Not all real estate wealth comes with a deed. Executives in the Energy Corridor, physicians in the Texas Medical Center, and investors in The Woodlands and Katy often hold real estate exposure through real estate investment trusts, or REITs, in brokerage accounts, through financial advisors, or in private offerings. In a divorce, a REIT can be as easy to divide as a public stock or as difficult as a private partnership interest. The difference comes down to what kind of REIT you own.

What a REIT Is

A REIT is a company that owns, and usually operates or finances, income producing real estate. To keep its tax status, a REIT generally must distribute at least 90 percent of its taxable income to shareholders each year (IRC §857). That is why REITs are known for steady dividends.

REITs come in three broad forms:

• Publicly traded REITs, listed on a national exchange and priced daily.
• Public non-traded REITs, registered with the SEC but not listed on an exchange. Liquidity usually depends on a share redemption program with limits.
• Private REITs, offered only to accredited or institutional investors, with transfer restrictions set by the offering documents.

How Texas Community Property Law Applies

REIT shares acquired during the marriage are presumed to be community property under Texas Family Code §3.003, regardless of whose name is on the account. Shares owned before marriage, or received by gift or inheritance, are separate property if traced by clear and convincing evidence.

Two characterization issues come up often with investment accounts:

• Commingling. If separate shares sat in the same account as community deposits, trades, and reinvested dividends for years, tracing the separate portion requires careful account analysis.
• Dividends. Cash dividends received during the marriage, including cash dividends paid on separate property shares, are generally community property in Texas. Reinvested dividends can quietly turn part of a separate holding into community property. (Stock dividends and splits on separate shares are treated differently and generally keep the separate character of the original shares.)

The court then divides the community estate in a manner it deems just and right under Texas Family Code §7.001.

Publicly Traded REITs: The Simplest Case

Listed REITs have a daily market price, so valuation is usually not disputed. Shares can be split in kind between accounts or used as an offset against other assets. The main questions are which valuation date to use, how to treat dividends declared but not yet paid, and how each lot’s tax basis is allocated.

Non-Traded REITs: Value on Paper Versus Value in Hand

Non-traded REITs present two problems:

1. Valuation. Value is typically based on a periodically reported net asset value per share rather than a market price. That reported figure may not reflect what the shares would bring if sold today, and share redemption programs often impose limits, waiting periods, or discounts.
2. Liquidity. If one spouse needs cash, the shares may not be redeemable on demand. Awarding illiquid shares to one spouse and liquid cash to the other at the same stated value can create an unequal result.

Possible solutions include dividing the shares in kind so both spouses share the liquidity risk, applying an agreed discount, or offsetting with other assets. The offering documents and redemption program terms should be reviewed before any settlement is signed.

Private REITs: Transfer Restrictions and Consent

Private REIT interests are usually governed by subscription and governing documents that restrict transfers. The sponsor may need to consent before shares move to a former spouse, and may decline. In those cases, courts and parties commonly award the interest to the investing spouse and offset its value with other assets, or create a structured buyout. Valuation usually requires an expert who can analyze the underlying portfolio, leverage, and the rights attached to the shares.

How REIT Dividends Are Taxed

Most REIT ordinary dividends are not “qualified dividends” eligible for the lower long term capital gains rates. However, for eligible individual shareholders, qualified REIT dividends may qualify for a deduction of up to 20 percent under IRC §199A. The One Big Beautiful Bill Act, signed July 4, 2025, made that deduction permanent. REITs may also pay capital gain distributions and return of capital distributions, which are taxed differently and can reduce basis.

Why this matters in a divorce: two portfolios with the same market value can produce different after tax income. A settlement should look at the composition of each portfolio, not just the account balance.

Tax Basis on Transfer

Transfers between spouses incident to divorce are generally nontaxable under IRC §1041. The receiving spouse keeps the original basis. If one spouse receives REIT shares with large unrealized gains and the other receives cash, the spouse with the shares is also receiving a future tax bill. Lot level basis records should be gathered early. For more, see How to Navigate Complex Tax Basis Issues in Divorce.

REITs Held Through a Closely Held Company or Family Entity

Some Houston families hold REIT shares through a family limited partnership, an LLC, or a family office. In that case, the divorce court is dividing an interest in the entity rather than the shares themselves, and the entity’s governing documents matter. Read The Impact of Family Limited Partnerships on Asset Division in Texas Divorce and How Commercial Real Estate Holdings Affect Divorce Settlements in Texas.

Frequently Asked Questions

Are REIT dividends I received during the marriage community property? Cash dividends received during the marriage are generally community property in Texas, even if the underlying shares are your separate property.

Can a court split shares of a non-traded REIT? Often yes, if the REIT’s transfer procedures allow it. If they do not, the value is usually offset with other assets.

Does it matter that a REIT is invested in Houston commercial real estate? It can. Concentration in a single market or property type affects risk and value. That is a valuation issue for the experts.

Talk to a Houston Divorce Lawyer About Your Investment Portfolio

Anunobi Law represents executives, physicians, and investors whose wealth includes REITs, private real estate funds, and complex investment accounts. We serve clients in Houston, The Woodlands, Katy, Sugar Land, River Oaks, the Houston Heights, Spring, and Missouri City. Learn about our executive and C-suite 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
• How Commercial Real Estate Holdings Affect Divorce Settlements in Texas
• The Impact of Property Appreciation During Marriage in Texas Divorce
• The Tax Implications of Keeping vs. Selling the Marital Home
• Investment Portfolios and Alternative Assets in High Net Worth Divorce

Legal Disclaimer: This article is for general informational purposes only and is not legal, tax, or investment 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.