Community property state

Definition

A state where what either spouse earns or buys in the marriage belongs to both.

Why It Matters

Nine states run this way: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin. A business bought during the marriage with the couple's money is half the spouse's whatever the operating agreement says; one bought with separate funds, an inheritance say, stays separate. Three people act on the first case. The lender asks the spouse to sign the collateral documents, since the guaranty has to reach assets the spouse co-owns. Buyers usually ask the seller's spouse to sign the sale for the same reason, though in Texas a buyer may rely on the authority of the spouse in whose name the business is held, absent fraud or notice of a limit. And a divorce values the business as marital property. None of it changes what the business is worth. It changes whose signature closes, which is a question to ask in the first week and not the closing week.

In numbers: A buyer in Texas who closes a $4M purchase inside a single-member LLC with money earned in the marriage has bought half of it for their spouse. The lender's collateral documents carry the spouse's signature, and the seller's spouse is usually asked to sign the sale on the other side.