Owning property with another individual or partner may create a complicated relationship. Due to the complexity of the situation, the way in which you take title or ownership must be determined in advance. Consulting with your legal professional can help you establish the form of ownership in such a way that will benefit you and your future heirs. The four forms of co-ownership, one of which will likely be better suited to your circumstances, are as follows:
Tenancy in common. This is a form of co-ownership often used between unrelated individuals. Tenants in common may own unequal shares of property. For example, one person could own a one-fourth interest and another could own a three-fourths interest as tenants in common. If the shares of the co-owners are not specifically designated, they are presumed to be equal or proportionate.
Tenants in common are said to hold “undivided” interests with the other co-owners. This means each co-owner owns a proportionate interest in the entire property. So, if two people are equal tenants in common to a parcel of land, it is inaccurate to identify one as owning the west half and the other as owning the east half. Rather, both co-owners own a one-half interest in the entire parcel.
Joint ownership. This specific type of co-ownership has unique legal characteristics. Unlike a tenancy in common, where co-owners may possess unequal interests, the legal interest of each joint owner is equal to the interest of every other joint owner. If there are three joint owners, each owns an equal, undivided, one-third interest in the entire property. However, this proportionality does not necessarily apply to the tax consequences of joint ownership.
The most important legal component of a joint ownership is the right of survivorship, which means that when a joint owner dies, the surviving joint owners automatically succeed in ownership of the deceased joint owner’s interest in the property. For example, if there are two joint owners and one of them passes away, the surviving joint owner automatically owns the entire property. If there are three joint owners and one of them passes away, each of the two surviving joint owners automatically becomes one-half owner of the entire property. The survivorship rights of a joint owner take precedence over the claims of the deceased joint owner’s creditors. This form of ownership may be common among married couples.
Tenancy by the entirety. This form of co-ownership is recognized by many states as a variation of joint ownership that applies only to spouses. A tenancy by the entirety generally has the same legal characteristics of a joint ownership with a few additional features. Normally, the protection against the claims of creditors that applies to joint tenancies at the death of a joint tenant is also available against the lifetime creditors of the tenant by the entirety.
Community property applies to married couples who own property in any of the following nine states, which are sometimes referred to as community property states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. Regardless of whose name is on any ownership papers, such as a deed, any property accumulated during the marriage is “owned” by both parties. This includes cash, real estate, and any other acquired assets.
Remember, splitting property, for any reason, can be a difficult task. Therefore, the decision to purchase property with another party requires careful consideration. Consult your legal and tax professionals for the most suitable course of action to take.