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Concerned about the vagaries of trying to place a value on a medical license at the outset of a doctor’s career, an acting New York Supreme Court justice has fashioned a new approach to value professional licenses in divorce cases. Justice Marylin G.Diamond faulted the current method, which is based on a projection of the enhanced earning that will be generated by the professional license over a career lifetime, as based on “legal fictions [that] simply cannot withstand scrutiny.” Instead, she wrote in R.R. v. P.R., New York County, 300984, the “courts must resort to an award based on reality,” which in this case meant an annual calculation in each of the next 15 years based on a sliding percentage of the doctor’s income. Diamond said she recognized that the approach she had adopted “goes against the grain of the prevailing appellate court wisdom to make equitable distribution awards fixed and certain.” But, she noted, she was confronted with huge uncertainties in trying to predict the added value that the husband’s training as an anesthesiologist would bring to him in enhanced earnings over the course of his career. The husband, who was only identified in the opinion by his initials, R.R., had struggled with licensing exams and may never gain board certification as an anesthesiologist, she wrote. Her quandary: he could either have a stellar career as a board-certified anesthesiologist at Mt. Sinai Hospital, one of the nation’s most prestigious, or a mediocre one if he fails to qualify. Under the circumstances, Diamond wrote that it is unfair to put his wife at risk of not sharing in the substantial financial rewards he will reap if he is certified. Nor is it fair, she added, to saddle the doctor with payments which “he cannot realistically expect to satisfy” should his career not take off. A better approach, Diamond concluded, would be to set a formula under which the husband’s obligation would be calculated on a yearly basis for each of the next 15 years. That formula, which would incorporate a sliding percentage of the husband’s earning, would supplant the current method requiring a projection of the doctor’s added earnings over the duration of his expected career. The wife’s economist projected that the added value of his medical degree over an expected 28-year career would be somewhere between $550,000 and $800,000. In most equitable distribution cases, each spouse is awarded an equal share, which would leave the wife with an award of between $275,000 and $400,000 under her expert’s approach. Assuming an annual payout over five years, the wife would be entitled to between $55,000 and $80,000 plus 9 percent interest over each of the next five years. Under Justice Diamond’s approach, the wife would receive between $7,600 a year assuming the husband earns $200,000 a year and $76,800 assuming he earns $600,000 a year. Over the 15 years of the award, the wife would receive $114,510, assuming Justice Diamond’s lowest income scenario, and $1.1 million assuming a maximization of his earning power. COULD BE BANKRUPTED Under the existing method, Diamond, observed, the doctor could well be bankrupted. After discounting payments for child support and other obligations stemming from the divorce, she noted, he would only have $51,000 in remaining income at the $200,000 level (his actual earnings in 1998 were $170,00). The low end of the award projected for the medical license by the wife’s expert would come to $55,000 a year, assuming a five-year payout. Diamond also faulted other aspects of the expert’s methodology, despite its accepted use in license valuation cases. In discounting the present value of his award, Diamond pointed out, the expert used 3 percent as the “risk free rate of return” when the current rate for six-month U.S. Treasury obligations is 6 percent. Moreover, she noted, in light of the rapid changes brought to medicine by “HMOs, managed care and the increasing pressure on reimbursement rates no one can predict or even speculate what the next 28 years hold for physicians.” The husband, R.R, was represented by Stanley Cembalist, and the wife, P.R., by Stanley D. Heisler of Shays, Rothman & Heisler.

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