Contrary to myth that dentists suffer outsized divorce rates, the divorce rate for dentists is approximately 25% which is lower than the nationwide average. Still, dentists do get divorced and the dentists who own their practices may have to divide the value of their dental practice in an Illinois divorce. This article serves as a guide to dentists and their spouses who must value and divide a dental practice in an Illinois divorce.
A Dental Practice Appraisal Must Begin With Defining What Is Being Valued
What is a dental practice worth? The answer depends on what is actually being valued.
A dentist may own a whole solo practice, a small interest in a group practice, shares in a professional corporation, or an interest in a professional limited liability company. The dentist may also own the office building, another related business, or an interest in a management company.
These interests are not necessarily worth the same thing.
Similarly, the price paid for selected practice assets does not automatically establish the value of the dentist’s ownership interest. A transaction may include equipment, patient-related intangible assets, a trade name, or a covenant not to compete while excluding cash, liabilities, real estate, or other property.
The court must use fair market value in an Illinois divorce. Section 503(k) of the Illinois Marriage and Dissolution of Marriage Act states that “the court shall employ a fair market value standard.” 750 ILCS 5/503(k). The valuation date is the date of trial unless the parties agree to another date or the court chooses another date within its discretion. Id.
Accordingly, before applying a multiple or projecting earnings, the appraisal should identify the entity or entities being valued, the dentist’s percentage and class of ownership, the rights and restrictions attached to that interest, the assets and liabilities included, the valuation date, and whether the practice is expected to continue operating.
A dental practice may have substantial intangible value, so these distinctions matter. Business Valuation Resources identifies accounts receivable, equipment, supplies, managed-care agreements, patient and recall lists, a trained workforce, employment agreements, trade names, favorable leases, management systems, and other tangible and intangible assets that may exist in a dental practice. Business Valuation Resources, What It’s Worth: Valuing Dental Practices 59-64 (2024).
So, the appraisal should start with this question: What property does the dentist actually own?
What Does The Dentist Actually Own?
A dentist may own all of a professional corporation, a percentage of a group practice, or a membership interest in a professional limited liability company. A separate entity may provide management services or own the office building.
Each interest should be identified separately. Otherwise, an appraisal may omit an asset, include property the dentist does not own, or count the same economic benefit more than once.
Relevant documents may include shareholder or operating agreements, partnership agreements, buy-sell agreements, articles of incorporation or organization, compensation arrangements, stock or membership records, and agreements involving related entities.
Additionally, the dentist’s assets must be distinguished from the practice’s ownership interest. A dental entity may own cash, receivables, equipment, supplies, contractual rights, and intangible assets while also owing lease obligations, accounts payable, equipment loans, or other liabilities.
BVR also points out trade names, patient and recall lists, management systems, policies and procedures, provider contracts, a trained workforce, favorable lease rights, and other potential intangible assets. Id. at 60-64.
To be clear, not every practice has all of these assets. The appraiser’s job is to determine which ones truly exist and belong to the entity being valued.
The Dentist’s Ownership Percentage Is Only The Beginning
Someone may assume that owning 25% of a dental practice means that the dentist’s interest is worth exactly 25% of the value of the entire practice; however, this is not necessarily the case.
The appraiser must examine the rights attached to the interest, which include distribution rights, voting and management authority, transfer restrictions, and what happens when an owner becomes disabled, leaves the practice, retires, or dies.
An operating or buy-sell agreement may also contain a valuation procedure. Whether that procedure impacts a divorce valuation depends on what events trigger it and what rights it creates.
In all, ownership percentage is a starting point, but the value of the interest also depends on its legal and economic rights.
Illinois Law Restricts Who Can Own And Control A Dental Practice
A dental practice is not like an ordinary commercial business.
Generally, the Illinois Dental Practice Act prohibits corporations from practicing dentistry while recognizing specified professional dental entities and certain dental management service organizations that provide nonclinical business services. 225 ILCS 25/44.
So, the organizational form matters. For instance, under the Illinois Professional Limited Liability Company Act, a professional LLC may not provide dentistry unless all members and managers are licensed dentists. 805 ILCS 185/13(a)(1).
