Few assets are harder to divide in a divorce than a real estate project that is only partly built. A residential subdivision in Katy or Fulshear, a multifamily project in Cypress, a mixed-use development near The Woodlands, or an industrial build in Fort Bend County has value today, but much of that value depends on things that have not happened yet: completing construction, leasing or selling units, closing financing, and collecting reimbursements.

This article explains how Texas divorce courts approach development interests and how developers and their spouses can protect themselves.

Why Projects in Progress Are So Difficult

A finished, stabilized property can be valued from its actual income. A project under construction cannot. Its value depends on:

• remaining construction costs and the risk of overruns
• entitlement, permitting, and platting status
• the lease-up or sales timeline
• construction loan terms and maturity dates
• investor and partner rights in the capital stack
• market conditions at completion, not just today

Two qualified experts can reach very different values for the same project simply by making different reasonable assumptions about these inputs.

Characterizing the Development Interest

Texas presumes property possessed at divorce is community property (Texas Family Code §3.003). For a development interest, the key questions are:

• When was the interest acquired? An interest in a project that began before marriage may be separate property, even if the project was built out during marriage.
• Where did the equity come from? Track every capital contribution and capital call. Separate funds, community funds, and loans can all be involved.
• Did a spouse’s uncompensated work build value? Since 2023, Texas Family Code §3.402(c)(3) recognizes a community reimbursement claim when a spouse’s time, toil, talent, or effort enhanced separate property beyond what was reasonably necessary to manage and preserve it, without adequate compensation to the community. Developers who take little salary while building a separately owned project should expect this issue.
• How is the project owned? Most projects are held in an LLC or limited partnership. The divorce court divides the spouse’s interest in the entity, subject to the company agreement. Under Texas Business Organizations Code §101.1115, a spouse who receives an LLC membership interest in a divorce is an assignee rather than a member.

See The Impact of Property Appreciation During Marriage in Texas Divorce for how Texas treats growth in value of separate property.

Valuation Methods for Projects Under Development

Experts commonly use one or more of the following:

• Discounted cash flow. Projects future revenue and costs through completion and sale or stabilization, then discounts the net cash flow to present value using a rate that reflects the project’s risk. The discount rate is frequently the most contested input.
• Residual land value. Starts with the expected value of the completed project and subtracts remaining costs and a reasonable developer profit to estimate what the land and work in place are worth today.
• Sales comparison. Uses sales of comparable land or partially completed projects, when they exist.

Then the expert values the spouse’s interest in the entity, which requires analyzing the waterfall, preferred returns, promote or carried interest provisions, and transfer restrictions in the governing documents.

Texas courts generally value community property as of the time of divorce. A spouse who keeps working on the project after the divorce is building value with post-divorce effort, which is one reason timing and valuation dates matter.

MUD Reimbursements and Other Future Receivables

In many master planned communities across the Houston area, developers may be entitled to reimbursement from a municipal utility district (MUD) or similar district for certain water, sewer, drainage, or road infrastructure, typically payable when the district sells bonds. These future reimbursements can be a substantial and overlooked asset. Questions include whether the right to reimbursement is community or separate, how likely and when payment will be, and how to share a receivable that may not be collected for years.

Debt, Guarantees, and Lender Consent

Development financing usually includes personal guarantees, which may include completion and carve-out guarantees, that survive the divorce unless the lender releases them. Loan agreements commonly restrict transfers of ownership interests in the borrower. Before agreeing to a division, identify:

• every guarantee and who signed it
• whether any transfer or change in ownership requires lender consent
• how cost overruns, capital calls, and guarantee claims will be shared if they arise after the divorce

Indemnity provisions protect one spouse against the other, but not against the lender. See How to Handle Mortgaged Properties in Texas Divorce.

Options for Dividing the Project

1. Buyout of the non-developer spouse. The developer keeps the interest and pays the other spouse in cash, other assets, or structured payments. Payments over time should be secured and should include default remedies, because projects rarely produce cash on a predictable schedule.
2. Deferred participation. The non-developer spouse receives a defined share of future distributions or sale proceeds. This preserves upside for both, but requires precise definitions of distributable cash, information rights, and protection against related party fees that could divert value.
3. Continued co-ownership. Rarely ideal, and only workable with strong governance terms and a clear exit.
4. Sale of the interest or project. Creates liquidity and a clean break, often at a discount for a project that is not yet complete.

Each option has tax consequences. Transfers between spouses incident to divorce are generally nontaxable under IRC §1041, but the receiving spouse takes the existing basis and the built-in gain. See How Commercial Real Estate Holdings Affect Divorce Settlements in Texas and The Tax Implications of Keeping vs. Selling the Marital Home.

Protecting the Project During the Case

Construction schedules do not pause for a divorce. Temporary orders can authorize the developer spouse to continue operating the project, set reporting requirements, and require notice before major transactions such as refinancing, admitting new investors, or selling assets. The non-developer spouse should obtain the operating agreement, budgets, draw requests, loan documents, investor reports, and related party agreements early.

Frequently Asked Questions

My spouse is a developer. How do I know what the project is really worth? Through discovery of the project’s financial records and, usually, an independent valuation by an expert experienced with development projects.

Can I be forced into business with my ex-spouse? Co-ownership is generally avoidable. A Texas court can award the interest to one spouse and offset its value, and under Texas Business Organizations Code §101.1115 a non-member spouse receiving an LLC interest becomes an assignee rather than a full member.

What if the project fails after the divorce? That risk should be allocated in the settlement, including who bears guarantee exposure and whether any deferred payments are contingent on project performance.

Talk to a Divorce Lawyer Who Understands Development Deals

Anunobi Law represents developers, builders, investors, and their spouses in Greater Houston divorces involving active projects. We serve clients in Katy, Fulshear, Cypress, Richmond, Sugar Land, The Woodlands, Conroe, Spring, Houston, and throughout Fort Bend County, Harris County, and Montgomery County. Call 832-538-0833 for a confidential consultation.

Related Reading

• Real Estate Divorce Lawyer in Houston: How Texas Divides Homes, Rentals, and Investment Property
• How Commercial Real Estate Holdings Affect Divorce Settlements in Texas
• Real Estate Investment Trusts (REITs) and Divorce Implications
• Dividing Real Estate Development Companies in Divorce
• Operating Agreements and Their Impact on Divorce Proceedings
• How to Handle Multi-Generational Business Interests in Divorce

Legal Disclaimer: This article is for general informational purposes only and is not legal or tax advice. Reading this article or contacting Anunobi Law does not create an attorney-client relationship. Consult a licensed Texas attorney and a qualified tax professional about your situation.