Legal
Careful planning is necessary to ensure your practice isn’t at risk in the event of a shareholder’s marital split, warns Roger Mackenzie
break up When partnerships
W
hile most dent al practices continue to operate
under the traditional partner- ship structure, incorporation as a limited company may sometimes be recommended as a more effective vehicle for running the practice. Typically, financial issues, including potential tax savings, will drive the decision. The perceived lack of flex-
ibility of an incorporated company as opposed to a partnership business may be a downside, as can the adminis- trative and legal costs involved in transferring to a corporate structure and the ongoing administrative burden. Yet one issue that may less
frequently arise in conver- sations with advisers when considering the most appro- priate structure is the potential impact of incorporation in the event of the separation or divorce or dissolution of civil partnership of one of the share- holders in the business. In Scotland, matrimonial
property is an asset which is acquired after the date of marriage but before the date of the couple’s separation (with the exception of gifts or inheritances). In a situation where a
partner in a dental practice joined the partnership prior to marriage, the value of that share in the partnership would not fall under the definition of matrimonial property and therefore would
not be subject to fair sharing on divorce. However, where a practice
operating as a partnership decided to incorporate during the course of the marriage, the shareholding acquired after marriage would become part of the pot of assets to be shared. In other words, property that was not available for division would have been converted by the act of establishing the new business entity. The dentist shareholder
would still be able to point towards a source of funds argu- ment, and argue that even if the shares acquired were matrimo- nial property, they emanated from pre-marriage sources. However, such arguments
are notoriously unpredict- able and can often result in costly and acrimonious litiga- tion which can drag out over many years. The process will also often
involve a valuation of the shareholder’s interest in the business, usually by separate independent forensic account- ants instructed by lawyers in the divorce action. Few busi- nesses relish coming under that sort of scrutiny. That is not to say that the business would never require to be valued in a scenario where the interest is not matrimonial property. A spouse may still try to advance a case to argue that the
husband or wife has been economically advantaged to their corresponding disadvan- tage. Usually this might involve one party sacrificing their career to look after children or perhaps working unpaid for the spouse’s practice. To attempt to quantify the finan- cial advantage claimed, it may still be necessary to value the share in the business. It is worth noting that for
those in a cohabiting relation- ship, there is no equivalent to the matrimonial property regime and all arguments for financial provision have to be based on an exercise balancing each party’s financial and non- financial contributions and the advantage and disadvantage that has resulted. How can these problems be
avoided? An important consid- eration is to get financial and legal advice that looks beyond just the dental partnership as a business, to properly get to know the people involved and their particular family circumstances. If discus-
sion revealed difficulties in a practitioner’s marriage or that they
ABOUT THE AUTHOR
Roger Mackenzie is a solicitor in the Maclay Murray & Spens LLP business and family wealth team, specialising in family law.
Roger Mackenzie
were about to start a relation- ship, the advice ought to be tailored accordingly and could involve recommending a pre or post-nuptial agreement. If it is too late for preventa-
tive action then, fortunately for divorcing parties, there is a growing movement among family lawyers in Scotland which is rejecting the adver- sarial approach and embracing a collaborative ethos. With a recognition that few
parties emerge satisfied from suit shredding, emotionally charged separations, the collaborative approach offers a forum for family law matters to be dealt with by promoting open dialogue and focusing on achieving a solution which leaves the separating parties on reasonable terms and with their dignity intact.
Scottish Dental magazine 75
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