Guest Author - Reshma Vyas
One the biggest challenges many couples face is how to title major financial assets which they would like to hold in joint ownership (e.g., a home or even a mutual fund). Taking adequate time and thought to determine exactly how you want to title your financial assets and/or property is critical for several reasons:
1. To protect your assets from potential litigation.
2. Estate and tax planning; wealth management; creation of trusts.
3. Safeguard your ownership rights in jointly held property in the event of a breakup or divorce.
4. Improve and ensure a smooth flow of financial paperwork.
Regardless of whether your relationship is in the form of marriage or cohabitation, the titling of ownership of joint financial assets takes on a unique and complex dimension. For individuals who have built up sizable financial assets and may have children from other relationships, considerable thought and competent legal advice will be required to determine how specific major assets of mutual interest can be titled. Unfortunately, far too many couples skim over this topic, mistakenly believing that it is of little or no importance or are otherwise unaware of the distinctions between the various types of joint ownership.
Let us briefly review the 3 types of joint ownership. Although for the purpose of this discussion, joint ownership is restricted to couples, except for tenancy in entirety, the other forms of joint ownership can involve two or more owners.
1. Joint ownership with tenancy in common. Ownership in this form can include more than two parties. Shares in this type of account can be divided unequally among the partners. One notable aspect of this type of ownership is that each owner can dispose of their individual interest in the property independently without the consent of the other party or partners. However, upon death of one of the owners, their share of the property will be passed on to the beneficiary (or beneficiaries) as specified in the will of deceased individual, rather than automatically passing on to the surviving partners. Interestingly, one popular type of TIC (tenants in common) designation pertains to condo ownership in exorbitantly high-priced metropolitan locales.
2. Joint ownership with right of survivorship. Within this framework, ownership can involve two or more individuals. Each partner owns an equal and undivided share or interest in the property. The owners can dispose of their shares without the consent of the other partner or partners. However, upon death of one of the partners, the remaining share will be divided equally among the surviving partners or conferred to the sole surviving partner.
3. Tenancy in entirety. This type of ownership is still permitted in some states. It has historically been limited to a married couple. It is essential to note that ownership through tenancy in entirety refers to “real” property (e.g., a house). In this type of ownership, one party cannot sell or dispose of their share of the property independently. Both signatures will be required for the transaction to sell the property.
Clearly, there are benefits and drawbacks to each type of joint ownership from a legal, financial planning and tax perspective. Obviously, the individual interests of each party as well as their combined interests as a couple also need to be weighed. How joint property can be held can also vary depending on the state. Further adding to the complexity and magnitude of the issue is the myriad of differences in terms of state laws regarding community property and the interpretation and application of prenuptial agreements.
For informational purposes only and not intended as advice. Every attempt is made at accuracy, however, the author does not claim that the content is free of factual errors.