Picture a founder in Phoenix who has spent eleven years building a software company. The LLC formation documents list one member: her. The bank account has one signer: her. Her husband has never opened the admin console, never seen the cap table, never been asked to sign anything.
She writes a will that leaves the company to her brother, who has been her quiet advisor from the start. She dies. Then her lawyer tells everyone something she never really took in: in Arizona, her husband already owned about half of that company. He owned it the whole time, without a signature, without ever knowing.
That fact doesn't live in the LLC paperwork. It lives in marriage law. For founders in a handful of states, it is the single most overlooked fact in their estate plan.
The rule that sits underneath the paperwork
Most U.S. states follow a "common law" or "equitable distribution" approach. Whoever's name is on an asset generally owns it, and courts sort out fairness only if there's a divorce.
Nine states work differently: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin (Wisconsin calls its version marital property). Alaska lets couples opt in by agreement, and a few other states allow community property trusts. In these places, the default presumption is that most of what either spouse earns or acquires during the marriage belongs to both of them equally.
The key phrase is earns. Your labor during the marriage is treated as a shared resource. So a business you started after the wedding, or built up through your work after it, is generally presumed to be community property, even if you are the only person named on every document.
Title still matters for practical control, like who can sign and who the bank recognizes. But it doesn't settle who owns the value.
What this does to a will
Here is the consequence that surprises people. In a community property state, you can generally dispose of only your half of the community property by will. Your spouse's half is already theirs. It doesn't pass through your estate, and your will can't redirect it.
So a founder who writes "I leave 100% of my company to my brother" has written a sentence that, in many cases, only partly works. The surviving spouse keeps their half. And if the will tries to give away more than the decedent owned, some states make the spouse choose between accepting the will's terms and keeping their own half. That is a fight nobody wants during grief.
The practical outcomes vary by state and by facts, and I'm not describing a universal rule of how courts will rule. But the direction is consistent: a plan that ignores the spouse's half is a plan built on a miscounted asset.
"But I started it before we married"
This is where it gets subtle, and where well-meaning founders feel safe when they aren't.
Property owned before marriage is generally separate property. A company you launched at 27 and married into at 31 starts life as yours alone. But the story doesn't end there. Many community property states treat growth in value that comes from your work and effort during the marriage differently from passive appreciation. Courts in some states apportion the value between the separate starting point and the community effort since. California's well-known approaches to this problem are named after the cases that created them, Pereira and Van Camp, and other states have their own methods.
Separate property can also lose its clear identity through commingling. If business income and personal household money run through the same accounts, or if you pay yourself in ways that blur the line, tracing what was separate gets expensive and uncertain. A founder who says "it's all mine, I had it first" may be right on day one and unable to prove it fifteen years later.
The part that is actually good news
There is a real upside, and it's worth knowing. Under federal tax law (Internal Revenue Code section 1014(b)(6)), when one spouse dies, both halves of community property can receive a stepped-up tax basis to fair market value at the date of death. In common law states, generally only the decedent's half does.
For a business that has appreciated enormously, that can mean a much lower capital gains bill if the surviving spouse sells. A couple who understood this could treat community property as a feature of their plan, not a trap.
But it only works if the property is genuinely community property and can be shown to be. That requires records, not assumptions.
Where the problems actually show up
A few places where this quietly bites solo founders:
- Buy-sell and sale plans. If you've arranged for someone to buy your company at death, the spouse's community interest may need to be addressed in the agreement, sometimes with their signed consent.
- Operating agreements. A single-member LLC agreement that says nothing about spousal interests leaves a gap between what the document says and what the law presumes.
- Moving states. Couples who relocate from a community property state to a common law state often carry community character with them, and some states have "quasi-community property" rules for the reverse move. Your old state can still matter.
- Second marriages. A new spouse can acquire community rights in growth that happens during the new marriage, while children from the first marriage expected the whole thing.
- Beneficiary-style assets. Retirement accounts and life insurance can have spousal rights layered on top of the designation, depending on the account type and state.
None of these are exotic. They are just invisible until someone dies.
What the fix looks like
The solution is rarely complicated, but it must be deliberate. Couples can agree in writing, through a marital property agreement, prenuptial or postnuptial agreement, to treat specific assets as separate or community. Done properly, with each spouse informed and in many states separately advised, that can turn a vague presumption into a clear fact. It can also be used in the opposite direction, to make a family-business arrangement formal.
The other tool is simple conversation. Many founders have never told their spouse, in plain words, what the company is worth, who it depends on, and what they want to happen to it. The spouse's half is real whether or not they know about it.
Your next moves
- Find out which kind of state you live in. Search "[your state] community property or equitable distribution." If you've lived in more than one state during your marriage, write down each one and the years.
- Write down your timeline. Date you married, date you formed the business, date of any major growth or new entity. Those three dates drive most of the analysis.
- Check how your money moves. Look at whether business income flows into a separate account or the household one. Note any personal funds you put into the company, or the reverse. That is your commingling picture.
- Reread your operating agreement and will together. Look for any sentence that assumes you own 100% outright. Mark it for your attorney.
- Book one hour with an estate attorney licensed in your state. Bring the timeline and ask one question: "If I die tomorrow, what part of this company does my spouse already own, and does my will match that?"
The half you can't leave
There is something tender under all of this. A marriage in a community property state is, legally, a partnership in the most literal sense. The founder who thinks "I built this alone" has a spouse who, in the eyes of the law, helped carry it, sometimes just by holding the rest of life together.
The point of knowing this isn't to take control from anyone. It's so the person left behind meets a plan that matches reality, instead of a will that says one thing and a statute that says another.
That's the kind of detail Heirloom is built to keep in one place. Your ownership structure, the dates, the documents, the accounts, and the instructions for whoever steps in sit together in a single binder your family can find. If you'd like to see what that looks like, you can take a look at Heirloom. It's an easier start than a blank page, and your spouse will thank you for it later.