Divorce cases involving private equity interests are rarely straightforward. Unlike a savings account or a piece of real estate, private equity interests often involve complex ownership structures, restricted transfer rights, and uncertainties regarding valuation. When these interests are tied to a divorce proceeding, questions arise not only about ownership but also about the practical steps necessary to protect and equitably divide them. If you or your spouse intends to end your marriage and you have questions about divorce and private equity interest, it is advisable to speak with an experienced attorney as soon as possible. At McClure Law Group, our Dallas divorce attorneys are adept at navigating financially complex divorce actions, and if we represent you, we will help you take the steps necessary to safeguard your interests.
Community Property Principles in Texas DivorceUnder Texas law, with limited exceptions, property acquired during a marriage is presumed to be community property unless one party proves it is separate property. This legal framework applies to private equity interests as well. As such, if a spouse acquires or grows a private equity interest during the marriage, whether through direct investment, employment, or appreciation of an existing holding, those interests may be subject to division.
Therefore, tracing the origins of the investment is essential. Parties should evaluate whether the interest was purchased with separate funds before marriage, and whether it grew due to reinvestment of community income. They should also assess whether one spouse was compensated with carried interest or equity stakes tied to employment. The answers to these questions can significantly impact how courts treat private equity interests.
Because private equity funds are typically illiquid and may be tied to long-term investment cycles, dividing them is rarely as simple as splitting shares. Instead, courts often must evaluate whether an equitable offset is possible, allowing one spouse to retain the investment while the other receives property of comparable value. In high-asset divorces, this may include real estate, retirement accounts, or other financial instruments.
Challenges of Divorce and Private Equity InterestThe valuation of private equity interests in divorce is both critical and complicated. These investments are generally not publicly traded, meaning there is no readily available market price. Instead, valuation may require the expertise of forensic accountants, business valuation experts, or financial analysts. Factors such as management fees, carried interest, distribution schedules, and the underlying portfolio's performance all play a role in determining worth. Additionally, restrictions on transferability and marketability may lower the fair value of an interest.
When spouses cannot agree on valuation, Texas courts may rely on expert testimony and extensive documentation, including financial statements and partnership agreements. However, the confidentiality of private equity funds presents another challenge. Courts and attorneys must balance the need for transparency with the protection of sensitive financial data, ensuring that proprietary information is safeguarded while still allowing for a fair division of marital property.
Strategic Negotiation Surrounding Divorce and Private Equity InterestDivorce matters involving private equity interests often involve negotiations over how to treat these complex holdings. In some instances, one spouse may prefer to "cash out!" of the investment and receive a lump-sum equivalent, while the other may prefer to retain the equity. Negotiations may involve offsetting the value of the private equity interest with other assets, such as awarding one spouse the marital home or retirement funds in exchange for relinquishing their share of the investment.
In addition, spousal claims may arise over whether community funds contributed to the growth of a separate equity interest. For example, if one spouse owned private equity before the marriage but continued to reinvest community income into the fund, the community estate may have a claim to reimbursement or a proportional share of growth.
Speak with a Trusted Dallas Divorce Attorney TodayIf you are facing a divorce that involves private equity, executive compensation, or other complex financial assets, you should seek legal guidance from attorneys with proven experience. At McClure Law Group, our trusted Dallas divorce lawyers understand the intricacies of divorce and private equity interest cases, and if you hire us, we will advocate for solutions that protect your financial future. Our main office is in Dallas, and we also meet clients by appointment in our Collin County office in Plano. We proudly serve clients in Garland, Fort Worth, McKinney, Richardson, Frisco, Irving, and Rockwall, as well as throughout Dallas, Collin, Denton, Tarrant, Grayson, and Rockwall Counties. To schedule a confidential consultation, contact us by calling 214.692.8200 or by submitting our online form.