Joint Tenancy: Defined And Explained
When you buy or refinance a home, there are many ways to take title. If you’re looking to own property with your spouse or business partner in a way that both of you have full ownership, one of the primary options to consider is joint tenancy.
What Is Joint Tenancy?
Joint tenancy is a type of ownership agreement where two or more co-owners have equal rights and obligations to real property. This type of legal agreement includes a right of survivorship where in the event of a co-owner’s death the remaining owner(s) inherits the property automatically.
Joint tenancy arrangements can be applied to the ownership of a variety of different assets, including real estate, personal property, business ownership and banks and brokerage accounts – but generally people think of it in relation to buying a house.
By default, a married couple, family members or business partners acting as joint tenants have an equal share of the property. Upon death of a tenant, that person’s share passes to others who have co-ownership.
While this is the default rule, depending on the way the joint tenancy is implemented, there are various ways a joint tenant may eventually be able to convert this to a different form of ownership. The other thing to keep in mind is that states may have their own rules around this, so consult a local attorney if you have any concerns.
How Does Joint Tenancy Work?
In joint tenancy, whether you have two co-owners or 10, everyone has 100% ownership interest in the property. As explained earlier, joint tenancy starts from the basic assumption that if one owner passes, rights of survivorship mean that the property can’t be passed down to heirs. Instead, the property interest passes entirely to the remaining joint tenants.
Since the joint tenants have equal interest, the property cannot be sold without the consent of all parties. Instead of selling, a joint tenant can choose to transfer their interest to another party. But it’s important to note that when interest is transferred, the new party may not enter the joint tenancy. Instead, the third party becomes a tenant-in-common with the remaining joint tenants.
As a practical effect, when joint tenancy is severed, this means that the remaining tenants along with the new tenant have an equal share of the property, but not 100% ownership. If there were two owners, ownership would now be 50%.
Additionally, joint tenancies without additional language around survivorship can be severed by a creditor looking to sell one owner’s interest in the property for payment of debts.
Joint Tenancy With Full Right Of Survivorship (JTWFROS)
Not all joint tenancies are created equal. As mentioned before, a traditional joint tenancy has a presumption of a right of survivorship, but it can be revoked at any time by any one of the tenants or one of their creditors.
In a joint tenancy with full right of survivorship (JTWFROS), no joint tenant can end the joint tenancy without the permission of the other joint tenants. Additionally, no creditor can end the joint tenancy.
If a married couple takes title to a property using a joint tenancy with full rights of survivorship, it can greatly simplify the estate planning process. If one spouse dies, there’s nothing to probate. It just goes to the other spouse regardless of what might be in the will.
This is true of other assets that might be held in this way. You don’t have to worry about beneficiaries unless every other owner has passed already.
When it comes to your mortgage, having full rights of survivorship can make things easier by allowing you to take over the mortgage as a successor in interest.
Joint Tenancy Vs. Tenancy In Common
Joint tenancy isn’t the only way that two or more individuals can jointly own property. Depending on the circumstances and the relationship between the parties involved, individuals may instead wish to enter a tenancy in common agreement. Although these two terms sound similar, there are important distinctions between them.
While joint tenancy means that all tenants possess equal ownership of the property, a tenancy in common agreement allows for interest to be split into different percentages. For example, let’s pretend you purchased a property with two friends. You own 50% of the property, while your friends own 25%, each. Despite the difference in percentage owned, you would all have a claim on the property, meaning no individual can claim ownership over it.
Tenancy in common also allows co-owners to sell or transfer their share of the property without the other tenants’ consent. This means heirs may inherit the deceased co-owner’s shares in the property after they pass.
Let’s look at the similarities and differences:
Tenants In Common
Share of the property
100% – entire property
Can vary; may be equal interest, but not necessarily
Ownership passes to remaining surviving owner(s)
Yes, but can be severed if full survivorship isn’t in writing
No. Ownership can freely be passed to other heirs.
Creditors can split up ownership
Only if full survivorship isn’t in play
Joint Tenancy Pros
There are several potential benefits to joint tenancy worth considering:
- Affordability: Joint tenancy can make homeownership a more affordable option for those who may not have the funds or credit necessary to qualify for a mortgage and purchase a house on their own. To qualify for a conventional loan, borrowers need a credit score of at least 620 and a debt-to-income ratio (DTI) below 50%. More incomes can mean a lower DTI ratio.
- Shared responsibility: All the responsibilities and financial burdens involved in owning real estate can be a lot to handle on your own, but with a co-tenant, all obligations are equally divided and therefore significantly more manageable.
- Easier estate planning: Joint tenancy with full rights of survivorship enables individuals to avoid the lengthy process of probate should their co-owner pass away. Probate avoidance means that assets are immediately distributed to the living co-owner, even if the deceased did not have a will written out before the time of death.
Joint Tenancy Cons
There are also several potential downsides to joint tenancy that you should be aware of before moving forward:
- Financial troubles: Life changes can greatly complicate this co-ownership structure. If a co-tenant runs into financial troubles after purchasing the home and cannot afford to keep up with their share of mortgage payments, the other co-tenant(s) is responsible for preventing the property from going into default.
- Divorce or separation: A divorced co-tenant is still responsible for their former spouse’s share of debt, and neither party can decide to sell the property without the express permission of the other. Of course, this can be dissolved, but it may have to be done through a court-ordered divorce decree or separation agreement.
- Inheritance: Regardless of the deceased’s wishes or will, their shares will automatically be bestowed upon the surviving co-tenant(s). Therefore, co-tenants are helpless when it comes to passing their shares onto their heirs unless they’ve outlived everyone else.
Is Joint Tenancy Right For You?
Joint tenancy could make sense in a variety of situations. It’s common to want to pass a home to a spouse in the event of your passing. The same is true for property held between family members. Business partners might want to hold assets jointly, particularly if the heirs of one or both business partners may not be interested in running the business.
On the other hand, you might look at tenancy in common as an unmarried couple if you want to pass your share of the property to your heirs after you pass. The other advantage of this is that you can have proportional ownership based on investment or however else you decide to split it up, which could help in the event of a sale.
Although we mentioned unmarried couples, this could also be useful for those who own hunting property or business partners who want to be free to sell their share of the business unencumbered.
Joint Tenants: FAQs
Now that we’ve gone over the basics of joint tenancy, let’s touch on a few more of the finer details.
What kind of property can be held in joint tenancy?
Although it’s typical that joint tenancy refers to real property (land and everything attached to it), it can be used to secure personal property as well. This could be everything from your car to your baseball card collection.
What happens when joint tenants separate?
When joint tenants separate, one or the other of them may be able to end the joint tenancy if it doesn’t say anything about a right of survivorship. If there is a right of survivorship, they have to mutually agree to end the joint tenancy. In the case of a divorce, there could understandably be acrimony. The joint tenancy can be severed pursuant to court approval.
How do you sever a joint tenancy with right of survivorship?
If both parties agree, they may choose to simply convert the title to tenancy in common. In a divorce or other disagreement, a judge may choose to award the property to one party or the other or do a partition with each person getting a portion of the property. A buyout may also be a good option.
The Bottom Line
Joint tenancy allows for all the owners of the property to have full ownership and responsibility for it. This can make it easier to avoid probate because on the death of one owner, the ownership share just passes to the other co-owners. On the other hand, this could make things more complicated to pass the property to heirs. You may choose tenancy in common instead.
Do you feel confident and ready to move forward? You can go ahead and apply online to get started.