Texas is a community property state, so most property acquired during marriage is considered jointly owned by both spouses. This detail means that a spouse may need to meet compliance requirements under the Corporate Transparency Act (CTA), which went into effect on January 1, 2024. The CTA mandates that reporting companies disclose their “beneficial owners.” Beneficial owners are defined as individuals who exert substantial control over the company or own at least 25% of the company’s equity interests.
Addressing the possible issues
Given Texas’s community property laws, compliance issues include:
- Joint ownership of marital property: Since Texas views most property acquired during marriage as jointly owned, there may be situations where a spouse of a beneficial owner could have an ownership interest in the company. However, this does not automatically make the spouse a beneficial owner under the CTA.
- Substantial control vs. Ownership interest: The CTA distinguishes between substantial control and ownership interest. An individual may qualify as a beneficial owner if they exert significant control over the company, such as holding a position like CEO, even if they do not own a substantial share of the company. In such cases, the spouse would not be classified as a beneficial owner based solely on the marital property laws unless they also own a significant interest in the company, either directly or through community property rights with respect to the other spouse’s interest.
- Reporting requirements: When reporting to the Financial Crimes Enforcement Network (FinCEN), companies must accurately disclose individuals who meet the criteria of beneficial owners. If a spouse does not have substantial control and does not directly or through a community property interest own at least 25% of the company, they do not need to be reported as a beneficial owner.
- Compliance considerations: Texas companies must carefully evaluate their ownership structures and control hierarchies to determine who qualifies as a beneficial owner. This includes considering marital property laws but recognizing that joint ownership does not automatically confer substantial control or a reportable ownership interest under the CTA.
Ownership interest may not be enough to report
While Texas’s community property laws imply joint ownership of marital property, they do not inherently confer joint substantial control over a company. Therefore, spouses of persons who are beneficial owners only because they have substantial control of a reporting entity may not need to be reported to FinCEN unless they meet the criteria outlined by the CTA. Companies must ensure compliance by evaluating both ownership interests and control roles within the context of these laws. Those with questions about compliance can speak with a knowledgeable business law lawyer who is current on how to handle CTAs.