The letter is addressed to the practice manager. It asks for five years of financial statements, the partnership agreement, every valuation the practice has commissioned, and the compensation history of all the partners. It comes from a law firm the practice has never retained, in a matter the practice is not a party to. One partner’s marriage is ending, and the practice’s books have just become discoverable.
Physician divorce is more common than partnership agreements acknowledge, and it is the trigger partners are least willing to discuss in advance, for the obvious reason. It is also the one where advance drafting does the most work, because the instrument that solves it—a spouse’s signature—becomes unobtainable at the precise moment it is needed. Valuation professionals group the events that force a practice to be valued into four: disability, death, divorce, and divestiture. Every one arrives with emotion attached, which is the whole argument for setting the formula while it still describes nobody in particular.
Here is the mechanism, stated plainly. In community property states, property acquired during a marriage is generally presumed to belong to both spouses; in equitable distribution states, a court divides marital property on different principles but still has to value what is being divided. Either way, an ownership interest in a medical practice built during a marriage can be reached in the dissolution—without anyone breaching anything, and without the practice having done a single thing wrong. Which framework applies, and how a professional practice interest is treated inside it, is a question of state family law that a family law attorney answers for the partner and for the practice separately. The partnership’s job is narrower: to ensure that whatever a court divides, it divides economics rather than control.
Three provisions do that work. The first is the spousal signature at the time the agreement is executed, and again at every admission and every subsequent marriage. What it accomplishes is consent: the spouse acknowledges the buy-sell terms, agrees that any interest reached in a dissolution is valued and paid under the agreement’s formula rather than a court-appointed appraiser’s, and waives claims to ownership beyond that economic value. Enforceability turns on how the acknowledgment was obtained—independent counsel available to the spouse, adequate time to review, consideration, and no signature demanded on the eve of anything—and those requirements vary by state. Draft it with counsel, obtain it early, and never obtain it during a marital crisis, when it is both worthless and cruel.
The second is a defined divorce buyout treatment. State which value applies, on which formula, over what payout period, and say so before anyone needs to know. A court is not bound by the partners’ arithmetic. But a formula signed years before the marriage failed, applied identically to every partner, supported by an annual valuation the whole group re-signs, is enormously more persuasive than a number produced under subpoena—and it gives the divorcing partner something to negotiate with rather than something to litigate over.
The third is the separation of economic rights from governance rights. Draft so that any interest transferred by court order, or by any other involuntary means, conveys distributions only: no votes, no board seats, no information rights beyond what law requires, no ability to block a transaction. Pair it with the transfer restriction that gives the practice the right to redeem such an interest at formula value on a stated timeline. The point is not to leave a former spouse with nothing. The point is that a partnership’s governance was designed around the people practicing medicine inside it, and a marital dissolution should not add a voter.
Coordination with a prenuptial or postnuptial agreement is a partner’s own business, and the practice cannot require one. What the practice can do is make the interaction visible: give every partner a copy of the buy-sell provisions to hand to a family law attorney, and require that any marital agreement not contradict the partnership’s terms. Practices that do this well raise it at admission, when it is procedural, rather than at the first divorce, when it is personal.
Then there is the discovery burden, which nobody drafts until they have lived through it. A partner’s dissolution can consume weeks of the practice manager’s time producing financials, and can put every other partner’s compensation into an opposing expert’s hands. Address it in advance: the divorcing partner bears the practice’s reasonable costs of responding, the practice seeks a protective order over partner-level compensation and payer contract terms, and one person is designated to coordinate the production so four partners are not each answering the same request differently.
Acme Pediatrics offers the humane version of what good drafting buys. When Acme’s four partners funded a $1.2 million capital call for a second location—$300,000 apiece, staged in three tranches over 18 months under a $120,000 annual cap—Dr. Brown was mid-divorce, with her liquidity frozen, and could not fund tranche two. Nothing was negotiated, because nothing needed to be. The partner-loan mechanism drafted years earlier executed on its own terms: the three contributing partners funded her $100,000 at prime plus two, repayment by distribution withholding over 30 months, cap table untouched. No meeting was required. The consequence was already law. A partner going through the hardest year of her personal life did not also have to ask her colleagues for money, and her colleagues did not have to decide whether to say yes.
Red flags. No spouse signature, which means the person with the strongest claim to a partner’s equity never agreed to any of the terms governing it. Divorce buyout treatment undefined, leaving the value to be set under marital property law by a court with no reason to care about the practice’s cash flow. A court-ordered transfer that carries voting rights because the agreement never separated economics from governance. No transfer restriction as a backstop. Community property implications never raised with counsel in a state where they decide the outcome. And spousal acknowledgments collected when the practice was founded and from nobody since.
A divorcing partner needs colleagues, not counterparties. The agreement is what makes that possible—and a spouse who never signed one is a partner no one chose.
An interest built during a marriage can be reached in a dissolution, whether under community property presumptions or equitable distribution principles, without the practice having done anything wrong. Good drafting keeps the exposure economic: an interest transferred by court order conveys distributions only, with no votes, no board seat, and no information rights beyond what law requires, and a transfer restriction lets the practice redeem it at formula value.
The spousal acknowledgment records consent. The spouse acknowledges the buy-sell terms, agrees that any interest reached in a dissolution is valued and paid under the agreement’s formula rather than a court-appointed appraiser’s, and waives ownership claims beyond that economic value. It is obtained at execution, at every admission, and on every subsequent marriage, and never during a marital crisis, when it is both worthless and cruel.
A dissolution can consume weeks of the practice manager’s time producing financials and can put every other partner’s compensation into an opposing expert’s hands. Agreements address it in advance: the divorcing partner bears the practice’s reasonable costs of responding, the practice seeks a protective order over partner-level compensation and payer contract terms, and one person is designated to coordinate the production.
The Partnership Agreement Analyzer scores an existing agreement against the framework this series is built on — or schedule a discovery call to work through it with PMI. The full framework, with the arithmetic, lives in the textbook Pediatric Practice Management: The Fundamentals.