When separate property is transferred into a business entity and later distributed back to individual spouses, what happens to its character under Texas law? A recent Amarillo Court of Appeals decision answers this question with significant implications for Dallas-area couples who own investment properties and business entities. In re Marriage of T., decided in August 2025, demonstrates how property characterization can dramatically shift during marriage, and how those shifts affect property division at divorce.
Per the published opinion, the case involved a couple who moved from the United Kingdom to pursue Austin real estate investments. The wife used a substantial gift from her parents to purchase property, which was later transferred into an LLC the couple formed together, then distributed back to them individually before being sold. The appellate court’s analysis provides crucial guidance on property tracing, the effect of transferring assets into business entities, and when property division errors require complete remand for reconsideration.
Background: International Investors and Complex Property Transactions
F.T. and N.T. married in June 2017 and relocated from the United Kingdom to Texas, primarily to pursue investment opportunities in Austin’s real estate market. Shortly after their arrival, F.T.’s life took a significant turn when her parents gifted her and her brother approximately £250,000 each in 2018, memorializing the transfers as gifts by letter.
F.T. subsequently transferred £214,000 of this gift money to a joint account she shared with N.T. At the prevailing exchange rate of $1.29 per £1, this transfer equaled just over $248,000. These funds were used at closing to purchase 97.19 percent of the purchase price for real property located in Austin (the “W. property”). On the advice of an immigration attorney, the purchase and title documents were taken in N.T.’s name only, though F.T. testified this was never intended as a gift to him but rather a strategy to avoid immigration complications.
In December 2019, the couple entered into an informal agreement with F.T.’s father, to purchase real property in Austin (the “G.”). No written contract established the terms of co-ownership. G. testified that the agreement was that he would make a fifty percent down payment and would own fifty percent of the property. However, G. also signed a letter on November 4, 2019, stating that $376,000 toward the purchase was a gift with no repayment expected. N.T. explained that including only the spouses on the title would facilitate the purchase, and he promised to add G. after closing, though this never occurred. Nevertheless, N.T. provided G. profit and loss statements and paid him $14,000 as his portion of rental income as late as March 2024.
In June 2020, the couple formed a Family Holdings, LLC, a real estate holding company in which each held fifty percent ownership. On their third wedding anniversary, June 17, 2020, they capitalized the LLC with the W. property. F.T. signed a spousal acknowledgment as part of this transfer, stating she was waiving her “right, title[,] and interest” in the property. In 2023, they transferred the W. property out of ATX and back into their individual names, then sold it. The entire proceeds from the sale were deposited into an account solely in N.T.’s name and control, and he used these funds for subsequent purchases and to pay bills.
In October 2023, F.T. filed for divorce in Travis County. She claimed that much of the property possessed by the parties was her separate property and, regarding community property, her separate estate held rights to reimbursement. At the hearing, both parties offered expert witness testimony regarding property characterization. The trial court’s division awarded F.T. $336,242.07 and N.T. $236,161.19 in community property, while characterizing $338,749.63 in various accounts or businesses as F.T.’s separate property based on tracing from the W. property sale proceeds.
N.T. appealed, raising nine issues challenging the property characterization and division.
Legal Framework: Separate Property, Community Property, and Entity Transfers
Understanding the appellate court’s analysis requires familiarity with Texas’s community property system and how property characterization works. Under Texas law, property possessed by either spouse during or at dissolution of marriage is presumed to be community property. Texas Family Code Section 3.003(a) establishes this strong presumption, which can only be overcome by clear and convincing evidence, a higher standard than the typical preponderance of the evidence.
Separate property includes property owned before marriage as well as property acquired during marriage by gift, devise, or descent. Texas Constitution Article XVI, Section 15 and Texas Family Code Section 3.001 define these categories. When a party claims property is separate, they must prove the necessary facts by clear and convincing evidence, meaning “the measure or degree of proof that will produce in the mind of the trier of fact a firm belief or conviction as to the truth of the allegations sought to be established.”
Trial courts have broad discretion in dividing marital estates, with appellate courts reviewing for abuse of discretion. A trial court abuses its discretion when it acts arbitrarily or unreasonably, without reference to guiding principles. However, courts may divide only community property, they have no authority to divide a spouse’s separate property.
Property Transferred Into Business Entities
One of the most critical principles addressed in the case concerns what happens when property is transferred into a business entity. Texas law is clear on this point: when property is conveyed to an entity such as an LLC or partnership, that property becomes the property of the entity and does not retain its character as either separate or community property.
As the court explained, citing multiple precedents including In re Marriage of Nash and Lifshutz v. Lifshutz, when an individual partner or member contributes property into an entity, they lose their individual ownership interest in the property. The entity becomes the owner, and the property can no longer be characterized as separate or community property of the individual spouses. This principle applies even if property that was separate when transferred into an entity is subsequently returned to the contributing spouse.
