| Example:
Dr. Jones, an ophthalmologist, is 45 when she
separates from her husband Mr. Smith of 25 years.
They married the summer after she graduated from
college with a degree in biology (Phi Betta Kappa,
3.9 GPA). Jones then attended Hale Medical School,
where she finished in the top 10% of her class.
After a residency and a series of prestigious
fellowships, Jones and Smith moved to Carlton,
New Columbia. Jones joined a private practice
and soon became a partner. She worked grueling
hours and on weekends. Smith was a homemaker.
The couple has separated and are negotiating
a settlement of their marital estate. What is
the value of Jones's medical license?
Answer:
Perhaps the medical license can be seen as a
series of future returns. At an equitable distribution
hearing in their divorce, Smith's expert valued
Jones's medical license as follows (see also attached
spreadsheet):
- compare Jones's earning power as ophthamologist
over remainder of professional life (retirement
at age 65) to earning power as biologist
- compute future pay under each assumption,
based on present pay levels for each and assuming
pay increases (6% for biologist / 5% for ophthalmologist)
- compute difference of value of medical license
compared to biology degree, by calculating future
differentials and computing present value of
difference (9.5% discount rate, given predictability
of pay for each)
- total present value of differences = value
of medical license
|
Year |
Earnings
with biology degree (as
staff biologist) -
(6% annual
increase) |
Earnings
with medical license (as
opthomologist)
(5% annual
increase) |
Opthomoligst
versus biologist |
Present
value factor (9.5%) |
Present
value of difference |
|
2000 |
$47,000.00 |
$497,000.00 |
$450,000.00 |
0.9132 |
$410,958.90 |
|
2001 |
$49,820.00 |
$521,850.00 |
$472,030.00 |
0.8340 |
$393,678.20 |
|
2002 |
$52,809.20 |
$547,942.50 |
$495,133.30 |
0.7617 |
$377,120.18 |
|
2003 |
$55,977.75 |
$575,339.63 |
$519,361.87 |
0.6956 |
$361,254.77 |
|
2004 |
$59,336.42 |
$604,106.61 |
$544,770.19 |
0.6352 |
$346,053.10 |
|
2005 |
$62,896.60 |
$634,311.94 |
$571,415.33 |
0.5801 |
$331,487.51 |
|
2006 |
$66,670.40 |
$666,027.53 |
$599,357.14 |
0.5298 |
$317,531.52 |
|
2007 |
$70,670.62 |
$699,328.91 |
$628,658.29 |
0.4838 |
$304,159.71 |
|
2008 |
$74,910.86 |
$734,295.36 |
$659,384.50 |
0.4418 |
$291,347.74 |
|
2009 |
$79,405.51 |
$771,010.12 |
$691,604.61 |
0.4035 |
$279,072.27 |
|
2010 |
$84,169.84 |
$809,560.63 |
$725,390.79 |
0.3685 |
$267,310.93 |
|
2011 |
$89,220.03 |
$850,038.66 |
$760,818.63 |
0.3365 |
$256,042.29 |
|
2012 |
$94,573.23 |
$892,540.59 |
$797,967.36 |
0.3073 |
$245,245.80 |
|
2013 |
$100,247.63 |
$937,167.62 |
$836,920.00 |
0.2807 |
$234,901.76 |
|
2014 |
$106,262.49 |
$984,026.00 |
$877,763.52 |
0.2563 |
$224,991.31 |
|
2015 |
$112,638.24 |
$1,033,227.31 |
$920,589.07 |
0.2341 |
$215,496.34 |
|
2016 |
$119,396.53 |
$1,084,888.67 |
$965,492.14 |
0.2138 |
$206,399.54 |
|
2017 |
$126,560.32 |
$1,139,133.10 |
$1,012,572.78 |
0.1952 |
$197,684.27 |
|
2018 |
$134,153.94 |
$1,196,089.76 |
$1,061,935.82 |
0.1783 |
$189,334.61 |
|
2019 |
$142,203.18 |
$1,255,894.25 |
$1,113,691.07 |
0.1628 |
$181,335.30 |
|
2020 |
$150,735.37 |
$1,318,688.96 |
$1,167,953.59 |
0.1487 |
$173,671.71 |
|
|
|
|
|
TOTAL |
$5,805,077.78 |
Assume you represent Jones. What is wrong with
the expert's analysis, if anything?
- Is a medical license a marital asset? Can
it be sold? Doesn't its value arise from post-separation
labor? Isn't this disguised alimony?
- Is the comparison of Jones (biology degree)
and Jones (medical license) appropriate? Would
such a talented person have remained a staff
biologist? Would she have started "biology.com"?
- Is rising ophthalmologist pay a certainty?
What about national networks offering cornea
surgery? What about managed health care?
- Doesn't Jones's current pay reflect her ownership
of the practice? If her interest in the practice
has already been valued in the divorce, isn't
this double counting?
- What about taxes? Aren't high-paid ophthalmologists
in a higher tax bracket than middle-income biologists?
- Given the risks associated with Jones's future
prospects, is the 9.5% discount rate (2% above
a risk-free 20-year Treasury bond) appropriate?
How would you value Jones's medical license?
|
2.1.1 Returns