If you are investing in property with a business partner or a family member, you need to know about the various ways that both your ownership interests can be structured. I last spoke about the different types and sizes of ownership interests. This article is dedicated to balancing the interests of multiple owners.
So how can property be owned by more than one person, and what are the benefits and negatives of each type of ownership.
Tenancy in Common
This type of ownership is most common between non-family members. A tenancy in common is where there are multiple people who have an ownership interest in a property. For example, three business partners could purchase a property together and all own the property as tenants in common. The partners are not required to have equal ownership interest in the property. Therefore, you can use this type of arrangement to have majority shareholders in the property.
The negative of this type of ownership style is that it does not common with a “right of survivorship.” This means that if one of the business partners pass away, the property will not automatically be divided between the remaining business partners. Instead, the property will be divided pursuant to that business partner’s estate planning documents.
This type of ownership can be between either family members or business partners. The difference between a joint tenancy and a tenancy in common is that all members of a joint tenancy must have equal shares in the property. Furthermore, a joint tenancy must be created at the same time by the same deed. This makes planning a little more difficult. However, a joint tenancy can also have a “right of survivorship” if the appropriate language has been included in the deed. This makes the transfer of property much smoother in the event that one of the other owners are deceased.
Tenancy by the Entirety
The final major type of ownership interest with multiple individuals is restricted to husband and wife. A tenancy by the entirety is an ownership structure whereby both the husband and the wife own the property together.
There are several benefits to electing to utilize a tenancy by the entirety. The major benefit is that debt collectors cannot put a lien on the house unless the debt is owed by both the husband and the wife. Therefore, if one party has significant student loan debt, this may be the ideal ownership style.
The largest negative of this ownership structure is related to divorce or bankruptcy. If there is a mortgage on the house and someone needs to file bankruptcy, it may force both parties to file a joint bankruptcy. Alternatively, if the parties are getting divorced it will impact property distribution.
Why You Need a Lawyer
A lawyer is important in preparing to purchase property to help advise you on which type of ownership structure is best for your particular case. The list above is limited, and does not cover all potential types of ownership. Nor does the list fully explain all possible negative or positive consequences of each ownership structure. Consult with a lawyer before signing a deed so you have the ownership structure that protects you the most.