THE LAW * LE DROIT
Separation and divorce and MDs: What is your licence to practise worth? Gene C. Colman
fter completing medical school and firmly establishing herself in private practice, Dr. "Janice Jones" met and married John, a writer. He did not earn much money but was a good father to their two children and his chosen profession allowed him to remain at home to care for the children while his wife pursued her career. The two have now separated. Should John be able to share in the value of her licence? (If the answer is "yes", Ontario's Family Law Act would credit him with the increase in the value of the licence from marriage date to separation date.) Dr. "Joe Smith" is an exceptional person. At 17 he was working in the local hospital as an orderly. At 20 he married and with the financial support of his devoted wife, who held down two jobs, he went back to school, obtained his BSc, his MD, and finally certification from the College of Family Physicians of Canada. After 5 years in a successful practice, Smith decided that he wanted a divorce. His wife's accountant valued his licence and certificate at $300 000 and his practice at $400 000. He is now wondering whether it is financially feasible to proceed. Obviously, there are differences in these two physicians' siA
Gene C. Colman practises family law with Teplitsky, Colson in Toronto and Brampton, Ont.
tuations. Most people would probably expect that Jones should have to pay nothing to her husband for her medical degree because he did not help her acquire it. And most would surmise that Smith's wife should be compensated in some way for the direct contribution she made to his career and practice. The law in Ontario and in the other provinces and the United States is currently grappling with these difficult issues. At the moment the law is far from settled. Ontario's Family Law Act purports to equalize between spouses wealth acquired during a marriage. It applies not only when a couple separates but also, under certain circumstances, when one spouse dies. But something that was intended to bring predictability and certainty has wrought uncertainty and legal havoc. The act is particularly important to physicians because under it their licence to practise and specialty certification might be considered "property". Under the act, the property of each spouse is valued and the increase in a spouse's net worth from the marriage date to the valuation date - generally the date of separation - is shared equally. There are exceptions, of course, but this is the general rule. The act can also apply on death. If the surviving spouse believes the will yields less than would have been received had the couple -separated, then that spouse
can make a claim against the estate. Even if a physician feels that his or her affairs are in order that the spouse has been well looked after - and even if there is not a hint of marital discord, remember this: the best laid plans can go awry. Therefore, the wellinformed physician must be just that - well informed! Before calculating the appropriate "equalization payment", one must decide what actually is property and then the value of each piece of property. This is relatively easy for items such as real estate, cars, furniture and bank accounts, but problems arise when a physician's spouse insists that the licence to practise is itself property and has considerable value. If the Supreme Court of Canada ultimately decides that a professional licence is property and does have value, then physicians or their estates could face large claims. Conceptually, an analysis of whether a licence is property should not depend on the spouse's contribution to its acquisition -a licence is either property or it isn't and its inherent value should nol depend on whether or not it was acquired through joint effort. Unfortunately, cases decided thus fax have not generally appreciated this fact. If a spouse contributed to acquisition of the licence - shq contributed to the realization of the physician's career potentialthen many argue that such a conCAN MED ASSOC J 1990; 142 (6)
645
tribution should be financially recognized whether a licence is property or not. This new concept of "compensatory support" has received some tentative recognition in Ontario courts in the past 2 years. In our example, Smith's wife would surely qualify for it if the concept becomes more widely accepted by the courts. Jones's husband might also qualify. What directions are now being pursued by the courts? A capsulized look at some cases provides an indication of the present uncertainty: * Corless - In 1987 Judge Steinberg of the Unified Family Court of Ontario considered a licence to practise law. He held that such a licence was property but had no value. * Menage v Hedges - Later that year, Judge Fleury of the same court considered the value of the medical practices of a Hamilton couple, both physicians. Although both parties conceded that the licences themselves were not property within the meaning of the Family Law Act, they disagreed on the appropriate way to value their practices. (This case has been cited in other decisions where the court was considering the licence issue, even though the case, strictly speaking, deals with a practice. valuation.) Dr. Hedges did not work out of an office, had no patients of his own and worked primarily as a cardiovascular surgical assistant for four Hamilton surgeons. Dr. Menage had been in private practice for less than 3 months when the separation occurred and consequently had not yet established a significant patient base. Menage argued that the practices should be valued according to their ability to earn a certain income. This ""capitalization of earnings" approach is frequently used by business valuators but Judge Fleury found it to be particularly inappropriate for the valuing of medical practices. He con646