These restrictions may impact valuation since an ownership interest cannot necessarily be transferred to the same universe of buyers as an interest in an ordinary business. Before assuming that the interest can freely be sold, the appraiser must understand the entity’s ownership restrictions and governing documents.
These restrictions also make it important to distinguish the clinical practice from related nonclinical businesses. Under Section 44, dental management service organizations are permitted to provide certain nonclinical business services. 225 ILCS 25/44. If a practice operates through multiple entities, the appraisal should find which entity receives the revenue, owns the assets, incurs the expenses, and possesses the relevant contractual rights.
Yet, professional ownership restrictions do not determine whether the dentist’s economic interest is marital property, as that is a separate question governed by Illinois divorce law.
Is A Dental Practice Marital Or Nonmarital Property In Illinois?
The Illinois Marriage and Dissolution of Marriage Act defines “marital property” broadly to include property “acquired by either spouse subsequent to the marriage,” subject to the statute’s listed exceptions. 750 ILCS 5/503(a).
Section 503(b)(1) reinforces this rule. Property acquired by either spouse after the marriage and before the judgment of dissolution is “presumed marital property,” and that presumption may be overcome only by “clear and convincing evidence” establishing a statutory basis for treating the property as nonmarital. 750 ILCS 5/503(b)(1).
Thus, an ownership interest in a dental practice established or purchased during the marriage will generally be presumed marital even if just the dentist appears on the ownership documents and the other spouse cannot practice dentistry.
The licensing rules governing who may own or practice through a dental practice and the marital-property rules governing how that ownership interest is classified in a divorce answer different questions.
There may be a different result depending on whether the dentist acquired the practice interest before the marriage or acquired it through another statutory source of nonmarital property. For example, Section 503(a) excludes “property acquired by gift, legacy or descent” and also recognizes property acquired before the marriage, as well as property acquired in exchange for qualifying nonmarital property. 750 ILCS 5/503(a)(1), (2), (6).
Classification should be performed separately for each interest. A dentist may have owned part of a practice before marriage then purchased extra shares during the marriage. Likewise, ownership of a premarital dental practice does not automatically determine the classification of a separate real-estate company, management company, or other entity acquired later.
The acquisition history should be established through purchase agreements, formation documents, bank records, capital records, loan documents, and related evidence that shows when and how each interest was obtained.
A Nonmarital Dental Practice Can Still Create Reimbursement Claims
A dental practice may stay nonmarital property even when marital money or the dentist’s efforts contribute to its growth.
Section 503(a)(7) classifies “the increase in value of non-marital property” as nonmarital, even when the increase results from marital property or a spouse’s personal effort, but makes that rule “subject to the right of reimbursement” under Section 503(c). 750 ILCS 5/503(a)(7).
Marital funds used to purchase equipment, renovate an office, repay practice debt, or make a capital contribution may cause a reimbursement claim without converting the actual practice into marital property. When one estate contributes to another, “the contributing estate shall be reimbursed,” unless the contribution cannot be traced by clear and convincing evidence or was a gift. 750 ILCS 5/503(c)(2)(A).
Personal effort is treated similarly. The dentist’s work on a nonmarital practice may support reimbursement “if the efforts are significant and result in substantial appreciation,” unless the marital estate was reasonably compensated for those efforts. 750 ILCS 5/503(c)(2)(B).
So, reasonable compensation matters twice: it can impact whether the marital estate has a reimbursement claim and, later, how the appraiser separates payment for the dentist’s labor from the return attributable to ownership.
A Dental Practice Is Not Worth A Percentage Of Its Collections
Dental practices are frequently discussed in terms of production, collections, EBITDA, and industry multiples. These figures can provide useful valuation evidence. However, none of them alone are able to determine fair market value.
Dental-industry rules of thumb can provide a general range or corroborate another valuation conclusion, but they should not replace analysis of the practice. What It’s Worth: Valuing Dental Practices at 42-45.
This is because collections measure money received. They do not show how much remains after rent, staffing costs, equipment expenses, laboratory expenses, supplies, insurance, technology, and other overhead.
Two practices with identical collections can have drastically different values.
