The Inception of Title in Closely-Held Entities
If a spouse incorporates or acquires an ownership interest in an LLC, partnership, or corporation prior to marriage, the equity interest remains 100% separate property throughout the marriage, regardless of how much the business increases in value.
The Jensen Doctrine (Jensen v. Jensen, 665 S.W.2d 107)
While the business itself remains separate property, the community estate is entitled to the value of the spouse's labor and talent expended during the marriage. Under the Jensen rule, a community reimbursement claim arises if:
- The owner spouse expended time, toil, talent, and effort enhancing the business; and
- The owner spouse received less than reasonable compensation (salary, dividends, distributions) for those efforts.
Reimbursement = Value of Reasonable Compensation for Services - Total Actual Compensation Paid to Spouse