Commercial real estate is one of the most common sources of wealth for Houston investors, developers, physicians, and business owners. It is also one of the most misunderstood assets in a divorce. An office building on the Katy Freeway, a retail center in Sugar Land, a flex industrial park in Cypress, or a multifamily property near The Woodlands is rarely owned directly. It is usually held through an LLC or limited partnership, financed with commercial debt, and governed by an agreement among investors. Each of those layers affects what a divorce court can do.

The Court Divides the Interest, Not the Building

When commercial property is owned by an entity, the entity owns the real estate. The spouse owns an interest in the entity. In a Texas divorce, the court characterizes and divides that ownership interest. It does not generally award the entity’s buildings or bank accounts directly to either spouse.

That distinction drives three practical consequences:

1. Transfer restrictions apply. Company agreements and partnership agreements commonly limit transfers, require consent of other owners, or give the entity or other owners a right to buy out a transferred interest.
2. The non-owner spouse may not become a full owner. Under Texas Business Organizations Code §101.1115, when an LLC member divorces, the member’s spouse, to the extent of the spouse’s membership interest, is an assignee of that interest. An assignee generally receives allocations and distributions but not management or voting rights unless admitted as a member. The statute also preserves agreements for the purchase or sale of a membership interest on divorce.
3. Retained earnings usually stay in the entity. Cash held inside an operating entity generally belongs to the entity until it is distributed. Disputes over whether distributions were improperly withheld, or whether the entity is being used to hide community value, are common in these cases.

For more on how company agreements interact with a divorce, read Operating Agreements and Their Impact on Divorce Proceedings and How Buy-Sell Agreements Interact with Divorce Settlements in Texas.

Characterization: Community, Separate, or Both

The Texas community property presumption (Texas Family Code §3.003) applies to entity interests just as it does to land. Key questions include:

• When and how was the interest acquired? An interest acquired before marriage, or by gift or inheritance, is separate property if it can be traced with clear and convincing evidence.
• Where did capital contributions come from? Later capital calls funded with community money can support a community reimbursement claim or, depending on the structure, a community interest in additional units.
• Was a spouse’s labor uncompensated? Since 2023, Texas Family Code §3.402(c)(3) recognizes a reimbursement claim when a spouse’s time, toil, talent, or effort enhanced the value of separate property beyond what was reasonably necessary to manage and preserve it, and the community did not receive adequate compensation. This is directly relevant when one spouse actively manages a separately owned real estate company for little or no salary.
• What about income? Distributions and rents received during the marriage from separate property are generally community property in Texas.

See The Impact of Property Appreciation During Marriage in Texas Divorce for a full discussion of appreciation and reimbursement.

Valuing a Commercial Real Estate Interest

Valuation usually happens in two steps.

Step one: value the real estate. Appraisers commonly rely on the income capitalization approach, supported by sales comparison and sometimes cost. Net operating income divided by a capitalization rate produces value, so the fight is usually over the inputs:

• market rent versus in-place rent
• vacancy and credit loss assumptions
• lease rollover risk and tenant concentration
• deferred maintenance and capital expenditure needs
• the appropriate cap rate for the property type and submarket

Step two: value the spouse’s interest in the entity. Experts then account for the entity’s debt, other assets and liabilities, and the rights attached to the spouse’s interest. Whether and how much to adjust for lack of control or lack of marketability is frequently contested and depends on the evidence and the specific interest being valued.

Texas courts generally value the community estate as of the time of divorce. In a moving market, the timing of the appraisal can matter.

Owners who also run a management company face a second valuation question. Read The Role of Property Management Companies in Divorce Valuation.

Debt, Guarantees, and Lender Consent

Commercial loans create risks that the divorce decree alone cannot fix:

• Personal guarantees and carve-out guarantees remain in force after divorce unless the lender releases them.
• Loan documents often restrict transfers of ownership interests and may treat an unapproved transfer as a default.
• Cross-collateralized or cross-defaulted loans can tie several properties together, so a problem on one can affect others.

A good settlement identifies every guarantee, every consent requirement, and who bears the risk if a lender will not cooperate. Indemnity provisions help between the spouses but do not bind the lender.

Tax Issues Unique to Commercial Property

• Carryover basis. Transfers between spouses incident to divorce are generally nontaxable under IRC §1041, and the receiving spouse takes the existing basis. One exception: §1041 does not apply if the receiving spouse is a nonresident alien, which matters for some international families in Houston.
• Depreciation. Commercial buildings are depreciated over time. On sale, gain attributable to prior depreciation is generally unrecaptured Section 1250 gain, taxed at a maximum federal rate of 25 percent. Accelerated depreciation strategies, such as cost segregation, can increase the deferred tax that comes with the property.
• Pending 1031 exchanges. A like-kind exchange under IRC §1031 has strict deadlines: replacement property must be identified within 45 days and acquired within 180 days of the sale (or by the due date, including extensions, of the tax return for that year, if earlier). A divorce filed mid-exchange should account for these deadlines in temporary orders.
• Built-in gain changes value. Two interests with the same appraised value can have very different after tax value. That difference belongs in the negotiation.

For tax basis issues generally, read How to Navigate Complex Tax Basis Issues in Divorce.

Protecting the Estate During the Case

Commercial real estate can be refinanced, encumbered, or moved between entities quickly. Early in the case, consider:

• temporary orders addressing who manages the properties, how rents and expenses are handled, and what transactions require notice or consent
• discovery directed to entity books, bank records, rent rolls, leases, loan files, and capital accounts
• review of related party transactions, such as management fees paid to affiliates

If community value is wasted or transferred to defeat a spouse’s rights, Texas Family Code §7.009 allows the court to calculate the value by which the community estate was depleted and adjust the division accordingly.

Settlement Structures That Work

• Offset: the owner spouse keeps the entity interest and the other spouse receives other assets of equivalent after tax value.
• Structured buyout: payments over time, secured by collateral and backed by default remedies.
• Sale or refinance: the property or interest is sold or refinanced to create liquidity.
• Continued co-ownership as assignee: sometimes possible, rarely ideal, and only workable with clear economic rights and information rights.

Frequently Asked Questions

Can my spouse become a member of my LLC through the divorce? Under Texas Business Organizations Code §101.1115, a divorcing member’s spouse who receives a membership interest is an assignee, not a member. Admission as a member is governed by the company agreement and the Business Organizations Code.

If my commercial property was owned before marriage, can my spouse get any of it? The property itself remains your separate property if traced. Your spouse may have reimbursement claims, for example if community funds improved it or if your uncompensated work enhanced its value, and income received during marriage is generally community.

Who keeps paying the mortgage during the divorce? That should be addressed in temporary orders. Missed payments can damage both spouses and the property.

Talk to a Divorce Lawyer for Real Estate Investors

Anunobi Law represents commercial real estate owners, developers, and their spouses in complex Houston area divorces. We work alongside commercial appraisers, business valuation experts, and tax advisors to protect the value of what you have built.

We serve clients in Houston, River Oaks, Sugar Land, Katy, Fulshear, Cypress, The Woodlands, Spring, Pearland, and throughout Harris County and Fort Bend County. Learn more about our business owner divorce practice or call 832-538-0833.

Related Reading in Our Real Estate Divorce Series

• Real Estate Divorce Lawyer in Houston: How Texas Divides Homes, Rentals, and Investment Property
• Dividing Real Estate Development Projects in Progress
• Real Estate Investment Trusts (REITs) and Divorce Implications
• How to Handle Mortgaged Properties in Texas Divorce
• Dividing Real Estate Development Companies 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.