Joint Ownership

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.

  • If you have marital problems or a falling out with a co-owner, neither can sell the jointly owned property without consent from the other. 
  • The equal rights will still allow access to the assets, which can be a major problem if the relationship becomes hostile.

Even if you have a good relationship, it is possible to be taken advantage of. For example:

  • if your child is a joint owner of your bank account, they can withdraw money without your permission; and/or
  • if you add another owner to avoid probate or for convenience, you have given away half of your property which can then be sold, mortgaged, or lost due to debt without involving you.

Comparing Types of Joint Ownership

Joint Ownership with The Right of Survivorship

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.

  • The surviving owner must fill out documentation showing the title now belongs to them.
  • They will need a Death Certificate.
  • The documents are then submitted to a bank, state motor vehicles department, county real estate records office county, or other regional title agency.

There are certain requirements in order to assure that the rights of survivorship exists. 

  • The joint owners must acquire the asset at the same time.
  • A written contract or other valid documentation between two or more people specifying each person’s simultaneous ownership of the same real or personal property.
  • If property is not properly titled, you need to execute and record a new deed that states the survivorship intention. The deed or title to the property will name both owners as joint tenants.
  • The Joint Tenancy, Community Property, or Tenants by the Entirety document needs to be carefully worded to be legal and official so a legal professional is necessary, especially since this may vary among states.

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

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:

  • Result in gift taxes, if not your spouse, and
  • Appear like you are creating joint tenancy for the express purpose of avoiding probate, so you will need to be careful.when doing this.

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.

  • Unpaid federal taxes on the property and debts incurred jointly allow creditors to place a lien on the property and claim payment, even if it means selling it.
  • If one of the owners dies, creditors may be able to make claims against the deceased owner’s previously owned assets.

Tenants by the Entirety

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.

  • TBE may be the default property ownership for married couples in some states.
  • TBE better protects the jointly owned property from the creditors of just one spouse than joint tenancy. Properties are not protected from creditors for debts shared by both spouses.

For a TBE deed to be valid:

  • Spouses must have joint ownership and control of the premises;
  • Each spouse’s interest in the property is equal;
  • Both spouses need to receive title to the property via the same deed;
  • Ownership of the property must be taken by both spouses simultaneously; and
  • In most states, tenants must be married at the time they acquire the property and remain married to each other throughout the period of ownership. In other states.

Twenty-five states and the District of Columbia recognize TBE as of 2019.

  • States can vary in the type of property they allow to be claimed.
    • Alaska, Indiana, Kentucky, Michigan, New York, North Carolina, Oregon, and Rhode Island only allow TBE for ownership of real estate.
    • Illinois only allows TBE for ownership of homestead property
    • Arkansas, Delaware, Florida, Hawaii, Maryland, Massachusetts, Mississippi, Missouri, New Jersey, Oklahoma, Pennsylvania, Tennessee, The District of Columbia, Vermont, Virginia, and Wyoming allow TBE for ownership of all property types.
    • In Michigan, unmarried partners with joint tenancy will have it automatically converted to TBE if they subsequently marry.
  • Some states allow domestic partners to have tenants by the entirety.

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.

  • This will be true even if you divorce, when the right of survivorship will no longer apply.
  • This and other issues can make the ownership of the property difficult to resolve, especially if there is ongoing conflict and emotional stress.

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

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. 

  • It is only available for married couples who live or own property in Alaska, Arizona, California, Idaho, Louisiana, New Mexico, Nevada, Texas, Washington, or Wisconsin. U.S. territories Guam and Puerto Rico also allow community property
  • Assets that are not considered community property include:
    • Property acquired before marriage or during legal separation;
    • Anything given to only one of the spouses as a gift or through inheritance; and
    • Property in only one spouse’s name that will never be used to benefit the other.
  • Unlike Joint Property and Tenants by the Entirety, both spouses share most debts acquired by either of them during marriage.

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.

Pros and Cons

There are both benefits and drawbacks to these types of joint ownership and it is important to know both before going with this option.

Benefits

The major benefit is that joint ownership settles the right of property ownership automatically and avoids the problems created by the probate process.

  • Property can go directly to the co-owner, even if you don’t have a will, and avoid the months or even years this process can take.
  • They 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 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.

Drawbacks

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.

  • If each joint owner appoints a “Durable Power of Attorney,” someone they trust will be given authority to manage their affairs.
  • A document can be prepared ahead of time to have the property transferred to a living trust managed by the uncompromised owner if this occurs.

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.

  • The co-owner can claim that they are entitled as the surviving joint tenant to all of the shared assets, even those without a deed or title. This can be fine if that was your intention.
  • If you were hoping to pass the value of the property to your designated heirs, there is no legal obligation for the surviving owner to honor that request.

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:

  • You want to add your spouse as a joint tenant on your separately owned property instead of leaving the property to them in an irrevocable trust;
  • Your property’s value has gone up (or you expect it to); and/or
  • You don’t live in a community property state.

Probate court would become involved:

  • If both/all of you die at the same time to determine which of the owner’s closest relatives the property would go to under state law and when; and/or
  • When your spouse or last tenant dies or passes on the property. They would need another method to avoid the probate process at that point, such as living trusts or payable-on-death accounts.

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 The Rights of Survivorship

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:

  • Have equal access to use and occupy the property, unless you otherwise agree upon a different schedule; 
  • Share control of and responsibility for the assets, including all expenses and taxes, not just their percentage; and
  • Have responsibility for any unpaid expenses or taxes owed by the other, even if the assets are unevenly divided.

There are four major differences from joint ownership with the right of survivorship.

  1. Ownership does not have to be equal, each tenant can own a different share or financial percentage of the property if agreed to.
  2. Ownership of the property does not automatically go to your surviving co-owner upon your death, your share goes to any heirs or person you designate in your will..
  3. You can independently sell, transfer, or borrow against your portion of ownership without the consent of the other co-owner.
  4. You may transfer or split your share and/or add another tenant at any time throughout the life of the arrangement without consulting the other owner(s).

Like other types of joint ownership, there are drawbacks to be aware of. 

  • Since these shares are considered your individual property, the transfer to your heirs is done with your will and therefore must go through the probate process.
  • All tenants are equally liable for property costs and debts.
    • If one owner cannot pay their bills or owes money for other reasons, the remaining owner(s) have to make any payments to avoid any liens on the property or even foreclosure.
    • If the remaining owners do not make these payments, the lender may seize the holdings from any or all of the owners.
  • Since any owner can add a tenant without consulting the others, you may find yourself owning the property with someone you do not know, trust, or want.
  • Any owner can force the division or sale of property by filing a partition action.

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.

  • A partition in kind is the most direct way to divide the property and does not involve the probate process.
  • Ideally this will be voluntary, but it can be court-ordered if the co-tenants can’t come to an agreement.
    • If the court is involved, a judge will divide the property among the owners who will then individually own their share. It is usually the method used when co-tenants are not antagonistic.
    • A partition of the property by sale may be necessary if the co-owners refuse to cooperate.
  • This involves selling the property and dividing the proceeds according to each co-owner’s interest in the property.
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