Texas Divorce Attorney Blog
Division of a business in a Texas divorce can complicate a Texas divorce. As with other property, a business interest possessed during the marriage is presumed to be community property, but that presumption can be rebutted by clear and convincing evidence that it is separate property. In a recent case, a husband appealed a property division involving a business interest and property owned by the business.
The trial court signed a final divorce decree in July 2023 and subsequently filed findings of fact and conclusions of law.
The property at issue was a 125-acre tract of land that the husband’s father previously owned. The trial court found the husband and his father each received 50 shares of company stock on the day the company was created in May 2008. A few days later, the husband’s father deeded the property to the company. The parties got married in June 2009.
According to the trial court’s findings, the company lost its right to do business in Texas in May 2010 due to tax forfeiture. The company paid the taxes and regained status in May 2012, but had another tax forfeiture in 2014. The company was inactive until June 2021, but issued certificates showing the husband and his father each had 500 shares in June 2014.
The trial court concluded the company was dissolved while the parties were married. It further concluded the certificates issued in 2014 were community property, and divided ownership as 50% for the husband’s father and 25% each for the husband and wife. It also concluded 62.5 acres of the property belonged to the community. The court awarded $42,500 to the wife for her interest in property improvements, secured by an owelty lien.
The husband appealed, arguing the trial court erred in awarding the wife an interest in the corporate property and in concluding the company was his separate property.
Corporate Status
The appeals court determined there was nothing in the record to support a conclusion that the company lost its corporate identity while the parties were married. The trial court seemed to conclude the company had dissolved based on the tax forfeiture, but a “terminated entity” under the Texas Business Organizations Code is an entity that has been terminated and not reinstated or forfeited without the forfeiture being set aside. Tex. Bus. Orgs. Code § 11.001(4). The Texas Business Organizations Code does not provide for involuntary termination of a corporation based on non-payment of franchise taxes. The appeals court therefore concluded the company was not a “terminated entity” pursuant to the Tax Code.
Business Interest
The wife argued the husband had received 500 shares during the marriage and had not rebutted the community property presumption, so the trial court was correct in finding the community owned half of the stock.
The appeals court rejected this argument, noting that stock ownership is only evidence by stock certificates but determined by the facts and circumstances of the cases.
The minutes from the company’s organizational meeting authorized a total of 100 shares, 50 each to the husband and his father. The minutes from a May 30, 2014, meeting indicated that the husband and his father agreed “to keep shares as are” with each owning 50% of the shares. Neither party could explain why the certificates issued in June 2014 represented 500 shares to the husband and his father.
The appeals court noted there was no evidence any consideration was given for the 500 shares. The Texas Business Organizations Code prohibits shares from being issued until consideration is paid or delivered. Tex. Bus Orgs. Code § 21.157(b). The appeals court also pointed out that it was not disputed that the husband owned half the company’s stock before the marriage. There was no evidence of any additional property interest coming into existence during the marriage. The appeals court concluded the husband’s ownership interest had been 50% both before and during the marriage, and all of his interest in the company was therefore his separate property.
The appeals court concluded the trial court erred in concluded the community had an interest in the company and the land it owned. The appeals court reversed trial court’s judgment and rendered judgment that the community estate did not have an interest in either the company or the property it owned. The appeals court also rendered judgment voiding the owelty lien on the property.
Seek Legal Representation
In this case, the appeals court concluded the company was the husband’s separate property. An experienced Dallas divorce attorney can help you fight to protect your assets in a Texas business divorce. Set up a consultation with McClure Law Group at 214.692.8200.