Most physicians, attorneys, and dentists who built a practice over years arrive at a divorce consultation carrying the same fear: that everything they invested in that practice (the late nights, the referral network, the patient relationships) will be reduced to a line on a spreadsheet and split down the middle. The reality is more nuanced, and in most cases more favorable to the practice owner than that fear suggests. What actually determines how a professional practice is treated in a New York divorce isn’t a simple percentage formula. It’s classification, goodwill analysis, and a close reading of how New York’s statute changed in 2016 in ways many professionals haven’t heard about yet.
We represent business and practice owners in high-net-worth divorces, and the questions we work through with those clients are rarely about whether the practice will be “divided.” They’re about which portion of the practice’s value reaches the marital estate at all, how that value gets calculated, and how to keep running the practice without a former spouse involved in it. Getting those answers right requires both trial experience and a working knowledge of the valuation mechanics that drive the numbers.
Is Your Practice Marital or Separate Property?
Under Domestic Relations Law §236(B)(1)(c), property acquired during the marriage is presumed marital regardless of whose name appears on the practice’s operating agreement or professional corporation documents. A practice you founded the year you married is presumptively marital in its entirety. A practice you built before the marriage doesn’t automatically stay fully separate, though. If marital funds were invested in it, if it grew because of your spouse’s direct contributions, or if the appreciation during the marriage was driven partly by marital labor or support, a portion of that pre-marital practice can still carry marital value.
Courts don’t apply these rules mechanically. Domestic Relations Law §236(B)(5)(d)(10) directs courts to consider how difficult a business interest is to value and whether it makes sense to keep the practice intact and free from the other spouse’s direct claim. Courts generally prefer resolution structures that preserve business continuity rather than forcing a sale or mandating shared ownership of a professional practice.
Why Your License Is No Longer on the Table
Many professionals facing divorce have heard that a medical license, law license, or accounting credential can itself be valued and divided as a marital asset. That was the law in New York for three decades following the 1985 Court of Appeals decision in O’Brien v. O’Brien, which treated a medical license as distributable marital property and allowed its value to be calculated and awarded to the non-licensed spouse.
That rule no longer applies. Effective for divorce actions commenced on or after January 23, 2016, the legislature amended Domestic Relations Law §236(B)(5)(d)(7) to remove enhanced earning capacity derived from a license, degree, or career enhancement from the category of distributable marital property. Courts can’t value a professional license as a standalone asset and award a portion of its projected value to the other spouse. The concern that a medical degree will be placed on the equitable distribution spreadsheet is based on law that’s been gone for nearly a decade.
What the statute preserved is narrower. Courts can still consider a spouse’s contributions to the other spouse’s earning capacity as one factor in the overall equitable distribution analysis. A spouse who worked two jobs while the other attended dental school, or who managed the household so a partner could build a practice, can have those contributions weighed. But that’s a factor in the judge’s discretion, not a separate valuation exercise on the license itself.
What Actually Gets Valued: Enterprise Goodwill vs. Personal Goodwill
Even without a license valuation, a professional practice almost always carries some marital value. The question is how much, and that question turns on a distinction that drives most high-net-worth professional practice divorces: enterprise goodwill versus personal goodwill.
Enterprise Goodwill
Enterprise goodwill is the value that would survive if the current owner left the practice. It exists because of trained staff, an established patient or client base, the practice’s brand reputation, favorable leases, or systems that function regardless of who’s running them. Because this value is transferable, New York courts treat it as marital property subject to equitable distribution.
Personal Goodwill
Personal goodwill is tied to a specific individual’s skills, reputation, relationships, or personal characteristics. Patients who follow a particular physician regardless of which practice they join, or clients who retain a specific attorney wherever that attorney moves, are evidence of personal goodwill. New York courts have held that personal goodwill isn’t marital property because it can’t be separated from the individual and transferred to a new owner.
