According to the most recent statistics, 42% of marriages in England and Wales end in divorce. When considering how the courts will divide resources, the starting point is an equal division of assets. There are several reasons why the courts will depart from an equal division of assets, including the needs of the parties and the differing contributions of the parties.
For a spouse that owns a dental practice, the consequence is that their dental practice and any freehold interest in the practice will be considered as a resource available to the parties in meeting both their current and future income and capital needs.
Let’s take the example of Billy, who recently became divorced from his receptionist wife of 12 years, though he didn’t marry her till he was nearly 40 and quite well established. Sarah did not bring any capital assets to the table, which was unsurprising, because she was somewhat younger than Billy.
Billy bought a practice long before he had met Sarah and paid off all of the underlying debt. The practice, including the practice freehold, was worth £1 million. Although Billy hadn’t worked for the NHS for a while, he had built up an NHS pension worth £1 million, all of which had been built up before he met his future ex-wife. Finally, they had a home worth £1 million, with a relatively small mortgage.
The starting point, and here indeed the endpoint, in this divorce, was that the matrimonial assets were split equally. This meant that a pension share order was made, leaving each of them with a pot worth around £500,000. Obviously, Billy took the practice, because he needed that to earn a living. That left the former matrimonial home entirely to Sarah.
Billy then had to buy a house with almost a 100% mortgage, which will not be repaid until just after his 70th birthday. Billy will be working full-time, until he is at least 70.
So the upshot here, is that above and beyond the practice, Sarah got 100% of the matrimonial assets and 50% of the pension that was funded before she had even met Billy.
Sarah sold the matrimonial home, bought a property for £500,000, stopped work immediately and shortly thereafter met a new partner.
If you are the owner of a dental practice, there are several matters to consider that will make matters more straightforward in the event of divorce.
Pre-nuptial and post-nuptial agreements
A pre-nuptial agreement sets out what will happen to the parties’ assets in the event of a breakdown of the relationship. A post-nuptial agreement is the same as a pre-nuptial agreement, except it is an agreement entered into during a marriage and not beforehand.
Both parties require legal advice before entering into a pre-nuptial or post nuptial agreement. It is important to note that, currently, pre-nuptial agreements and post-nuptial agreements are not recognised as binding by the courts. However, they are viewed as important indicators of the intentions of the parties before the marriage broke down, so are followed unless it would be wrong to do so. They can also significantly reduce conflict and legal costs during ensuing divorce proceedings.
So if a pre-nuptial agreement had been put in place for Billy and Sarah, they might have had a reasonable discussion about carving the practice out of the matrimonial pot, because it was an essential asset to enable Billy to earn a living. They might even have agreed that, when it was sold, perhaps 20 years after the divorce, a portion of the proceeds of sale go to Sarah.
They might also have agreed that since the NHS pension was entirely built up before Sarah came on the scene, this should not be available to Sarah on a divorce. This might have resulted in a totally different distribution of assets than the result arising out of the actual divorce with no prenup.
Partnership Agreements
In the case of a divorce, it is vital that any partnership agreement accurately reflects the interests of the partners in the business. The partnership agreement should set out how the dental partnership profit is shared, how any dental partnership property is owned and what happens in the event of a partner leaving or retiring from the partnership. In the absence of a partnership agreement, it will be assumed that any property or assets are owned equally between the partners. These assumptions will need to be rebutted during the proceedings.
If you have a family law query, please contact:
Jane Armstrong, family partner at Abrahams Dresden LLP on 020 7251 3663.
If you require a partnership agreement or have any further questions about partnerships, then please contact:
David Nezri, company, commercial and dental solicitor at Abrahams Dresden LLP on 020 7251 3663.
Abrahams Dresden articles and guidance notes are for general information purposes only and generally state the law as at the date of publication. The information may not be relied upon as legal advice. We are of course always happy to advise directly on specific issues arising.