CAN MED ASSOC J 1990; 142 (6)
cluded that neither practice had any value beyond its hard assets and receivables. However, it is noteworthy that in reaching his decision Judge Fleury relied on Justice Craig's decision in Brinkos, a case overturned op appeal. * Caratun - A foreign graduate received his licence to practise dentistry in Ontario partly through the efforts of his wife. No sooner had the licence been granted than the husband sought a divorce. Justice Van Camp held that the licence was property under the act, but the American precedents on which she relied dealt with professional licences acquired with the assistance of the other spouse. Her decision itself specifically refers to licences that are "the product of a joint effort". Thus, the decision may be of limited applicability in cases in which the spouse made no contribution to the acquisition of the licence. Finding that the value of the licence was $219 346, Van Camp awarded the wife a $30 000 interest as "her contribution". Van Camp did not add the value of the licence to Caratun's property for equalization purposes, an approach that has attracted some criticism. The case is currently under appeal. * Linton -The husband returned to school during the marriage and received a doctorate in animal physiology, and his wife claimed the degree was property. Judge Killeen disagreed, rejecting the approach in the Caratun decision. "If the courts hold that the lawyer's right to practise, or the doctor's or dentist's licence, is property", Judge Killeen asked rhetorically, "where are the limits for such a holding within the framework of the employment patterns of our community? These professional qualifications do nothing more nor less than enable their possessors to work in a particular occupation and earn an income. How, then, can the law draw any rational and logical di-
viding lines between occupations when deciding which kind of job qualification will attract property assessment under Pt. 1 of the FLA [Family Law Act]? It is clear that the right to work, whether in a profession or otherwise, is a right entirely personal to the individual and is not capable of transfer to another nor can it be considered as a subject of 'ownership' in the ordinary meaning of that term." * Brinkos - At trial, Justice Craig decided that the right to a future income stream from a trust fund was not "property" within the meaning of the Family Law Act. The Court of Appeal recently decided that it was. The appeal court took pains to differentiate between the future right to receive income because of an "external event" versus the situation in which a professional practising under a licence earns income through his own efforts. "The [licence] will earn nothing without the services of the licensee", the court stated. On the other hand, a trust fund will produce income regardless of the efforts made by the beneficiary of the trust. Although this case provides a strong indication that licences are not property, remember that the licence's nature was not an issue directly before the court. Therefore, the court's musings are not,
strictly speaking, binding. The bottom line is that we will have to wait for the Ontario Court of Appeal decision in Caratun. But even after that, there is the possibility of a further appeal to the Supreme Court of Canada in that or other similar cases. In any event, until the Supreme Court of Canada finally resolves these issues a physician should not necessarily concede that his or her licence to practise is "property". The information in this article is for reference purposes only and is not to be interpreted in any way as constituting legal advice.
Separation and divorce and MDs: What is your licence to practise worth? Gene C. Colman
fter completing medical school and firmly establishing herself in private practice, Dr. "Janice Jones" met and married John, a writer. He did not earn much money but was a good father to their two children and his chosen profession allowed him to remain at home to care for the children while his wife pursued her career. The two have now separated. Should John be able to share in the value of her licence? (If the answer is "yes", Ontario's Family Law Act would credit him with the increase in the value of the licence from marriage date to separation date.) Dr. "Joe Smith" is an exceptional person. At 17 he was working in the local hospital as an orderly. At 20 he married and with the financial support of his devoted wife, who held down two jobs, he went back to school, obtained his BSc, his MD, and finally certification from the College of Family Physicians of Canada. After 5 years in a successful practice, Smith decided that he wanted a divorce. His wife's accountant valued his licence and certificate at $300 000 and his practice at $400 000. He is now wondering whether it is financially feasible to proceed. Obviously, there are differences in these two physicians' siA
Gene C. Colman practises family law with Teplitsky, Colson in Toronto and Brampton, Ont.