BVR illustrates this issue by comparing two hypothetical solo practices with the same gross revenue and the same amount going to the dentist-owner. Id. at 43-45. Still, the practices differ in location, office quality, staffing, work schedules, patient demographics, technology, and revenue sources. Id.
Revenue is a starting point. It is not a conclusion.
The appraisal needs to determine how the practice generates its collections, how much economic benefit remains after its expenses, how risky that benefit is, and whether it is likely to continue after a change in ownership.
What Factors Drive The Value Of A Dental Practice?
The fair market values of two dental practices that generate the same annual revenue may be very different.
Profitability, goodwill, location, technology, patient demographics and retention, operational efficiency, and market conditions are important value drivers. Id. at 44-45.
Profitability And Overhead
A buyer is not purchasing gross collections alone. The practice must generate an economic return after paying the expenses required to operate.
Accordingly, occupancy expenses, laboratory costs, supplies, equipment, insurance, technology, staff compensation, and other overhead can materially impact value.
A practice with large collections but unusually high expenses may be worth less than a smaller practice operating more efficiently.
Further, historical expenses must be considered in light of future requirements. Outdated equipment may need replacement, while helpful technology may improve efficiency.
Patients, Retention And Payer Mix
A practice-management system may hold thousands of patient names. However, that does not mean all of them represent active patient relationships.
The appraiser should evaluate patient demographics, patient retention, new-patient flow, recall activity, and historical attrition.
Favorable demographics, loyal patients, and consistent new-patient flow can reduce risk, while the location and payer composition of the practice can materially impact its economics.
Payer mix is important since reimbursement and profitability may differ between private-pay patients, commercial insurance, Medicaid, and other payment arrangements. The impact should be examined in the context of the particular practice and specialty.
The hygiene and recall program can also be important. Recurring hygiene appointments support continuing patient relationships. They can also create opportunities for restorative and other treatment.
Staff, Location And Referral Sources
A dental practice depends on more than its dentist. Dental assistants, hygienists, office personnel, billing staff, and managers can all help preserve patient relationships and operational continuity.
Location matters, too. Patients usually travel to the office for treatment. Local demographics, accessibility, competition, lease terms, and the practice’s history in the community can therefore affect value.
Referral sources may be particularly important for specialty practices. Periodontic practices may depend on referrals from general dentists, and that dependence makes strong professional relationships important. What It’s Worth: Valuing Dental Practices at 55.
Orthodontic practices present a similar issue. BVR explains that “[a] detailed analysis of referral sources and their stability is essential” and that a diverse referral base is more attractive than dependence on only a few sources. Id. at 58.
Technology, Equipment And Systems
Dental practices may need significant investment in specialized equipment and technology.
The appraisal may have to consider chairs and operatories, scanners, computers, radiography equipment, imaging systems, CAD/CAM systems, practice-management software, and related clinical or administrative technology.
Modern technology can increase a practice’s value because it can improve efficiency and reduce perceived buyer risk, but outdated equipment may require frequent repairs and greater ongoing expense. Id. at 44. Further, streamlined billing and scheduling systems can “reduce buyer risk and enhance perceived value.” Id. at 44.
Importantly, purchase price and book value do not necessarily establish fair market value, either. Specialized dental equipment may depreciate differently in the resale market or require costly replacement despite its accounting treatment.
How Dependent Is The Practice On The Dentist?
In all, the appraiser must determine how much of the practice’s value would survive the dentist-owner’s departure. A practice supported by branding, established systems, staff, patient relationships, and referral sources independent of the owner may preserve significant value after a transition. On the other hand, a practice mostly dependent on the dentist’s personal reputation, skills, and relationships may be less transferable.
That distinction will become central to separating personal goodwill from enterprise goodwill. However, before reaching goodwill, the appraiser must first determine what the practice truly earns by normalizing its financial statements.
A Dental Practice’s Financial Statements Must Be Normalized
The numbers reported on a dental practice’s tax returns or profit-and-loss statements do not necessarily show its actual economic earnings.
Normalization adjusts income and expenses to reflect the practice’s ongoing operations. BVR describes the goal as presenting a “true and standardized picture” of the practice’s operational profitability. Id. at 51.
