Making Cents: Joint Ownership Can Create Problems
By: John P. Napolitano, CFP®, CPA, PFS, MST
Having more than one owner to just about anything may be suitable for some married couples, but for non-married persons, joint ownership may create more problems than it’s worth.
Let’s start by defining to two most common forms of joint ownership. First is the joint tenants in common form of ownership. Joint tenants in common mean that each individual owner has an undivided ownership interest in the property, be it a coin collection, bank account or real estate. So if you’re a joint tenant in common in a two family house, you may sell your half to whomever and whenever you want. When you die, that half of the property will pass to whoever you had designated in your will.
The other type of joint ownership is joint tenants with rights of survivorship (JTWROS). Joint tenants with rights of survivorship doesn’t offer an undivided ownership interest. The rights of the owner’s interest is somewhat limited. If you own a two family house with your sister as JTWROS, and one of you passes away, the decedents half of the property goes to the surviving owner regardless of what the will says. This may present problems if the deceased siblings, spouse or children thought that they were next in line to own half.
Other issues with joint ownership include asset protection and flexibility. In terms of asset protection, consider this: your brother, the great, huggable, bear of a guy is involved in some sort of financial trouble, litigation, or even a divorce. Should he lose or receive outstanding judgments from creditors, any asset that he owns is now subject to the creditor’s claims. That may include your two family house. If you happen to be in the process of selling to a qualified buyer, and your brother’s creditors have slapped a lien on the property, that lien must be satisfied before the title can pass to the new buyers.
A similar, unfortunate situation may develop if one of the owners is suddenly unable to carry their share of the debt, or property maintenance. The mortgage holder doesn’t care that you paid your half; they need the whole payment and will consider you equally delinquent. The solution- do not own property jointly with anyone but your spouse. This doesn’t mean that having partners is a bad idea. It simply means that planning needs to go into the form of the ownership. A Limited Liability Company, Partnership or Corporation to own the property with each of you owning a share in the new entity created may be ideal. An entity alone isn’t the holy grail of protection; have a legal agreement that clearly spells out the duties, obligations, rights and remedies of the owners. See a qualified attorney to remedy this situation before something ugly happens. This legal bill could be the best ounce of protection that you’ve ever paid.
John P. Napolitano CFP®, CPA is CEO of US Wealth Management in Braintree, MA. Visit JohnPNapolitano on LinkedIn or uswealthnapolitano.com. The opinions voiced in this material are for general information only and are not intended to provide specific advice or recommendations for any individual. This information is not intended to be a substitute for individualized legal advice. US Financial Advisors, US Wealth Management and LPL Financial do not offer legal advice or services. John Napolitano is a registered principal with and securities offered through LPL Financial, Member FINRA/SIPC. Investment advice offered through US Financial Advisors, a Registered Investment Advisor. US Financial Advisors and US Wealth Management are separate entities from LPL Financial. He can be reached at 781-849-9200. 1-895144, 1-05042362