and their divorce counsel about federal and state tax consequences arising out of the divorce, and perhaps to perform a tracing of separate property). If there are children in the marriage, a therapist may also be necessary.
Action Step Physicians and their divorce counsel should develop a list of potential experts who may be needed in the divorce, so that the experts can be retained early in the process if it is determined that they are necessary or advisable.
Mistake 9 Exhibiting Inappropriate Motivation and Behavior
Physicians often exhibit inappropriate motivation for the action or strategy that they want divorce counsel to use (e.g., inflicting pain or humiliation on their spouse or placing all of the blame on their spouse). Physicians often engage in inappropriate personal behavior (e.g., sharing a residence with a girlfriend or boyfriend, taking a girlfriend or boyfriend on an expensive vacation, or purchasing expensive gifts for a girlfriend or boyfriend). In addition, physicians often attempt to communicate with their spouses by telephone, e-mail, or text messaging.
Action Step Physicians must recognize that inflicting pain or humiliation on their spouse and refusing to accept any responsibility are not effective strategies in a divorce. In addition, physicians must avoid inappropriate personal behavior and be totally candid with divorce counsel about such behavior. Further, as a general rule, when communicating with their spouses by telephone, e-mail, or text messaging, physicians should not say anything or send a message that they would not like to have repeated in court.
Mistake 10 Not Having Had an Active Role As Caregivers of the Children
Physicians often have not had an active role as caregivers for their children because of their busy and sometimes unpredictable schedules. After the spouses separate and divorce proceedings begin, physicians find themselves having to adjust to the care of and responsibility for their children and attempting to balance that care and responsibility with their busy schedules.
Action Step Physicians must make plans for daycare and after-school care for their children, which may include hiring a nanny. Physicians must also make plans for the care of their children in case they are called to the hospital in the middle of the night.
Physicians involved in a divorce who are mindful of these mistakes and take steps to avoid them will be in a better position to weather the divorce with a minimal effect on their children and their medical practice.
Jimmy Vaught, Esq.
Peer reviewed by:
Thomas L. Ausley, Esq.