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Joint Tenancy or Tenancy in Common: Advantages and Pitfalls

Many people would like to own their own property so that they feel independent from a landlord and experience all the other benefits of property ownership, such as security of tenure, the ability to decorate and furnish the home to your own liking and the feeling that if you want to sell up and move somewhere else, you can.

For many, to be the sole owner of a property is just a dream, mainly because of cash constraints. However, there are some other home ownership options available today, such as owning a property as joint tenants or tenants in common.

Joint Tenancy

Quite simply, with a joint tenancy each person has ownership of the complete property. If one owner dies, the property passes automatically to the remaining joint tenant(s). This arrangement is referred to in legal terms as the right of survivorship. With this type of home ownership, no more than four people are permitted to share ownership of a property as joint tenants.

The right of survivorship, which is a rule set out for a joint tenancy, will be prioritised and not your will if you choose a joint tenancy agreement. This means that your property interest will automatically pass to the remaining joint tenant(s) unless you break the joint tenancy before you die.

There are four main requirements of joint tenancies:

Severing a joint tenancy can occur through the use of a written agreement at any time, or if you are unable to agree on terms with the remaining joint tenant(s), a court order may have to be used.


Tenancy in Common

A tenancy in common differs somewhat from a joint tenancy as only the unity of possession is a requirement. All owners have equal rights to the whole property, but each owns a specific proportion of it.

For example, you may decide that the property is owned equally, or one owner may have a 70% interest in the property while the other has a 30% interest. Or you may have decided that the property is divided in some other way, devoting certain proportionate interests to each owner.

When one of the owners dies in a tenancy in common agreement, that person’s proportionate interest in the property does not automatically go to the other joint owners. Instead, it is passed on in accordance with the wishes of the deceased’s will. If no will is present, then it is distributed in line with intestacy laws.

If your intention is to contribute differing amounts to buying a property when you decide to take on the status as tenants in common, a trust deed should be drawn up by a solicitor. This document lays out your shares in the property and may be used if someone dies or if there is a dispute over ownership.

Therefore, if you want your investment passed on to your children when you die, you should not choose a joint tenancy agreement but a tenancy in common instead, as this will give you assurance that your property will be passed on to the person you choose and not on to other owners.

What Should I Choose: A Joint Tenancy or Tenancy in Common?

Both types of property ownership have benefits and drawbacks. What suits your situation depends entirely on your individual circumstances and needs. Many married couples choose a joint tenancy because they would not benefit from having separate shares. If one of them dies before the other, the property will automatically pass on to the surviving spouse.

Keeping a property as a joint tenancy means that if the property is sold, then following the deduction of any mortgage, fees from estate agents and legal fees, the net proceeds of the sale are equally divided between two or more owners. This is quite likely to be the situation even if one owner puts more cash into the property than any of the others.

Relationship Collapse

If the joint owners are a couple and the relationship collapses, the net proceeds from the sale would be split 50/50. If a divorce takes place, then the distribution of assets, including property, is treated differently. However, you do need to understand that any property held as joint tenants would usually be divided 50/50, even if one of you might have contributed more towards the purchase of the property.

Tenancy in common does have its benefits too, and is better suited to couples where one of the spouses has children from a previous relationship, unmarried couples, sisters and brothers, children and parents or business partners. In these situations, one of the title holders may not wish the other title holders to inherit their share.

Joint Tenancy Helps in Avoiding Probate

When a person dies, his or her will is assessed by a probate court. The court decides if a will is both legally binding and valid as well as determines the value of assets and liabilities. Once the review has been completed and any debts have been settled, the remainder is distributed to heirs. If a person dies in the absence of a will, things become more complicated in the probate court because there is no written evidence available of how the assets of the deceased should be distributed.

This means that the decision about the person’s assets may be prolonged. However, because with a joint tenancy property held under a joint tenancy agreement transfers ownership automatically to the remaining spouse or business partner when the first partner dies, probate is avoided.

With a Joint Tenancy, Both Parties Share Equal Responsibility

When a married couple or two business partners jointly own an asset, it is called “joint tenants with right of survivorship” (JTWROS). It means that both individuals take responsibility for that asset and they both enjoy what it has to offer and share in any liabilities equally. It also means that neither of the parties can incur a debt on this asset without incurring debt themselves.

Example

A husband knows that he is going to divorce his wife and cannot get a loan using the value of the shared home with the intention of leaving his wife with the debt. The moment the husband is given the loan, he has equal responsibility to repay it. Also, the husband is not able to lease a part of the property without sharing the returns with his wife.