The appraiser should distinguish recurring practice revenue from unusual or nonrecurring income. For example, proceeds from selling equipment should not necessarily be treated as part of the practice’s continuing earnings. Id. at 51.
Expenses need similar scrutiny.
Personal expenses paid by the practice, extraordinary marketing or renovation costs, unusual legal expenses, and compensation to family members unrelated to services actually provided may distort historical earnings.
Related-party transactions need review as well. If the dentist owns the office building separately and charges the practice rent above or below market, the appraiser may need to substitute market rent. Id. at 52-53.
Additionally, staffing costs should reflect what a buyer would reasonably expect. Overpaid staff may support an upward adjustment to profitability, while underpaid staff may require a downward adjustment to account for realistic future costs. Id. at 54.
The purpose is not to just increase earnings. Some adjustments increase normalized income, but others reduce it.
The end goal is a defensible measure of the practice’s recurring economic performance.
Reasonable Dentist Compensation Separates Labor From Ownership
A dentist-owner provides professional services and owns the business. When normalizing earnings, these two roles should be separated.
BVR tells appraisers to adjust owner compensation to what a buyer would reasonably pay for the same role and explains that the dentist’s region and specialty are relevant considerations. Id. at 52-53.
If the dentist is paid below market, treating all remaining earnings as a return on ownership may overstate practice value. If compensation is oddly high, the opposite problem can occur. So, reasonable compensation should reflect the dentist’s real clinical and management work.
This distinction is important in divorce, as the court is valuing an existing business interest rather than the dentist’s future labor.
What Assets And Liabilities Belong In The Dental Practice?
Earnings are just one part of a dental practice’s value. The appraiser must also identify the assets and liabilities that belong to the practice. The appraiser should avoid counting items that are already reflected elsewhere in the valuation.
Accounts receivable, cash, equipment, furniture, leasehold improvements, and supplies are potential tangible assets. Id. at 60. Intangible assets may include patient and recall lists, a trained workforce, provider agreements, trade names, favorable leases, and practice systems. Id. at 61-62.
Illinois law also provides that “[d]ental records are the property of the office in which dentistry is practiced.” 225 ILCS 25/50. These records and related recall systems may contribute to the practice’s ability to maintain patient relationships. Yet, they should not simply be valued as the future treatment of every patient in the database.
Finally, equipment loans, accounts payable, accrued expenses, and other debt may reduce the value of the ownership interest. So, the appraisal must consider the practice’s assets and its obligations.
Accounts Receivable Are Not The Dentist’s Speculative Future Earnings
Accounts receivable require particular attention. The Illinois Supreme Court addressed them directly in In re Marriage of Schneider, 214 Ill. 2d 152 (2005), which involved valuation of a dental practice; the dentist argued that including receivables in the practice value would double count income later used for support, but the Supreme Court rejected that argument.
The court distinguished receivables from speculative future earnings because the underlying work has already been performed, and it held that accounts receivable “have been earned and have a known value” and emphasized that collection at a later date “does not transform those assets into speculative or future income.” Schneider, 214 Ill. 2d at 170-71.
The court held that the receivables should have been considered in valuing the dental practice. Id. at 171. However, Schneider did not hold that the practice’s gross receivable balance should automatically be used. Since the evidence presented different values for the receivables, the Supreme Court remanded for the circuit court to determine their proper value.
So, an appraiser should evaluate collectibility, which includes aging, historical collection experience, contractual adjustments, bad debts, and collection costs, instead of simply using the amount billed.
How Is A Dental Practice Valued?
The next step is for the appraiser to select the valuation methods appropriate for the particular practice.
BVR identifies the three traditional approaches: the income approach, market approach, and asset approach. Valuators may use more than one approach to test the reasonableness of the result. What It’s Worth: Valuing Dental Practices at 39-40.
Importantly, no approach should be selected just because it produces the highest or lowest value.
The Asset Approach
The asset approach considers the practice’s tangible and intangible assets, which include goodwill, supplies, equipment, furnishings, and patient-related assets. This approach is less common for dental practices because the “primary value often resides in intangible assets” and cash flow rather than physical property. However, it may be helpful for a liquidating or underperforming practice or as a baseline for other approaches. Id. at 40.