The rationale is straightforward: when property is transferred to an LLC or partnership, the contributing individual no longer owns that property, the entity does. The individual’s interest becomes an ownership stake in the entity itself, not a continuing ownership interest in the contributed property.
The Court’s Analysis: Tracing Through Entity Transfers
The Amarillo Court of Appeals addressed N.T.’s challenges systematically, providing guidance that will affect how Texas courts handle similar cases going forward.
Initial Gift and Purchase of W. Property
The court first considered whether F.T. proved by clear and convincing evidence that her parents’ transfer constituted a gift to her. The evidence supporting this characterization included a gift letter signed by F.T.’s parents indicating they were gifting £250,000 each to F.T. and her brother, testimony from N.T.’s own expert that approximately £250,000 was transferred from Gavin’s account to an account F.T. jointly held with N.T., and even N.T.’s acknowledgment that the funds were a gift from F.T.’s parents.
The court concluded this constituted clear and convincing evidence that F.T.’s parents intended to gift her the money used to purchase the W. property, viewing the evidence in the light most favorable to the trial court’s implied findings as required when no formal findings are requested.
Title in Husband’s Name Alone
N.T. argued that subsequent transactions evidenced F.T.’s intent to gift the property to him, citing the fact that the W. property was purchased and titled only in his name. Texas law creates a rebuttable presumption that when a spouse purchases real estate during marriage and takes title in the other spouse’s name, the property was gifted to the spouse identified as the title owner.
However, this presumption can be rebutted by proof (including parol evidence) that the spouse who provided separate property funds did not intend to gift the property. F.T. testified that she placed the property in N.T.’s name solely due to immigration proceedings and to avoid any appearance of attempting to immigrate illegally. She testified it was never her intention to gift the W. property to N.T. The court found this sufficient evidence to overcome the community presumption and conclude the property remained F.T.’s separate property at that point.
The Critical Transfer to ATX Family Holdings
The pivotal moment in the property’s characterization came with its transfer to the Family Holdings, LLC in June 2020. This is where the court’s analysis diverged significantly from the trial court’s characterization. Once F.T. transferred the W. property to the Family Holdings, LLC, she no longer held an ownership interest in the W.property itself, the Family Holdings LLC did.
The court explained that F.T. could not trace her separate property ownership of the W. property through its transfer to the Family Holdings, LLC because, upon transfer, the property lost its separate character and became property of the LLC. This principle applies “even if property that was separate when transferred into an entity is subsequently returned,” as the court emphasized.
When property is later distributed from an entity back to individual members or partners, that distribution is treated as a new acquisition, not a return of the originally contributed property with its original character preserved. The distribution represents the entity paying out value to its owners, but the character of what is received depends on the nature of the distribution and the circumstances at the time of receipt, not the character of property that may have been contributed years earlier.
Because N.T. and F.T. were married when the Family Holdings, LLC distributed the W. property back to them in 2023, that distribution constituted community property. The subsequent sale proceeds were therefore community property as well, not F.T.’s separate property as the trial court had found.
This error was substantial. The trial court had characterized $338,749.63 traced from the W. sale proceeds as F.T.’s separate property, when properly it should have been characterized as community property subject to division. This represented approximately 37 percent of the actual community estate that the trial court failed to divide.
The Fidelity Roth IRA
N.T. also challenged the trial court’s characterization of $45,674.80 of a Fidelity Roth IRA as F.T.’s separate property, arguing there was a complete absence of evidence supporting this determination. The appellate court agreed after reviewing the entire record. While a spreadsheet attached to the trial court’s letter ruling indicated this conclusion was based on the expert’s tracing, nothing in the expert’s reports or testimony actually traced any funds into a Fidelity Roth IRA. With no evidence supporting the separate property characterization, the court sustained this issue as well.
The G. Property and Oral Contracts
N.T.’s eighth issue challenged the trial court’s finding that G. owned fifty percent of the G. property. N.T. argued any agreement violated the statute of frauds, which generally requires contracts for the sale of real estate to be in writing. However, the appellate court noted that the statute of frauds is an affirmative defense that must be pleaded. The record contained no responsive pleading by N.T. to G.’s intervention, and nothing reflected that the statute of frauds issue was tried by consent.
Having failed to properly raise the affirmative defense, N.T. could not rely on it on appeal. The court then examined whether sufficient evidence supported finding a valid oral contract. G. testified about the parties’ agreement that he would pay for half the property and own half, supported by his actual payment of $376,000 (wiring $7,500 for the option and $368,500 for his portion of the purchase price). Contemporaneous communications acknowledged G. would initially not be on the deed but would be added later and would own half the property. N.T.’s payment of approximately $14,000 in rental profits to G. further evidenced the agreement’s existence and terms.
