Joint ownership is a way to make it easier for individuals to enter the property market by sharing the purchase. Joint property is any property or asset owned by two or more people. Examples: you and your spouse, your business partners, or other people you want to own property with.
Although originally created for real estate, any property such as motor vehicles and financial accounts can have shared ownership. Legally, joint ownership takes precedence over all other types of property claims and probate court rulings.
Joint ownership with rights of survivorship (ROS) allows the title or deed to pass automatically to the surviving owner if/when you die.
In joint ownership without ROS your assets don’t pass automatically to the surviving partner but are distributed as outlined in your will.
Joint ownership requires a written contract or other valid documentation specifying each person’s simultaneous ownership of the property.
Joint ownership of motor vehicles, boats, and other items can be confirmed using the title document.
Financial accounts (banks, brokerage accounts, etc.) can be set up in the same way.
Owners are not taxed separately.
Since joint owners have equal rights in the property, some problems can arise.
Joint ownership is permanent. Any change in your relationship can complicate the process.
Even if you have a good relationship, it is possible to be taken advantage of. For example:
Comparing Types of Joint Ownership
With Joint Ownership With The Right of Survivorship (JTWROS) owners share equal control of and responsibility for the assets, including expenses, such as mortgage payments, maintenance, and property taxes. Although these powers and responsibilities could be total if the other co-owner does not hold up their end of the ownership, both owners must agree if the assets are to be sold.
The rights of survivorship also stipulates equal shares of the property, despite what each owner contributed to the property. Colorado, Connecticut, Ohio, and Vermont are exceptions.
After your death the assets automatically transfer to your spouse or other co-owner without the need for a will.
There are certain requirements in order to assure that the rights of survivorship exists.
As long as the joint ownership exists, neither can sell or transfer their interest. The joint ownership must be dissolved by mutual consent if one co-owner wants to sell their share.
While joint ownership may be appropriate for the protection of some property, your estate plan should include other ways of safeguarding your assets. There are different types of joint ownership.
Joint Tenancy with Rights of Survivorship is available in all states. It is the default property ownership for married couples in some states.
Unlike other forms, joint tenancy is not restricted to family although it is usually used by spouses or parents and children.
It can be used with a wide variety of assets, including any asset with title documents (real estate, motor vehicles, boats), financial accounts, stock, securities and annuities, businesses, and brokerage accounts.
You can create joint tenancy with either property you purchase together or individual property you want to add a co-owner to. The second choice may:
Joint tenancy prevents debts incurred by an individual owner from being collected by creditors from the jointly owned property. Only that person’s sole property is at risk.
A few situations make joint property available to creditors.
Tenants by the Entirety (TBE) has the same rules as Joint Tenancy With Rights of Survivorship (JTWROS), but it only applies to married couples who are treated as a single legal entity.
For a TBE deed to be valid:
Twenty-five states and the District of Columbia recognize TBE as of 2019.
Some states may also recognize same-sex marriages.
Even if you have marital issues, neither spouse can sell your jointly owned property without consent from the other.
TBE can be terminated at any time by mutual consent of the spouses. In the case of a divorce, this is void and the agreement becomes a tenancy in common where the right of survivorship no longer applies and each spouse may sell their share in the property.
Community property is a form of joint property ownership where every property and any income acquired by one or both spouses during marriage is considered jointly owned and equally shared, even if both spouses’ names are not on the deed or title.
Community property includes the right of survivorship, where property automatically passes to the other spouse without having to use a will and/or go through probate court.
If there is no clear documentation that survivorship rights were intended, it will be assumed that a tenancy in common exists and ownership will not pass to the surviving owner.
There are both benefits and drawbacks to these types of joint ownership and it is important to know both before going with this option.
The major benefit is that joint ownership settles the right of property ownership automatically and avoids the problems created by the probate process.
Joint tenancy and tenancy by the entirement are easier to create that trusts and wills.
Since it is jointly owned, creditors can’t go after the property if only one owner has debt or declares bankruptcy. Some states will even protect the survivor from the deceased owner’s creditors.
Since both co-owners have access to the properties, one owner may be able to take advantage of the other, especially if they are having cognitive decline as they age.
Because both tenants must agree on any sale of property, discord among owners can complicate these sales.
If one owner becomes incapacitated, the other owner(s) can’t make any decisions on the incapacitated owner’s share of the property.
Joint decisions would still be required for selling the property, since both owners are still alive, even if one of the owners is unable to. This would prevent the unaffected owner from selling the property, unless planned for ahead of time.
Either co-owner will be completely responsible for expenses if the other co-owner does not pay their share.
Joint tenancy gives the survivor sole rights to the property, which can also be a problem if not done carefully.
Although joint ownership avoids the probate process, it does not reduce estate taxes for non-spousal co-owners like an irrevocable trust would.
It may interfere with a large tax break when your surviving spouse dies if:
Probate court would become involved:
In some states, if one owner dies leaving a single owner, creditors can then seek to collect debts from the remaining owner.
The Right of Survivorship can be forfeited if a judge deems that someone was made a joint tenant with the intent of avoiding probate, so it is best to only create one if the property is acquired together. This also prevents you giving away half of any interest in your individual property.
Joint Ownership without Rights of Survivorship, most commonly referred to as Tenancy in Common, is an arrangement in which two or more people share ownership interests in a property. The property may be commercial or residential.
Tenancy in common may be the default property ownership for married couples in some states.
Like other joint ownerships, you and your co-tenant in common:
There are four major differences from joint ownership with the right of survivorship.
Like other types of joint ownership, there are drawbacks to be aware of.
Ways to dissolve a Tenancy in Common
The most common way is for one or more co-tenants to buy-out the other owners.
If co-tenants cannot agree on plans for the property, a partition action can be taken which dissolves the tenancy in common by dividing it among the owners.