Book value is not necessarily fair market value. Dental equipment may hold value after being fully depreciated or, on the flip side, have a resale value significantly below its recorded cost.
The Income Approach
The income approach focuses on the practice’s ability to generate cash flow. It considers historical revenue and expenses, risk, projected performance, and adjustments for owner compensation and nonrecurring expenses. Id. at 39.
Thus, normalization is vital. The appraiser must determine sustainable earnings after reasonable dentist compensation then account for the risk that those earnings will continue on.
The Market Approach
The market approach uses comparable dental-practice transactions. BVR identifies metrics like “percentage of collections or a multiple of EBITDA,” while also emphasizing the need to adjust for differences like patient demographics, location, and technology. Id. at 39.
Also, comparability depends on specialty, profitability, payer mix, growth, and deal structure. A multiple should not be applied mechanically simply because another practice sold at that multiple. Rules of thumb are typically used to corroborate another valuation or estimate a ballpark range. Id. at 42.
The Excess Earnings Method
The excess earnings method separates a return on tangible assets from earnings attributable to intangible value. This method is common in divorce matters that involve professional practices, as it is relatively easy to understand; however, some of its components are “highly subjective and easily manipulated.” Id. at 41.
Thus, assumptions concerning returns on tangible assets, normalized earnings, capitalization rates, and goodwill must be supported rather than accepted just because the calculation seems straightforward at first glance.
Not All Dental Practices Should Be Valued The Same Way
The type of dentistry performed can materially alter the valuation analysis.
Specialty dental practices have different equipment requirements, operating risks, patient patterns, referral relationships, and revenue structures. Id. at 55.
Accordingly, a general dental practice should not necessarily be compared with an oral-surgery practice simply because each reports similar annual collections.
Orthodontic Practices Require Special Attention To Ongoing Treatment
Orthodontic practices present an important valuation issue since treatment and payment can extend over a long period.
BVR explains that orthodontic treatments often last 18 to 24 months and that revenue may consist of both upfront payments and monthly installments. Id. at 57. This causes a timing issue.
At the valuation date, an orthodontic practice may have collected money for treatment that still needs to be performed. It may further have contractual rights to future payments for treatment already underway.
So, an appraiser cannot just add every outstanding contract receivable to value without evaluating the corresponding treatment obligations.
BVR identifies accounts receivable and contract receivables from ongoing orthodontic treatment as important valuation considerations. Id. at 57-58. It also notes that the actual treatment structure must be analyzed. Id.
The appraiser may need to figure out how much treatment remains, what costs will be required to complete it, how much has already been collected, and what amounts are still collectible.
A practice with substantial remaining contractual payments may have valuable future cash flow. Yet a practice that has heavily precollected treatment fees while still owing substantial clinical services has a different economic position.
Specialty Practices Have Different Revenue And Risk Profiles
Other specialties have their own considerations.
BVR notes that periodontic practices can depend greatly on referral relationships with general dentists, while oral-surgery practices often require greater investments in equipment and facilities and may operate with higher overhead. Id. at 55-56.
Pediatric practices typically have different referral sources, patient demographics, hygiene patterns, and Medicaid exposure. Id. at 56.
These kinds of differences impact comparability. The appropriate valuation depends on the economics of the practice rather than simply the fact that its owner is a dentist.
Once those economics have been established, another major question still remains: how much of the practice’s intangible value belongs to the enterprise and how much belongs to the dentist?
Personal And Enterprise Goodwill Are Different
Goodwill may represent a major part of a dental practice’s value, but not all goodwill belongs to the actual business.
Professional or personal goodwill is different from practice or commercial goodwill. Personal goodwill arises from the dentist’s reputation, skill, education, or other personal attributes; it is not transferable. Id. at 65. Practice goodwill reflects attributes of the operating business that help patients and revenue continue after an ownership transition. Id.
Regarding a dental practice, personal goodwill can be associated with the dentist’s personal reputation, clinical skill, or individual relationships with patients and referral sources. However, enterprise goodwill can be supported by the practice’s name, location, systems, workforce, multiple providers, patient recall program, and other features capable of remaining after the owner leaves.