The court concluded sufficient evidence established a binding oral contract supporting the trial court’s determination that G. owned half of the G. property, despite the gift letter N.T. relied upon.
The Just and Right Division
N.T.’s final issue challenged the overall property division as disproportionate. Because the court had already determined the trial court mischaracterized substantial property as F.T.’s separate property when it should have been community property, this issue required remand. When a trial court mischaracterizes property and that mischaracterization is substantial enough to necessarily affect the just and right division of the community estate, the entire community estate must be remanded for proper division.
Here, the mischaracterization of 37 percent of the actual community property was far from de minimis. The court concluded this required remanding the entire community estate for a just and right division based on proper characterization.
Key Takeaways for Dallas Divorcing Couples
The decision offers several critical lessons for individuals navigating property division in Dallas-area divorces:
Entity Transfers Change Property Character: Transferring separate property into an LLC, partnership, or corporation fundamentally alters its character. The property becomes owned by the entity, and subsequent distributions are treated as new acquisitions, not returns of the originally contributed property with its character intact.
Documentation of Intent Matters: F.T. successfully rebutted the presumption of a gift when property was titled in N.T.’s name alone by testifying about her immigration-related reasons for the titling decision. Clear documentation of intent at the time of transactions can be crucial for property characterization disputes.
Gift Letters Don’t Always Control: Despite G. signing a gift letter, the court found sufficient evidence of an oral agreement for co-ownership based on contemporaneous communications, conduct, and payments. Gift letters may facilitate transactions but don’t necessarily reflect the parties’ true intentions or agreements.
Affirmative Defenses Must Be Pleaded: N.T.’s failure to plead the statute of frauds as an affirmative defense meant he couldn’t rely on it on appeal, even though it would have provided a complete defense to enforcing the oral agreement regarding the G. property. Proper pleading preserves essential defenses.
Strategic Considerations in Complex Property Cases
What we’ve learned from this case is the critical importance of understanding how business entity structures affect property characterization. Different approaches might have included documenting F.T.’s separate property interest through capital account tracking in the Family Holdings, LLC, or structuring the arrangement so that F.T.’s separate property contribution was documented as a loan to the LLC rather than a capital contribution, preserving reimbursement rights.
Alternative strategies could have addressed the W. property transfer differently from the outset. Rather than transferring the property itself into the Family Holdings, LLC, the couple might have structured the Family Holdings, LLC to hold only newly acquired properties, leaving the W. property in F.T.’s name with appropriate spousal waivers from N.T. This would have preserved its separate character throughout the marriage.
For those working with a Dallas family law attorney, this case demonstrates the value of prospective planning when business entities and real estate investments are involved. Experienced counsel can structure ownership arrangements to preserve separate property character when that’s the goal, or document clear intentions when spouses genuinely intend to convert separate property into community property.
Regarding the Gunter property situation, different preparation strategies might have included formalizing Gavin’s ownership interest in writing from the beginning, either through proper titling or a written co-ownership agreement. The informal arrangement created unnecessary litigation that could have been avoided with proper documentation.
Protecting Your Property Rights in Divorce
Property division becomes exponentially more complex when couples own investment properties, have formed business entities, or have made transfers between separate and community estates. This decision illustrates how seemingly straightforward transactions, like capitalizing an LLC with separate property or distributing property from an entity, can fundamentally alter property characterization in ways that significantly affect divorce outcomes.
At our Dallas family law practice, we bring over 25 years of experience handling complex property divisions involving business entities, real estate investments, and challenging characterization issues. We serve clients throughout the Dallas metropolitan area, including Irving, Richardson, Garland, Mesquite, DeSoto, Grand Prairie, Lakewood, Highland Park, Cockrell Hill, Lancaster, Seagoville, and Duncanville.
We understand that property characterization affects your financial security for years to come. Whether you own investment properties, have interests in LLCs or partnerships, are dealing with gifts or inheritances that may have been commingled, or face complex tracing issues, we provide honest assessments grounded in realistic expectations based on current Texas law.
If you own investment properties or business interests and are considering divorce, are in the midst of divorce proceedings involving complex property characterization, or need to understand how entity ownership affects property division, we invite you to schedule a consultation to discuss your specific circumstances. Our experienced team can evaluate your situation, explain relevant legal standards, and develop a strategic approach tailored to protecting your property interests.
Don’t navigate the complexities of Texas property characterization law alone. Contact us today to learn more about how our comprehensive divorce services can help you achieve fair outcomes in your property division. For a Dallas divorce attorney consultation, call our office or visit our contact page to begin the conversation about protecting your financial future. Learn more about our approach to family law and how we can help you navigate complex property issues with both strategic precision and compassionate support. Whether you need guidance on property division matters or comprehensive advocacy in contested divorces, we’re here to provide the experienced representation you deserve as a trusted divorce attorney near me for Dallas-area residents.