There Is Continuity with a Joint Tenancy

When a person dies, their assets often become frozen until the probate court decides whether the assets are linked to any debts, or until it is decided how to distribute the assets to heirs. This can sometimes be a problem for surviving spouses who have outstanding expenses or debts. However, ownership of an asset as a joint tenant means that the surviving spouse may use the property in any way he or she thinks is suitable, whether that means keeping it, mortgaging it or selling it. In fact, the law says that immediately after one owner dies, ownership is transferable to the surviving owner.

A Joint Tenancy Could Be Problematic If a Relationship Becomes Unstable

Whether for personal or business purposes, if there are any problems with the relationship, neither of the parties is permitted to sell or encumber the property without gaining consent from the other party. If the asset is jointly owned with a child who has become estranged before it is possible to sell the property, for example, the parent would need to get the child’s permission and that of the child's spouse too.

Bank Accounts Can Be Frozen with a Joint Tenancy

If a deceased owner left a large debt and the probate court believes that the surviving spouse or other partner may go about liquidating the funds so as to avoid paying out for the debt, the court could freeze the account. An account can be frozen if a dispute arises over if the surviving spouse or the business partner actually did contribute to the account, or if the ownership was just for convenience.

Once the surviving spouse or the business partner has taken control of the joint assets when the death of the first spouse or partner has taken place, he or she is permitted to sell it or give it to someone else. The deceased loses complete control and has no say in where the assets go.

Benefits of a Tenancy in Common

A tenancy in common has many benefits, including:

  • every owner owns the asset;
  • each owner can own 50% of the asset, or any other percentage can be established;
  • any party can part with his or her share legally without needing consent or approval from the other party;
  • the asset will be passed to the heirs;
  • the asset will not transfer automatically to the surviving account owner when the first owner dies;
  • the asset will be passed on according to the provisions that have been made in the deceased owner's will;
  • most tenants leave their assets to their heirs, but it could be passed on to the other account owner as long as the deceased has made a decision about it in his or her will; and
  • there is access to the assets, so if one of the owners dies or becomes disabled, the second owner should be able to gain access to his or her part of the assets and can sell the asset or dispose of it in any way that suits them without the necessity of waiting for a probate court judgement.

Both joint tenancies and tenancies in common have their benefits, but it is the individual’s decision that determines the route to take and what is likely to be the best outcome.

Deciding on Asset Ownership Can Start When You Marry

Purchasing a property as a married couple is one of the most exciting things to do, but one must consider how to set up ownership. You can own the property as joint tenants or as tenants in common. In a joint tenancy, the partners own the whole property and do not have a particular share in it, while tenants in common each have a definite share in the property. As joint tenants, if one spouse dies then the property will automatically go to the other spouse, but owning the property as tenants in common means that the will dictates who gets the property, meaning that the spouse may not automatically receive it.

Case Study

Question

“My marriage is irretrievable. I own property in France as well as a home in Devon, which is rented out. Both are free from mortgage debt.

My estranged husband has severed the joint tenancy we had on our English home. He told me what he was doing and wanted me to agree. I refused because he offered to transfer 100% of the title to me as a settlement in exchange for me offering to transfer my share in the French home to him.

I am afraid that he may now try to sell off his share or raise a loan. This is what he threatened to do before serving me with this notice. I am concerned that it is so easy to get a severance without the joint owner having any say at all or recourse. I do have two children to look after and I would like to know if there is anything I can do to stop this action?”

Response

You cannot do a lot to stop this event happening, but severing a joint tenancy does not alter who legally has ownership of the property; it only alters the way it is owned jointly. When you were joint tenants, the two of you owned the property. If one of you died, the ownership of the property would have automatically been passed on to the surviving spouse. When a joint tenancy is severed this can take place with or without any agreement from the other joint owner, but it just means that joint ownership of the property still exists, but as “tenants in common”, not joint tenants.

Now that you and your estranged husband are tenants in common, you own a clear 50% share of the property. This situation differs from a joint tenancy as your share of the home does not automatically get passed on to the other joint owner when you die, and vice versa.

Couples who are going their own ways are usually advised to change their status to tenants in common to ensure that their property share does not automatically go to their ex-spouse if they happen to die before completion of a divorce. This is probably why your ex-husband has taken this action, but if he wishes for his share to go to another person when he dies, he will need to possess an up-to-date will that names his beneficiary.

You should update your will, too, so that your share of the property does not get passed on to your ex-husband as long as you name your beneficiaries.

When it comes to your husband trying to sell the property or raise a loan on it, all joint owners, whether joint tenants or tenants in common, have to reach an agreement about selling jointly owned property, and no force can be exerted except that ordered by the court. A court order is an expensive process.

Finally, don’t worry about the severance effect on your financial settlement. If your joint tenancy is severed and matrimonial proceedings are initiated, any joint tenancy severance will not have an effect on the outcome. Reaching a formal agreement with cooperation from your ex-husband and getting a solicitor to file a consent order outlining your agreement to the respective court so that it is legally binding will be of great help to you.