In an Illinois divorce, this distinction is not just theoretical because Illinois law treats personal goodwill differently from enterprise goodwill.
In Re Marriage Of Schneider Controls Personal Goodwill In An Illinois Dental Practice
The Illinois Supreme Court addressed personal and enterprise goodwill in Schneider, the case involving the valuation of a dentist’s professional corporation. Earl, the dentist, had an expert who valued the practice at $346,300, attributing $311,300 to personal goodwill and $35,000 to fixed assets. Schneider, 214 Ill. 2d at 158. However, Jodi’s expert valued the practice at $481,000 and attributed $336,587 to intangible assets, including dental records, a leasehold interest, a trained workforce, intellectual property, trade names, and enterprise goodwill, while excluding personal goodwill. Id.
The circuit court found that “any goodwill that existed in the practice was personal goodwill” and that Jodi’s expert did not establish enterprise goodwill. Id. at 159. So, it excluded that goodwill from the dental practice’s fair market value. Id.
The Illinois Supreme Court agreed that Earl’s personal goodwill should not be included in the practice value. In doing so, the court relied on In re Marriage of Zells, 143 Ill. 2d 251 (1991), and In re Marriage of Talty, 166 Ill. 2d 232 (1995). Schneider, 214 Ill. 2d at 163-67.
In Zells, the court explained that “[g]oodwill represents merely the ability to acquire future income.” 143 Ill. 2d at 254. It held that adequately considering professional goodwill as part of income potential under the Dissolution Act makes “[a]ny additional consideration of goodwill value . . . duplicative and improper.” Id. at 256.
Talty explained that this concern extends beyond situations regarding maintenance or support; in fact, the relevant question is whether the same elements underlying personal goodwill are already being considered under Section 503(d). 166 Ill. 2d at 237-40. The court stated that when goodwill depends on the owner’s personal efforts, “the same elements that underlie that calculation” are also considered through the statutory property-division factors. Id. at 238.
Applying these two cases, Schneider stated that Earl’s personal goodwill had already been considered when the circuit court applied Section 503(d) and awarded Jodi a disproportionate share of the marital estate. 214 Ill. 2d at 167. Accordingly, the Supreme Court held that “[a]ny further consideration of that goodwill in valuing Earl’s dental practice would amount to an impermissible double counting.” Id.
Schneider does not exclude all goodwill from an Illinois business valuation. The court stated that “the duplication of the factors set forth in section 503(d) of the Act is limited to personal goodwill and does not extend to enterprise goodwill.” Id. at 168. This distinction comes from Talty, as enterprise goodwill may be included when it exists independently of the owner’s personal efforts and “will outlast his involvement with the enterprise.” Talty, 166 Ill. 2d at 240. By contrast, goodwill that is personal to the owner, depends on that owner’s efforts, and “will cease when his involvement with the [business] ends” should not be treated as property. Id.
In all, an Illinois dental-practice appraisal must distinguish the dentist’s personal earning attributes from goodwill that truly belongs to and is transferable with the practice. Schneider further shows that enterprise goodwill cannot be assumed. 214 Ill. 2d at 159.
Dental Service Organizations And Private Equity Can Complicate Value
In recent years, the market for dental practices has increasingly included dental support organizations and private-equity-backed buyers. According to the American Dental Association, 16% of U.S. dentists were affiliated with a DSO as of 2024. American Dental Association, Health Policy Institute, Dental Practice Research (2024).
In Illinois, this structure is recognized. Section 44 of the Illinois Dental Practice Act allows dental management service organizations to provide “non-clinical business services” consistent with the Act. 225 ILCS 25/44(g). Still, Illinois continues to restrict ownership of the entities that actually practice dentistry.
The distinction matters when a DSO or private-equity transaction is used as evidence of value.
DSO transactions can involve a mix of cash and rollover equity and may require the selling dentist to stay with the practice for a certain amount of time after the transaction. What It’s Worth: Valuing Dental Practices at 84. Private-equity transactions may further include growth targets, negotiations over control, performance incentives, and continued equity participation. Id. at 84-85. Thus, a headline DSO offer should not automatically be treated as the fair market value of the dentist’s marital interest.