For a solo practitioner or a small professional practice, this distinction often determines the outcome more than any valuation methodology. When most of a practice’s earnings are attributable to the owner’s individual skill and referral relationships, the portion that actually reaches the marital estate can be far smaller than the practice’s gross revenue would suggest. Accurately separating enterprise and personal goodwill typically requires a forensic accountant or certified valuator who understands how New York courts draw this line.
How the Value Gets Determined & Divided
For service-based professional practices, valuators most often apply the income approach, sometimes called the capitalization of earnings method. This involves estimating the practice’s normalized earnings (what it earns after adjusting for owner compensation that exceeds market rates for similar professionals) then capitalizing those earnings using a rate that reflects the practice’s risk profile.
In contested cases, each spouse typically retains a separate certified business valuator, often a CPA holding a Certified Valuation Analyst (CVA) or Accredited in Business Valuation (ABV) credential. Two valuations of the same practice can differ by hundreds of thousands of dollars. That gap is usually driven by disagreements about what counts as enterprise versus personal goodwill, what the owner’s normalized compensation should be, and what capitalization rate applies. These aren’t just accounting questions. They’re arguments the attorneys on both sides need to know how to make and challenge.
Once a value is established for the marital portion of the practice, courts issue a distributive award: a dollar amount representing the non-owning spouse’s equitable share. How that award gets structured is where the practical resolution paths come in.
Buyout Arrangements
In a buyout, the practice owner pays the other spouse a sum equivalent to their equitable share, either as a lump sum at settlement or through structured payments over an agreed period. The owner keeps full control of the practice going forward. The tradeoff is liquidity: a buyout draws on the owner’s personal assets or requires financing, and the payment obligation doesn’t disappear if the practice’s earnings decline after the divorce.
Offset Arrangements
An offset avoids a cash payment by assigning the practice owner a larger share of other marital assets while the other spouse receives a greater portion of assets like real estate, retirement accounts, or investment portfolios. This preserves the owner’s control without a direct cash obligation, but it requires the marital estate to contain enough other assets to make the math work.
Continued Co-Ownership
Continued co-ownership (where both spouses retain an ownership interest in the practice after divorce) is the least common path and the most operationally difficult. It works occasionally in practices where both spouses have genuine roles and relationships with the business, but it carries ongoing entanglement that most owners want to avoid. Courts generally don’t impose it when a buyout or offset is feasible.
Protecting the Practice While the Divorce Is Pending
The period between filing and resolution is where practice owners make the most damaging mistakes. Courts scrutinize changes to compensation, distributions, or business structure made after a divorce action is commenced. An owner who dramatically increases their own salary, restructures ownership to dilute the practice’s apparent value, or starts running personal expenses through the business after filing creates a record that opposing counsel will use. The safest operating posture is to run the practice exactly as you were running it before filing.
Complete financial disclosure is also required. During discovery, practice records, tax returns, accounts receivable aging reports, and bank statements are all fair game. Understating income or concealing distributions doesn’t just risk court sanctions. It can destroy credibility on every other contested issue in the case.
Commingling personal and business finances is a separate problem that often predates the divorce. If personal expenses regularly ran through the business account, or if marital funds were used to capitalize the practice without clear documentation, the classification analysis becomes harder before valuation even begins. Untangling that history is possible but requires a forensic accountant and clean documentation of what the funds were actually used for.
The Questions That Actually Drive These Cases
A professional practice divorce in New York doesn’t turn on a formula. It turns on whether the practice is marital or separate property, or some mix of both; how enterprise and personal goodwill get allocated by a valuator a judge is likely to find credible; and which resolution structure lets the owner keep running the practice after the case ends. Those questions require attorneys who understand both the current statute and what contested practice valuation actually looks like in Dutchess County Supreme Court.
If you own or co-own a professional practice and are facing divorce, The Law Office of Dennis R. Vetrano, Jr., LLC is ready to walk through the specifics of your situation. Reach us at (845) 605-4330.