Getting ready to buy a new home with your partner? Here’s what you need to know about joint tenancy which is one common way couples take title to a property, for when you finally find that perfect home.
The basic joint tenancy definition is pretty simple: when two or more people own a property together and each person has an undivided interest in the property. Joint tenancy is unique in that each owner owns the entirety of the property.
This means that if you have a joint tenancy with your spouse in the house you bought, you both own the whole house instead of each owning half.
Joint tenancy also includes what is called a “right of survivorship,” which means that if you pass away, your co-owner will automatically own the entire property alone, whether or not you made any sort of agreement to leave them the property (other than the recorded title itself).
Another option when buying a house with a partner is to purchase it as a tenancy in common (TIC). The main difference between joint tenancy and TIC is that tenancy in common doesn’t include the right of survivorship.
This means that property won’t automatically be inherited by the co-owner(s) or other tenants in common if the other owner dies — that tenants ownership portion goes to the party selected in the deceased owner’s will.
Related: What is a conventional home loan?
How does joint tenancy work?
Joint tenancy is controlled by the state where you live, so you’ll need to look to state law to see exactly how to enter into a joint tenancy. The laws about joint tenancy also vary depending on whether you’re talking about real or personal property.
Real property is land and buildings attached to the land, and personal property is everything else, like your car, blender, or bank account.
Joint tenancy can technically be created in any property, so you could theoretically bequeath your blender to your sister and brother-in-law as joint tenants if you really wanted. However, joint tenancy is most often associated with things like real property and bank accounts.
Joint tenancy in real property
Joint tenancy might come up when you’re considering buying a home with another person, like your spouse or partner. When you take ownership of your house, you will normally take title of the home with a deed that specifies whether you and your co-owner own the home as joint tenants or as tenants in common.
The Escrow Officer will often supply the buyer with a list of ways the owner(s) can take title to the property and help explain each choice available before the purchaser makes a decision.
There can be different options for right of survivorship depending upon the state the property is located and who is taking title. For instance, in the state of California spouses can take title as Community Property with the Right of Survivorship, this allows for tax benefits such as capital gains.
Deciding which type of tenancy you’d like the deed to specify is an important choice because there are different rights and responsibilities involved, as well as possible tax implications.
For example, tenants in common only own a designated share of the co-owned property even if they have the right to occupy the whole house, and if one co-owner in a TIC agreement dies, that person’s designated heirs may be the one to inherit their portion of the property instead of the other co-owner (unless that co-owner is the heir).
Tenants in common might also agree to share financial responsibility or costs proportional to the percentage of the property they actually own. Let’s say that you buy a beach house with your friend as tenants in common. You paid for 40% of the house and your friend paid 60%.
Your TIC agreement might specify that your friend owns a three-fifths share in the property and you own a two-fifths share, even though you both will be occupying the whole house.
Because of the different levels of ownership, you may also decide that your friend will pay for three-fifths of the cost of upkeep and repairs while you only pay for two-fifths. And if your friend passes away, her kids or other heirs might inherit that three-fifths interest in your beach house.
With joint tenancy, you may avoid some of the more complicated ownership questions that can arise with TIC. For example, if you buy a mountaintop vacation cabin with your wife as joint tenants, both of you would have equal ownership of 100% of the cabin.
If one of you were to pass away, the other spouse would simply continue to own 100% of the cabin and the deceased spouse’s co-ownership of the cabin would not pass on to anyone else.
Joint tenancy in a bank account
Another situation where joint tenancy might come up is with bank accounts. Although you might not consider yourself a “tenant” of your bank account, a bank account is considered personal property, which means you can own it as a joint tenant with someone else. It is not quite as complicated as it might sound.
Like joint tenancy on a house, a joint bank account allows for both owners to have total ownership of the account and to have a right of survivorship in the account.
This means that either co-owner may be able to withdraw all of the money in the account without the permission or knowledge of the other co-owner.
It also means that if one co-owner of the joint account dies, the other co-owner automatically gets ownership of the account and everything in it. You could also have a tenancy in common agreement for a bank account.
Pros and cons of joint tenancy
Many people, particularly married couples and family members choose to own property as joint tenants because it is convenient and can help to ensure that if one co-owner dies, the other co-owner automatically gets full possession of the property.
Of course, because of the right of survivorship inherent in joint tenancies, you are more limited when it comes to making decisions about who to leave your property to in a will. If you own your home in joint tenancy with your wife, but you leave the house to your kids in your will, your wife would maintain ownership of the house despite the will.
This could make figuring out the ownership of a property after losing a family member more complicated depending upon whether the state is a community property state or not.
Joint tenancy and mortgages
If you’re considering buying a property, it is also important to find the right mortgage loan. This path helps get you and your partner into your dream home without having to save up enough cash to buy a home outright.
For most couples, buying a new home involves saving up for a down payment and then taking out a mortgage to cover the remaining cost. You can take out a joint mortgage as co-borrowers, so both borrowers are equally responsible for the payment.
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