The appraiser may need to distinguish cash paid for the practice from rollover equity, restrictive covenants, contingent or performance-based consideration, compensation for the dentist’s future employment, and related post-closing obligations.
The transaction can still provide essential market evidence. The terms merely need to be understood before the purchase price is compared with the value required in an Illinois divorce.
The Appraiser Must Investigate The Actual Dental Practice
A dental-practice valuation should not only be based on tax returns and a percentage of annual collections.
The appraiser should examine the records required to understand how the practice operates. Records may include general ledgers, financial statements, tax returns, accounts-receivable aging, leases, governing agreements, production and collections by provider, active-patient and recall reports, payer mix, new-patient and referral data, employee payroll, and owner compensation.
Prior offers, acquisitions, buy-sell valuations, formal appraisals, or sales may also be relevant. However, each should be evaluated in light of its date, standard of value, purpose, and transaction terms.
This practice-specific investigation matters. Investors themselves consider far more than revenue. BVR notes that dental-practice buyers evaluate factors like size, location, payer mix, patient demographics, technology, management quality, staff retention, revenue sources, and growth potential. Id. at 85.
The valuation should explain how those facts impact the subject practice instead of simply reciting industry statistics.
The Valuation Expert Must Avoid Double Counting
A technically correct valuation method may nonetheless produce an incorrect result if the same economic benefit is counted more than once.
Personal goodwill provides the clearest example. Under Schneider, the characteristics underlying the dentist’s personal goodwill cannot be incorporated into the business value and then essentially considered again through the statutory factors that concern income potential and economic circumstances.
Other potential overlaps need similar attention.
Accounts receivable should be included when appropriate because Schneider views them as earned assets rather than speculative future earnings. Yet an expert should still determine whether the same receivables are already reflected somewhere else in the valuation.
The same caution applies to transaction proceeds, equipment, and related real estate. Separately owned office real estate should not be valued both inside the dental practice and again as a separate marital asset. Similarly, compensation a dentist will receive for working after a DSO sale should not automatically be treated as consideration paid for the existing practice.
Further, rollover equity and contingent payments should not be treated as though they were guaranteed cash received on the valuation date.
The appraiser should value each economic benefit once and in the proper place.
So…How Is A Dental Practice Actually Divided In An Illinois Divorce?
The Illinois court must assign each spouse’s nonmarital property to that spouse and divide marital property “in just proportions considering all relevant factors.” 750 ILCS 5/503(d). These factors include the value of the property assigned to each spouse, their economic circumstances and sources of income, their opportunities to acquire future assets and income, and the tax consequences of the property division. Id.
The court has authority to enter judgments impacting marital property and, when appropriate, enforce them through a sale of marital property. 750 ILCS 5/503(i). So, a sale is available to the court, yet not every marital business is required to be sold.
Dental licensing restrictions may make a direct division of ownership impractical or even legally unavailable.
For instance, a professional LLC practicing dentistry cannot do so unless all members and managers are licensed dentists. 805 ILCS 185/13(a)(1). A professional corporation also may not issue its stock to someone who is not licensed or otherwise legally authorized to provide the same professional services, and Illinois prohibits an unlicensed person from having an ownership, management, or control interest in such a corporation. 805 ILCS 10/11, 15.
As a result, the dentist spouse may keep the professional entity while its marital value is accounted for elsewhere in the property division. That may occur through an equalization payment, an award of other marital property, or another structure the court finds appropriate.
Liquidity is important.
A practice may have a substantial appraised value without having that amount sitting in cash. Requiring an immediate payment based on the full value might impact practice debt, operating capital, or the ability of the business to keep functioning. These circumstances can be considered when fashioning the overall property division under Section 503(d).
The Bottom Line When Valuing And Dividing A Dental Practice In An Illinois Divorce
What is a dental practice worth in an Illinois divorce? The answer cannot be determined by simply applying a percentage to annual collections.
The analysis begins with identifying the dentist’s ownership interest, classifying it as marital or nonmarital property, and determining what assets, liabilities, and contractual rights belong to the practice.
