Joint tenancy is the equal ownership of property by two or more people with the right of survivorship. Each owner has an equal, undivided share of the property, and if one owner dies, their portion is divided among the remaining owners. Joint tenancy is commonly used with two owners, but it can have more. Joint tenancy by a married couple owning a home is typical, but friends sharing a vacation home or investment property is also an appropriate use of the structure.
Sometimes joint tenancy is conflated with tenancy-in-common, although the two are different ways of owning property in groups. With a TIC structure, each owner may hold a different-sized share and can designate an heir of their choosing to receive it upon death. Each owner can also sell their portion without the other owners' agreement, while in a joint tenancy, the owners must agree on the asset's disposition.
What Are the Benefits of Joint Tenancy?
Ownership through joint tenancy offers a means to share equal ownership, responsibility, and access to an asset by spouses, family members, business associates, or friends. Each joint tenant owner holds an equal share and has the same duty to contribute. For example, suppose that you own a vacation home in joint tenancy with your three best friends. Each of you owns an undivided interest in the house, with 25% ownership and responsibility for 25% of the costs. If one of the friends passes away, the remaining three will absorb one-third of that partner's share and duty. Individual owners cannot sell or dispose of their portion.
What Could Lead to Severing the Arrangement?
Using the same example, in which you own a vacation home in joint tenancy with your three best friends, suppose you have an irrevocable falling out with one of the friends. Disagreement can affect the group's ability to enjoy the vacation home, or if the property is an investment, conflict can impede the partnership's success. The group may decide to disengage completely or regroup in a different combination. Some members can buy the portion previously held by others, or they can agree unanimously to sell the asset and split the proceeds.
More commonly, a married couple may need to sever their joint tenancy if they divorce. However, even if divorce or separation is not the issue, a married couple may have other reasons for preferring to hold property outside of joint tenancy due to the right of survivorship. For example, suppose the couple has different views on the proposed disposition of the property following their respective deaths. In that case, they might want to reframe the ownership structure to allow each to designate a different heir (perhaps a child from a previous marriage instead of the spouse). Again, as with the friend group, the most straightforward approach is changing the ownership agreement (perhaps to a tenancy-in-common) or agreeing to sell.
Severing Joint Tenancy Under Duress
If the owners can't agree on a course of action, one in the group can petition a court for help, requesting a judicial partition. If the joint tenancy is a divorcing couple, this action will typically occur as part of the marital dissolution. However, if the ownership is a different group type, they may need a judge to divide the property or order a sale if that's the only way to terminate the agreement.
This material is for general information and educational purposes only. Information is based on data gathered from what we believe are reliable sources. It is not guaranteed as to accuracy, does not purport to be complete and is not intended to be used as a primary basis for investment decisions. Realized does not provide tax or legal advice. This material is not a substitute for seeking the advice of a qualified professional for your individual situation. Examples are hypothetical and for illustrative purposes only.