Updated: January 10, 2023
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 or assets with.
Although one of many estate planning options, joint ownership laws can play a significant role in determining the distribution of assets during divorce proceedings.
Professional assistance is required when setting up joint ownership since there is considerable state-to-state variability and frequent legal changes when it comes to joint ownership, including which is the default type for that state, what types are allowed, what assets are allowed to be jointly owned, the definition of joint ownership, and which relationships are recognized.
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, such as trusts, payable on death accounts, and transfer on death deeds, and probate court rulings from wills or intestate rulings.
Since joint owners have equal rights in the property any, some problems can arise.
Comparing Joint Ownership With and Without Rights of Survivorship (ROS)
With Joint Ownership With The Right of Survivorship (JTWROS) owners share equal ownership, control of, and responsibility for the property/assets, including expenses/debts, 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/assets, including income earned from the property/assets, despite what each owner contributed to the property/asset. Colorado, Connecticut, Ohio, and Vermont are exceptions.
There are certain requirements in order to assure that the rights of survivorship exists.
While the joint ownership exists the ability to sell or transfer interest in the asset depends on the type of joint ownership. 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, the deceased owner’s share is inherited by their heirs instead.
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.
After your death the assets automatically transfer to your spouse or other co-owner(s) without the need for a will.
Joint Tenancy is available in all states. With joint tenancy the level of ownership and share in the profits, costs, and/or debt depends on the number of owners, such as 50% each if there are two owners or 25% each for four joint owners. It is the default property ownership for married couples in some states.
Unlike other forms with rights of survivorship, joint tenancy is not restricted to spouses, although it is usually used by spouses, parents, and children.
It can be used with a wide variety of assets, including any asset with deeds/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/assets you purchase/acquire together or individual property/assets you want to add a co-owner to. The second choice may:
For a Joint Tenancy to be valid:
Joint tenancy can prevent debts or lawsuit settlements incurred by an individual owner from being collected by creditors from the jointly owned property/assets. Only that person’s sole property is at risk.
A few situations make joint property available to creditors.
While you may not sell your shares of the property/assets without the consent of all other tenants, you can transfer them to another person. This will terminate the joint tenancy agreement and force the new co-tenant and the remaining co-tenant(s) to enter a tenancy or joint tenancy in common. Other ways to end a joint tenancy include:
Tenants by the Entirety (TBE) has similar rules as Joint Tenancy but 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 2021. States can vary in the type of property they allow to be claimed.
Even if you have marital issues, neither spouse can sell your jointly owned assets without consent from the other.
While neither you nor your spouse may sell or transfer your shares of the property/assets without the consent of the other, a TBE can be terminated/voided at any time by divorce or mutual consent of the spouses. In both cases 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/assets. Alternately, spouses can agree to convey title to the property/assets to a third party by gift or deed.
There are both benefits and drawbacks to these types of joint ownership and it is important to know both before going with any joint ownership option.
The major benefit is that joint ownership settles the right of property ownership automatically and avoids the problems created by the probate process when the first owner dies.
Except for the eight states that only allow Tenants by the Entirety for ownership of real estate, Joint Ownership With The Right of Survivorship can be used for most property, including motor vehicles, real estate, bank accounts, and stocks.
Joint tenancy and tenancy by the entirement are easier to create than 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.
Joint ownership laws can make determining the distribution of assets during divorce proceedings much easier.
Since both co-owners have access to the properties/assets, 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/assets, 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/assets. Joint decisions would still be required for selling or transferring the property/assets, since both owners are still alive, even if one of the owners is unable to. This would prevent the unaffected owner from selling or transferring the property/asset, 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/assets, which can also be a problem if not done carefully.
Although joint ownership can avoid 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/asset is acquired together. This also prevents you giving away half of any interest in your individual property/assets.
Joint Ownership without Rights of Survivorship includes Tenancy in Common and Joint Tenants in Common. Both types allow people to equally or unequally share ownership of property/financial assets while permitting them to stipulate in their will who will inherit their share after their death and will be subject to the probate process. The major difference is the assets that are jointly owned, property vs any asset.
Tenancy in common is an arrangement in which two or more people, whether or not they are related to each other, share ownership interests in a property. The property may be commercial or residential. The laws vary from state to state.
Tenancy in common only applies to property. It 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.
Joint tenants in common is similar to tenants in common, but also includes other types of property and financial assets such as bank accounts, brokerage accounts, investment portfolios, or annuities. There are a few minor differences.