Then, the appraiser must normalize earnings, account for reasonable dentist compensation, and pick a valuation method that reflects the economics of the practice.
Dental practices raise unique valuation issues regarding patient retention, referral sources, specialty practice economics, accounts receivable, and goodwill. Personal goodwill attributable to the dentist must be distinguished from enterprise goodwill that belongs to the practice. DSO or private-equity offers may provide helpful evidence of value; however, their cash, rollover equity, continued employment, and other transaction terms should be analyzed separately.
After the marital value is determined, the court must incorporate that value into an equitable property division. The dentist may keep operating the practice while the other spouse receives an equalization payment, other marital property, or another award reflecting the marital value of the business.
Russell D. Knight is a Chicago divorce and family law attorney who has practiced family law since 2006. He represents clients in complex Illinois divorce matters involving professional practices, closely held businesses, business valuations, and other difficult-to-value marital assets.
CASES, STATUTES, AND OTHER SOURCES REFERENCED IN THE DENTAL-PRACTICE VALUATION AND DIVORCE IN ILLINOIS ARTICLE
225 ILCS 25/44 — Corporate Practice Of Dentistry, Permitted Dental Entities, And Dental Management Service Organizations
225 ILCS 25/50 — Dental Records, Record Retention, And Ownership Of Dental Records
805 ILCS 185/13(a)(1) — Dentist-Licensing Requirements For Members And Managers Of A Professional LLC
805 ILCS 10/11 — Professional-Corporation Stock Ownership And Transfer Restrictions
805 ILCS 10/15 — Licensing Requirements For Ownership, Management, And Control Of A Professional Corporation
750 ILCS 5/503(a), (b)(1) — Definition And Presumption Of Marital Property
750 ILCS 5/503(a)(1), (2), (6), (7) — Gifts, Premarital Property, Property Acquired In Exchange For Nonmarital Property, And Appreciation Of Nonmarital Property
750 ILCS 5/503(c)(2)(A)–(B) — Reimbursement For Contributions And Personal Effort Between Marital And Nonmarital Estates
750 ILCS 5/503(d) — Factors Governing The Division Of Marital Property
750 ILCS 5/503(i) — Court Authority Concerning Marital Property And Sale Of Property
750 ILCS 5/503(k) — Fair-Market-Value Standard And Valuation Date
In re Marriage of Schneider, 214 Ill. 2d 152 (2005)
In re Marriage of Zells, 143 Ill. 2d 251 (1991)
In re Marriage of Talty, 166 Ill. 2d 232 (1995)
American Dental Association, Health Policy Institute, Dental Practice Research — Dental Support Organization Affiliation And Dental-Practice Industry Data
Business Valuation Resources, What It’s Worth: Valuing Dental Practices (2024)
FREQUENTLY ASKED QUESTIONS ABOUT DENTAL-PRACTICE VALUATION AND DIVORCE IN ILLINOIS
Is A Dental Practice Marital Property In An Illinois Divorce? An ownership interest acquired during the marriage is typically presumed marital property. A premarital, gifted, inherited, or otherwise qualifying nonmarital interest may stay nonmarital, although reimbursement claims may arise.
How Is A Dental Practice Valued In An Illinois Divorce? In Illinois, courts apply a fair-market-value standard. An appraiser may use the asset, income, market, or excess-earnings method after normalizing earnings and considering the practice’s assets, liabilities, patients, staff, specialty, risks, and transferability.
Is A Dental Practice Worth A Percentage Of Its Collections? Not necessarily; collection-based rules of thumb may provide a general range or reasonableness check, yet practices with similar collections may have very different profitability, patient bases, risks, and transferable value.
Are Accounts Receivable Included In The Value Of A Dental Practice? They can be; in In re Marriage of Schneider, the Illinois Supreme Court held that dental-practice receivables were distinguishable from speculative future earnings, as the underlying work had already been performed.
Is Goodwill Included In The Value Of A Dental Practice? Enterprise goodwill may be included if it belongs to the continuing practice. Personal goodwill attributable to the dentist’s reputation, skill, relationships, and future earning ability is treated differently.
