There are many different combinations that would determine what creates joint property. First of all, what kind of property are we talking about? Do you share real estate? Are you a partner in a business where it’s the business entity that owns property? How many owners are there?
Let’s break it down so we can determine what the value, responsibility, and ownership rights are and what happens if there is a transfer, sale or dispute where an attorney might need to get involved.
What kinds of joint property configurations are there?
At the base case, there is joint property, where more than one person owns it. But within the concept of joint ownership, there are a few segments:
Tenancy in Common –
This is where there is more than one person who owns the property. Typically, in a joint tenancy, there are agreements between the owners, because some owners may own a higher percentage of the property than others. This would then create a differentiation in the rights and responsibilities those owners have to the property.
For instance, let’s say three friends decide to buy a vacation home. One of the friends may live close by and want to use it more often than the other two. So, they may decide that Friend #1 will pay 50% of the cost of the house and the other two would each pay 25%. This would require an agreement between the three, not only for the mortgage payments and ownership rights, but potentially for the maintenance, utility and repair costs as well.
Another example is when siblings or even cousins inherit property that at least some of which want to keep and used.
An attorney would be useful in this case to draw up an agreement so everyone is very clear on their responsibility to paying for and maintaining the house as well as the frequency that they could use it.
Also important, if one of the friends decided to sell his share of the house, would the other two have rights of first refusal to buy his shares? Or could that friend sell to someone else? All of these points should be agreed to prior to getting into the arrangement.
Joint Tenancy –
This is where each person owns an equal portion of the property. In this case, the owners are typically a husband and wife who buy a house or own property where a business resides.
Joint tenancy is an easier arrangement because if one spouse dies, the other would automatically take control over the full property ownership.
However, in a tenancy in common arrangement, it become a bit more complex because there are more than one party that owns the property.
If one member of a tenancy in common agreement dies, the others cannot simply split their share among the surviving members. First, it is important to assess if the deceased person left a will. If so, whomever they bequeathed their share of the property to would be the rightful owner. If not the laws of intestate succession would apply, and blood relatives of the deceased will own a share of the property. Other complication result id the decedent’s estate has too much debt. In which case the decedent’s interest may have to be sold to satisfy the creditors. I similar problem would exist is the tenant in common files bankruptcy.
Here is the tricky part of having a tenancy in common partnership with property. Let’s go back to the three friends who decide to buy a vacation home together. Then one person dies. The other two people do not automatically get to split that person’s share.
That person may have a will and stipulates in their will that their shares would go to a relative or friend. He may also leave his shares to a non-profit organization. It is not up to the other two partners to determine what happens to his share.
Of course, if the three friends actually think about the “what ifs” when they enter into the agreement, they can consult with an attorney and, as part of their agreement, determine up front what would happen if one of them dies or wants to sell his shares.
By thinking about these scenarios in advance, they each can utilize this agreement and refer to it in their wills, so there is not dispute later on. This way, no relative, friends or other person can claim rights to the share of the property.
If you are thinking about entering into a tenancy in common partnership for buying a property, here are some tips to consider:
- Make sure you are clear about your intentions: will everyone be using the property in equal amounts of time? Is the property meant to be used by the partners or will you want to use it as an investment?
- Agree to the circumstances if someone wants out: Like a prenup, it is always a good idea to consider the “what ifs” of a partnership breaking apart. One person may fall on hard economic times and may not be able to afford to pay their share of a mortgage. There could be a falling out among the partners. You go into these relationships with good faith, but you never know what could happen.
- What if someone dies: Have you all included the terms in your estate planning? Don’t leave it up to your executor and the surviving parties to battle it out.
- Work with a knowledgeable attorney to write up your agreement: This is not a back of the napkin kind of document to write up together over a beer. Having a professional who can anticipate any other circumstances that may arise is an important ingredient to any successful partnership. Then you can relax knowing your interests are covered.
Regardless of the type of property and who you are entering into it with, what creates joint property headaches could take all of the fun out of ownership. Anticipating any pitfalls ahead of time is key with any type of partnership. Work with a reputable real estate attorney to ensure peace of mind for all parties involved.