tuations. Most people would probably expect that Jones should have to pay nothing to her husband for her medical degree because he did not help her acquire it. And most would surmise that Smith's wife should be compensated in some way for the direct contribution she made to his career and practice. The law in Ontario and in the other provinces and the United States is currently grappling with these difficult issues. At the moment the law is far from settled. Ontario's Family Law Act purports to equalize between spouses wealth acquired during a marriage. It applies not only when a couple separates but also, under certain circumstances, when one spouse dies. But something that was intended to bring predictability and certainty has wrought uncertainty and legal havoc. The act is particularly important to physicians because under it their licence to practise and specialty certification might be considered "property". Under the act, the property of each spouse is valued and the increase in a spouse's net worth from the marriage date to the valuation date - generally the date of separation - is shared equally. There are exceptions, of course, but this is the general rule. The act can also apply on death. If the surviving spouse believes the will yields less than would have been received had the couple -separated, then that spouse
can make a claim against the estate. Even if a physician feels that his or her affairs are in order that the spouse has been well looked after - and even if there is not a hint of marital discord, remember this: the best laid plans can go awry. Therefore, the wellinformed physician must be just that - well informed! Before calculating the appropriate "equalization payment", one must decide what actually is property and then the value of each piece of property. This is relatively easy for items such as real estate, cars, furniture and bank accounts, but problems arise when a physician's spouse insists that the licence to practise is itself property and has considerable value. If the Supreme Court of Canada ultimately decides that a professional licence is property and does have value, then physicians or their estates could face large claims. Conceptually, an analysis of whether a licence is property should not depend on the spouse's contribution to its acquisition -a licence is either property or it isn't and its inherent value should nol depend on whether or not it was acquired through joint effort. Unfortunately, cases decided thus fax have not generally appreciated this fact. If a spouse contributed to acquisition of the licence - shq contributed to the realization of the physician's career potentialthen many argue that such a conCAN MED ASSOC J 1990; 142 (6)
645
tribution should be financially recognized whether a licence is property or not. This new concept of "compensatory support" has received some tentative recognition in Ontario courts in the past 2 years. In our example, Smith's wife would surely qualify for it if the concept becomes more widely accepted by the courts. Jones's husband might also qualify. What directions are now being pursued by the courts? A capsulized look at some cases provides an indication of the present uncertainty: * Corless - In 1987 Judge Steinberg of the Unified Family Court of Ontario considered a licence to practise law. He held that such a licence was property but had no value. * Menage v Hedges - Later that year, Judge Fleury of the same court considered the value of the medical practices of a Hamilton couple, both physicians. Although both parties conceded that the licences themselves were not property within the meaning of the Family Law Act, they disagreed on the appropriate way to value their practices. (This case has been cited in other decisions where the court was considering the licence issue, even though the case, strictly speaking, deals with a practice. valuation.) Dr. Hedges did not work out of an office, had no patients of his own and worked primarily as a cardiovascular surgical assistant for four Hamilton surgeons. Dr. Menage had been in private practice for less than 3 months when the separation occurred and consequently had not yet established a significant patient base. Menage argued that the practices should be valued according to their ability to earn a certain income. This ""capitalization of earnings" approach is frequently used by business valuators but Judge Fleury found it to be particularly inappropriate for the valuing of medical practices. He con646
CAN MED ASSOC J 1990; 142 (6)
cluded that neither practice had any value beyond its hard assets and receivables. However, it is noteworthy that in reaching his decision Judge Fleury relied on Justice Craig's decision in Brinkos, a case overturned op appeal. * Caratun - A foreign graduate received his licence to practise dentistry in Ontario partly through the efforts of his wife. No sooner had the licence been granted than the husband sought a divorce. Justice Van Camp held that the licence was property under the act, but the American precedents on which she relied dealt with professional licences acquired with the assistance of the other spouse. Her decision itself specifically refers to licences that are "the product of a joint effort". Thus, the decision may be of limited applicability in cases in which the spouse made no contribution to the acquisition of the licence. Finding that the value of the licence was $219 346, Van Camp awarded the wife a $30 000 interest as "her contribution". Van Camp did not add the value of the licence to Caratun's property for equalization purposes, an approach that has attracted some criticism. The case is currently under appeal. * Linton -The husband returned to school during the marriage and received a doctorate in animal physiology, and his wife claimed the degree was property. Judge Killeen disagreed, rejecting the approach in the Caratun decision. "If the courts hold that the lawyer's right to practise, or the doctor's or dentist's licence, is property", Judge Killeen asked rhetorically, "where are the limits for such a holding within the framework of the employment patterns of our community? These professional qualifications do nothing more nor less than enable their possessors to work in a particular occupation and earn an income. How, then, can the law draw any rational and logical di-
viding lines between occupations when deciding which kind of job qualification will attract property assessment under Pt. 1 of the FLA [Family Law Act]? It is clear that the right to work, whether in a profession or otherwise, is a right entirely personal to the individual and is not capable of transfer to another nor can it be considered as a subject of 'ownership' in the ordinary meaning of that term." * Brinkos - At trial, Justice Craig decided that the right to a future income stream from a trust fund was not "property" within the meaning of the Family Law Act. The Court of Appeal recently decided that it was. The appeal court took pains to differentiate between the future right to receive income because of an "external event" versus the situation in which a professional practising under a licence earns income through his own efforts. "The [licence] will earn nothing without the services of the licensee", the court stated. On the other hand, a trust fund will produce income regardless of the efforts made by the beneficiary of the trust. Although this case provides a strong indication that licences are not property, remember that the licence's nature was not an issue directly before the court. Therefore, the court's musings are not,
strictly speaking, binding. The bottom line is that we will have to wait for the Ontario Court of Appeal decision in Caratun. But even after that, there is the possibility of a further appeal to the Supreme Court of Canada in that or other similar cases. In any event, until the Supreme Court of Canada finally resolves these issues a physician should not necessarily concede that his or her licence to practise is "property". The information in this article is for reference purposes only and is not to be interpreted in any way as constituting legal advice.
