Sharing ownership of a property with another person (or persons) can be legally established in a number of different ways. One possible legal arrangement is through tenancy in common, which allows you to own a portion of a property with someone else while retaining certain survivorship and liability protections. Here’s a look at what tenancy in common offers, who it’s designed for and what to keep in mind along the way. Consider working with a financial advisor as you assess your options for sharing ownership.
What Is Tenancy in Common?
Tenancy in common is a form of joint ownership, where two or more individuals own an equal or unequal share of a property. Tenants in common do not have to be married (or even related) to one another in order for the arrangement to be legal. This arrangement is available for residential or commercial property, and may include buildings or tracts of land.
Tenants in common may choose to divide the property’s ownership into whatever percentages they’d like. They can keep equal shares, each retaining one-half of the ownership of the property, or they can split it into any combination of shares. A tenancy in common contract can be created at any time (unlike a tenancy by the entirety, which is created at the time of purchase). It can be changed, sold, borrowed against or even split further after it’s created.
The individual terms for a tenancy in common contract will be outlined in that property’s deed or title. Owners may also choose to draw up a unique property contract between them. This can include the specific terms each party has agreed upon.
Why It’s Used
A tenancy in common arrangement allows multiple individuals to share an ownership interest in a property while accounting for separate interests. Here are some reasons it might be used:
A married couple holds a property in tenancy by the entirety, but then divorces. The property can still be jointly-held by shifting into tenancy in common, allowing each former spouse to determine his or her own beneficiaries and wishes for the property.
A couple purchases a home together, but one spouse pays a significantly larger portion of the purchase price (either from their personal savings or as a monetary gift from their parents, for example). With tenancy in common, the spouses can account for an unequal ownership interest in the property, in case they later split up and need to reconcile their contribution.
Two (or more) unrelated individuals purchase a property together, using a tenancy in common to protect each owner’s stake in the property. This ensures that their own heirs will receive their share of the property after they die, rather than it passing to the other owner(s).
There are many situations where owning a property as tenants in common could afford the most legal protections for all involved.
What Happens When a Tenant in Common Dies?
Perhaps one of the most important aspects of tenancy in common ownership is how the property is passed on when an owner dies. When a tenant in common dies, their share of the property will be passed on to their own beneficiaries or named heirs, as part of their overall estate. The other share(s) of the property will remain with the other tenant(s) in common.
Property held and passed down by tenants in common will likely need to pass through the probate courts. That share of ownership in the property becomes part of the deceased owner’s overall estate. It will then be distributed to inheritors according to their will.
Each estate situation is unique, but the probate process can be both lengthy and costly. Owners should consider this when deciding to opt for a tenancy in common designation.
Tenancy in Common vs. Two Alternatives
There are many different legal structures to choose from when owning property with others. Three of the most popular include joint tenancy, tenancy in common and tenancy by the entirety.
Options for Owning Property With Others Joint Tenancy Tenancy by the Entirety Tenancy in Common Maximum number of owners 2 4 No limit Who can share ownership? Anyone Only married spouses Anyone Ownership shares Equal Equal Any proportion Can be changed (members added or removed, etc.)? No. To add or remove a member, the property much be sold, proceeds distributed and the property repurchased (a new deed issued). No, but it can be shifted into a tenancy in common if desired. Yes, changes can be made to members and the percentages of ownership. When an owner dies… Their share of the property is distributed to the remaining owner(s). His or her share is transferred to the other owner/spouse (survivorship). Their share conveys to their inheritors, while the other share(s) remain with the other member(s).
All three of the above options allow multiple people to share ownership in a property at the same time. But while these can be similar in many ways, the differences matter so it’s imperative that parties to any of these arrangements are clear in their own minds about what exactly they want.
The Bottom Line
Owning property with others can be complex. This is especially true if you’re concerned with retaining your fair share of interest in the property. Holding the property as tenants in common allows two or more individuals to jointly own a home, tract of land or other property while also accounting for unequal shares of ownership. Since this arrangement also allows for one’s shares to convey directly to their heirs if they pass away, it can be a safe bet for anyone worried about retaining and securing shared assets.
Tips on Estate Planning
Estate planning can be complicated. That’s why is wise to work with a financial advisor.
Finding a qualified financial advisor doesn’t have to be hard. SmartAsset’s free tool matches you with up to three financial advisors in your area, and you can interview your advisor matches at no cost to decide which one is right for you. If you’re ready to find an advisor who can help you achieve your financial goals, get started now.
It’s important to understand what’s in your nest egg. Using a free retirement calculator is a good way to get a quick estimate of that.
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