What are the types of joint ownership?
Joint tenants, tenants in common, tenants by the entirety; what in the world do those mean? How do the types of joint ownership affect your property interest?
Joint tenancies, tenancies in common, and tenancies by the entirety are all ways to own property with other people, but what are the differences?
(Yes, I am an attorney, but, no, I am not your attorney. Nothing in this post constitutes legal advice or creates an attorney-client relationship. This post and this site are merely educational, informational, and entertaining.)
Fee Simple vs. Joint Ownership
When you, by yourself, purchase property in the United States, more often than not, you become a fee simple owner. Fee simple is the legal way to say that you own it outright, and no one else in the world has claims to it (other than maybe a bank or other lienholder).
When you receive a property as an inheritance, you might receive the property with another person or other people. When you own property with a spouse, a friend, or family member, you create a joint ownership.
Your rights in the property are defined by the type of tenancy that you have with the other person/people.
Types of Joint Ownership
What does it mean to be Joint Tenants?
A joint tenancy creates a 100% interest in the entire property for all common owners. Lawyers like to say that a joint tenancy is an undivided right to the whole property.
When you create a joint tenancy, you do not just own ½ of the property (see tenants in common below) instead, you own 50% of the entire property.
For example, if you own a large horse farm where you are a joint tenant, you and the other joint tenant(s) have the right to walk all over the entire property at any given time.
The only way to sell the property is to do it together or to sever the joint tenancy altogether.
Joint Tenancy and Rights of Survivorship
Further, joint tenancies can create a right of survivorship (depending on your state laws). A right of survivorship means that the last person standing receives the entire property.
So, if 5 brothers all receive the same farm and hold it as joint tenants with rights of survivorship, then the last surviving brother receives the entire farm. The children of the other 4 brothers have NO claim to the farm.
For that reason, most people prefer to inherit property as tenants in common.
What does it mean to be Tenants In Common?
A tenancy in common, unlike the joint tenancy, gives each owner a divided right to the whole. This means that if you own a large horse farm with a tenant in common, you each only have rights in ½ of the property.
You always have a right to 50% of the farm.
Tenancies in common do not create rights of survivorship. Instead, each person carries his or her percentage of the property into his or her own estate.
This means that if 5 brothers own a farm together and each of the brothers dies, then each estate receives 20% of the entire property.
The last brother standing still only receives 1/5 of the property.
Owning property with a brother or other joint owner is one thing, but owning property with a spouse is something completely different.
What does it mean to be Tenants by the Entirety?
A tenancy by the entirety (sometimes called “entireties) is a type of joint ownership held ONLY by spouses. A tenancy by the entirety means that each spouse owns 100% of the property, and if one spouse dies, the other spouse retains the entire property.
The married couple is treated as one person.
Further, this type of tenancy is ONLY created when the joint owners are married at the time of conveyance. Marriage must exist as one of the unities of title.
The deed or other transferring document must read “to Martha and Joe as Husband and wife” or “to Carrie and Jamie as tenants by the entirety” or a variation of those.
In other words, the conveyance document must make reference to either creating the tenancy by the entirety or that the joint owners are actually married at the time of the conveyance.
Owning a property with someone jointly and then marrying them later does not create a tenancy by the entirety.
Without the marriage, the ownership is simply a joint tenancy or a tenancy in common. (Again, see above!)
What type of Joint Ownership do I Want?: Joint Tenancy or a Tenancy in Common?
For most people, whether they want a joint tenancy or a tenancy in common comes down to their personal preferences. They may want to consider things like debt, businesses, estate planning, and their family situation.
Joint Ownership and Debt
When you own a property as a joint tenant or a tenant in common, debt of one of the owners could be attached to the entire property.
However, for the most part, the debt either severs the joint tenancy or is limited to the joint owners’ portion of the property (1/2 if only 2 owners).
In any event, however, owning property with someone who isn’t your spouse is a good way to lose a portion of your ownership interest to the other owners’ creditors, liabilities, and liens.
Related Post: Why I don’t recommend joint ownership.
Even if you are able to defend your ½ of the property, you are still having to run the risk of losing a portion of the property or even hire your own counsel to defend you. A costly endeavor.
Types of Joint Ownership and Businesses
Many people own property as partners. They decide to go into business together, buy a building, and run the business over the course of their professional lives.
However, if they never register their business entity, then the property will always be treated as a joint tenancy or tenancy in common depending on their interests. This means, that either person can decide to sell at any time and force the other partner to buyout or lose their business.
Business partners who incorporate, form a general partnership, or even an LLC, on the other hand, do not have to worry about only owning ½ of the property.
When one person wants to get out of the business, that person cannot force the sale of the building to the other partners’ detriment. Instead, he or she has to abide by the rules of the formal entity. This could compel a transfer of shares, a valuation, or even a contribution of capital instead of leaving the other partner high and dry.
In short, joint ownership isn’t great for business either, and you might want to consider forming an LLC or other incorporated entity instead.
RELATED POST: Do I Need an LLC?
Joint Ownership and Family Estate Planning
Finally, one of the major considerations for the type of joint ownership you need is your estate plan.
If you own that family farm with your brother, don’t you want to make sure that your ½ goes to your children rather than to his if he outlives you?
While I never recommend joint ownership as the best option for a comprehensive estate planning method, you do want to be certain that both your wishes and your spouse are protected in the event of your death.
Using Joint Ownership to Protect Your Spouse
Remember the tenancy by the entireties? Well, if you purchased property with your now-spouse before you were married, then that property might be divided upon your death. This could mean that your spouse loses one half of your marital home at your death without proper planning.
If you want to ensure that your spouse receives the marital property upon your death, then you want to own the property jointly with rights of survivorship or as tenants by the entirety and not as tenants in common.
Conversely, if you want to ensure that your business partner doesn’t have to sell the business building upon your death to pay off your heirs, then ensure that it is owned in a business entity or as joint owners with rights of survivorship.
Family farm, marital home, and business partnerships are all reasons to care about how you own the property. Having a joint tenancy or tenancy in common might make all the difference for you or your loved ones.
Types of Joint Ownership: What’s the difference between joint tenancies, tenancies in common, and tenancies by the entirety?
Don’t just dismiss those few words in your deeds. Make sure that you understand what “joint”, “rights of survivorship”, “common”, and “husband and wife” mean for you.
Better yet, have an attorney review your property ownership and ensure that your assets are titled properly. Both your deeds and titles have specific types of language that are interpreted through the definitions above and your state law.