Private equity investments and carried interest arrangements are often among the highest-valued assets in high-net-worth divorces. You might find yourself wondering, “How is carried interest or private equity divided in a Texas divorce?” The answer may depend on when and how the interest was earned, whether the interest has vested, and how community property laws apply to the specific form of compensation.
Investment professionals living in Westlake Hills, Bee Cave, Dripping Springs, Lakeway, and other exclusive communities throughout Austin may receive compensation from private investment funds instead of, or in addition to, a traditional salary and annual bonus.
Why Work With The Law Office of Ben Carrasco, PLLC?
The division of carried interest or private equity interests requires a detailed review of financial records and partnership agreements. The Law Office of Ben Carrasco, PLLC, concentrates exclusively on family law. Our firm has experience dividing high-value marital estates, and we handle complex property division cases on a routine basis.
Ben Carrasco is board-certified in family law and received his law degree from Stanford. When you hire our firm, you have direct access to Ben throughout your case.
Understanding Carried Interest
Carried interest is a portion of a private investment fund’s profits that is paid to a fund manager or general partner after a fund achieves certain performance benchmarks. Rather than solely receiving a management fee for overseeing a fund’s investments, many investment managers earn a share of future profits.
Due to the nature of these investments, however, payments of carried interest may not occur for several years, and they can be dependent on investment performance. Payment terms for carried interest may be defined by a partnership agreement or other fund-governing documents. These agreements often include transfer restrictions, distribution restrictions, and other ownership provisions.
Private capital fund managers have made over $1 trillion in carried interest from funds raised from 2000 to 2019, according to a 2026 academic study published in Management Science. Additionally, the analysis discovered that carried interest made up roughly 18% of investor earnings, which is comparable to the industry’s standard carry structure of 20%.
What Are Private Equity Interests?
Private equity interests include carried interest, but they could also be any equity interest an individual has in a privately held investment fund, portfolio company, limited partnership, or other investment vehicle.
Private equity interests may not be valued like public stocks, where a current market price is available. Rather, the valuation of these investments may require an examination of financial statements, capital accounts, partnership agreements, fund performance, and other financial information.
Texas Community Property Divorce Laws Concerning Investments
In Texas, we live in a community property state. Texas Family Code § 3.002 presumes that any property acquired by either spouse during marriage is community property. Texas Family Code § 7.001 states that community property is subject to division by the court in a manner it deems just and right.
Dividing private equity interests and carried interest often focuses on when the interest was earned. Sometimes, a portion of an investment interest was earned prior to the marriage. Another portion of the interest may have been earned during the marriage. Sometimes, payments for work done after you’ve separated might still come in.
Classifying these interests requires an understanding of when the interest was earned. Oftentimes, this analysis requires a review of the underlying agreements and financial records associated with each investment.
Hire a Property Division Lawyer
Many Texans who want to hire a property division lawyer understand that divided assets, like carried interest and private equity investments, often require more financial analysis than the family home or motor vehicles.
Partnership agreements often control how future distributions are made. Future distributions and valuation issues are common. There may also be ownership restrictions to consider. A lawyer may review compensation structures, examine financial records, and analyze community property claims. Your Texas property division attorney might also bring in financial professionals to thoroughly assess your holdings.
Many private equity division cases that involve private equity are filed in the Travis County Civil and Family Courts Facility (1700 Guadalupe Street, Austin, TX 78701). If the parties reside in Williamson or Hays County, divorce cases are filed in those counties.
FAQs
Can Carried Interest Continue to Generate Income After a Divorce?
Yes. Depending on the terms of the fund, carried interest could continue to make distributions many years after the divorce is final. The divorce decree, the underlying agreements, and the way the interest was classified during the divorce proceedings determine if those future payments are deemed to belong solely to one spouse or are subject to prior property division.
Are Private Equity Investments Always Held Through an Employer?
No, private equity is not always held through an employer. While some individuals may receive their private equity interests through their employment, others buy into private equity as limited partners or through private investment groups. The origin of the ownership interest may impact what documentation exists to show when the interest was purchased and whether it is considered community or separate property.
Can a Spouse Remain Co-Owner of a Private Equity Interest After a Divorce?
In some cases, the parties may agree that they should continue holding title to the ownership interest together if it cannot be transferred or sold. However, continued co-ownership may lead to financial and management problems later. It is usually preferable for the parties to sever financial ties as much as possible, so many settlement agreements instead award other property in lieu of long-term co-ownership.
Can Carried Interest Be Subject to Forfeiture?
Yes, it’s common for some carried interests to have built-in forfeiture clauses that scale back or entirely remove future payouts if certain conditions, such as maintaining employment or abiding by the partnership agreement, aren’t satisfied. The presence of forfeiture provisions can diminish the present value of the interest, which is a factor in its valuation for property division.
Secure Experienced Representation
In a Texas divorce, carried interest and private equity interests can pose some of the most challenging property division problems. However, The Law Office of Ben Carrasco, PLLC, can help. If you would like to hire a divorce lawyer familiar with dividing sophisticated financial assets, contact our office today.
