What are the industry specific issues that medical practitioners encounter when negotiating a fair and proper family law settlement? Daniel Kaufman, Special Counsel at Landers & Rogers provides some examples and offers tips on how best to manage a difficult situation.

It is perhaps the case that people divorce as they have lived. By way of example: 

A builder negotiating a family law settlement may encounter the tricky issues of how to value a half-built project, and how to account for building materials purchased but not used.

An IT entrepreneur may have an outwardly successful business, but on closer examination that business may have little value aside from its investor funding and a perhaps immeasurable degree of potential to be "the next big thing". 

More colourfully, a wife separated from an (alleged) crime figure was recently asked if she would permit him 45 minutes of "private access" to the former matrimonial home, in which she now lived exclusively. The request was (politely) declined. 

So what are the industry specific issues that medical practitioners encounter when negotiating a fair and proper family law settlement? 

Some examples are set out below, with tips on how to how to best manage a difficult situation. 

What to do with all that wine? 

Doctors often earn a healthy income, but are time poor. Perhaps then unsurprisingly, doctors are reputed to be enthusiastic purchasers of fine wines, which are then cellared more than consumed. 
Heaven help the enthusiastic collector who leaves the matrimonial home, and in it the treasured collection of dusty wine bottles, under the care of a now vengeful ex-spouse. 

Cases continue to arise, where a spouse in charge of the cellar acts in a manner which is neither lawful nor wise, but which appears to be directed towards satisfying a negative and 
immediate emotional need. 

Mass decanting has been known to take place, in apparent pursuit of vinegar. Sometimes the oxygenated wine is re-bottled and returned en masse. 

This action is more than somewhat myopic, because the court may assign to the "decanter" the value of the wine collection prior to it being ruined, as part of their matrimonial settlement. 

In other cases, it is suspected that a party has swapped the contents of a bottle of valuable wine, with those of a cleanskin - the good wine still being enjoyed but perhaps by the wrong person. 
This can pose a difficult evidentiary challenge. 

Although wine bottles may show obvious signs of tampering, chain of custody issues can complicate attempts to prove who opened a particular bottle, and when. 

Pushing the issue further, it would be prohibitively costly to lead expert evidence for the purpose of establishing that a bottle of Chateau Margaux 2009 Blathazar (rough value $5,200) tasted more like a cask of Berri Estates Dolce Rosso 2017 ($14.99 for 5 litres). 

Thankfully, this takes place rarely and then only on a small scale - it also carries a degree of risk, similar to that for the "decanter". 

The sale of wine on ebay, sometimes deliberately undervalued, is more easy to prove, but can be difficult to unwind. 

A "bona fide purchase for value without notice" is long established at common law to take good ownership of personal property. 

Specific "wastage" arguments under family law jurisprudence may still find application. 

Overall, this is a problem for which prevention is better than cure. A detailed inventory of wines is a helpful start, but off-site storage is perhaps the wisest of all measures. 

Diamonds are for-never 

Jewellery, or the precious materials therein, may have a significant market value. 

Sometimes, a party will deny having, or ever having had, jewellery of value. 

Purchase receipts and insurance policies can provide good evidence of contemporaneous existence, ownership and value. 

Photographs of jewellery can provide evidence of possession, at the time of the photograph. 

However, in a matrimonial claim it may also be necessary to prove contemporary possession for the purpose of seeking "retention" or "transfer" orders. 

That is where some parties seek to create a ruse. 

Claims that jewellery has been "stolen" may be refuted by the absence of any police report or insurance claim. 

However, a more difficult evidentiary issue arises when both parties assert that the other has possession of valuable jewellery.

The end result may be that the court is unable to make any finding of fact as to who has possession, due to the paucity of evidence available on that issue. 

The jewellery may then effectively become "lost in the wash". 

Nonetheless, more than one person has come undone by claiming that the other party took the family jewellery, and then posting photos of themselves on social media, wearing that same jewellery. 

Others are tripped up when they try to sell jewellery, which may be the subject of a police report. 
In both cases, the "rogue" party is at risk of misleading the court, and possibly also the police and an insurer, each of which has serious consequences. 

Stocking up 

A medical business may be valued as a matrimonial asset, by way of its "future maintainable earnings" being multiplied by a numerical figure that is adopted with reference to that particular business and broader industry factors. 

This formula allows an expert to arrive at an "enterprise value", which may then be topped by the value of surplus non-business assets, such as cash holdings. 

In other cases, profits from a medical business may be housed in a trust, prior to being distributed to beneficiaries over time. 

In these circumstances, the cash may be included in a matrimonial asset pool as a separate asset, at dollar value. 

More than one 'smart' doctor has tried to change the metrics of their business or their medical trust, by reducing its cash holdings. 

For example, surplus cash may be used to buy equipment such as medical machinery or even medical supplies such as bandages, in advance of their projected need. 

The equipment or supplies are arguably not 'surplus assets', and are less likely to be included in the business value, and accordingly in the matrimonial asset pool. 

The smart doctor figures that the equipment will still be used by him or her in the future, so why not purchase it now? 

But beware the smart doctor's spouse. He or she has a number of options in response. 

• It could be argued that the extra supplies, not presently needed by the business, are in fact "surplus assets", and should be ascribed their purchase value in accordance with the family law concept of "value to owner". 
• Another option for the spouse, depending on the value and type of equipment being purchased, is to simply wait. Major equipment purchases are unlikely to be repeated in the short term, and supplies are not likely to need replenishing. Therefore, the net profit of the business may be increased by the reduced equipment / supplies expense, potentially driving up the "enterprise value". 

Ultimately, good business valuers can see past tricks employed by a business owner to temporarily drive value down, and untimely capital expenditure may be "normalised" when assessing future maintainable earnings, thereby defeating the purpose of the early purchase. 

Taxation treason 

Doctors are often highly specialised, and may be forgiven for not keeping abreast of the latest developments with regards to taxation law. 

Unfortunately, not all doctors receive sound accounting and taxation advice.

Taxation issues and irregularities may become apparent in the valuation exercise, or in the general conduct of settlement negotiations.

The parties may disagree about who knew about whatever transactions gave rise a particular taxation risk, and who should be responsible for its consequences.

These issues are often ventilated in a controlled manner, because of the possibility of joint responsibility for any taxation debts. However, in many cases one party remains concerned that the other party will seek to invoke a taxation audit after a property settlement has been finalised, and then reply upon an indemnity given as part of the property settlement.

In those circumstances, it is wise to make sure that both parties have 'skin in the game' by providing for cross-indemnities for an agreed percentage (perhaps 50% each) of any such potential taxation liabilities.

This allows the parties and their advisors to work out the best path through the taxation issues.

Overall, the best way to address this difficult issue is the most obvious - get proper specialised accounting, legal and financial planning advice, sooner rather than later.

Parting words

The above is a small sample of the issues that can arise on a family law file, often to the chagrin of those involved.

Whilst steps can be taken to secure the wine collection or the jewellery, better protection is found in avoiding the entire matrimonial dispute entirely.

Short of maintaining a perfect relationship, which unfortunately none of us can guarantee, the best option is to consider using a Financial Agreement to set out what happens in the event of a separation.