When going through a divorce in Texas, one of the most complex assets to deal with is a business — particularly a Limited Liability Company (LLC). If you or your spouse own an LLC, you may be wondering: How is an LLC treated in a Texas divorce?
Texas is a community property state, meaning most assets acquired during the marriage — including business interests — are considered jointly owned. But the division of an LLC in divorce depends on multiple legal and financial factors.
In this guide, we’ll break down:
- Texas community property laws and how they apply to LLCs
- Whether an LLC is marital or separate property
- How an LLC is valued in divorce
- What happens to the LLC after divorce
- How to protect your LLC from divorce in Texas
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Is an LLC Marital or Separate Property in Texas?
In Texas, property is categorized as:
- Community property: Acquired during the marriage and subject to equal division.
- Separate property: Owned before the marriage or acquired through gift or inheritance, and not divided in divorce.
So, an LLC in Texas is treated based on:
- When it was formed: Before marriage = likely separate property; during marriage = likely community property.
- How it was funded: If marital funds were used for business operations or growth, the community estate may have a claim.
- Whether the spouse contributed: If the non-owner spouse helped manage or grow the LLC, they may be entitled to part of its value.
Even if the LLC is technically separate property, appreciation in its value during the marriage may be divisible.
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Texas Community Property Law & Business Interests
In Texas, courts aim to divide community property in a “just and right” manner — which is not always a 50/50 split. The court considers:
- The nature of the business
- Each spouse’s role in the LLC
- Income and earning capacity of each spouse
- Contributions to the business
- Best interest of any children
- Misconduct or misuse of business funds (if applicable)
This flexible standard allows judges to make decisions that are equitable based on the unique facts of the case.
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How Is an LLC Valued in a Texas Divorce?
Before dividing an LLC, the court must determine its fair market value. This is typically done by a certified business valuation expert using:
- Income-based approach: Considers past and projected earnings.
- Market-based approach: Compares with similar businesses.
- Asset-based approach: Assesses the value of business assets minus liabilities.
If the LLC has significant value, the spouse who is not an owner may be awarded a share of that value — even if they do not become a co-owner.
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What Happens to the LLC in a Texas Divorce?
Here are some common outcomes:
- One Spouse Keeps the Business
– The court awards the LLC to one spouse. The other spouse receives cash, property, or assets of equivalent value to balance the division. - Buyout Agreement
– One spouse buys out the other’s share, often with a structured settlement or payout plan. - Co-Ownership
– Rare in Texas divorces. Only occurs if both parties agree and can work together post-divorce. - Sale of the Business
– If neither party wants or can afford to keep it, the business may be sold and the proceeds divided.
The operating agreement and any prenuptial or postnuptial agreements will also influence how the LLC is treated in court.
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How to Protect an LLC from Divorce in Texas
To safeguard your business, consider the following strategies:
- Create a Strong Operating Agreement
– Include clauses on what happens to membership interests in the event of divorce. - Use a Prenuptial or Postnuptial Agreement
– Clearly define whether the LLC is separate or community property. - Avoid Commingling Assets
– Keep business and personal finances completely separate. - Pay Yourself a Fair Salary
– Prevent claims that your spouse is entitled to future business profits. - Set Up a Buy-Sell Agreement
– Plan for how membership interests will be transferred or bought out in major events like divorce or death.
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Final Thoughts
An LLC can be significantly impacted during a Texas divorce. Whether it’s treated as community or separate property depends on its origin, financial structure, and contributions from each spouse.
Without clear legal agreements or planning, business owners in Texas risk losing control of their LLC or facing costly disputes.
Need to protect your business interests during or before a divorce? FormLLC helps business owners with professional LLC formation, operating agreements, BOI compliance, EIN registration, and more — all designed to meet Texas legal standards.
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