Joint tenancy, tenants in common and community property – Why does it matter?


Summary:
    • Joint tenancy includes the right of survivorship
    • Tenants in common passes inheritance to heirs, not necessarily their spouse/partner
    • 9 States have community property laws
    • Changing the type of vesting requires a new deed

New homeowners often ask, “What is the different between joint tenancy and joint ownership?”  Often, their title company or attorney will ask them whether they want to hold ownership as joint tenants or tenants in common.  The terms can be confusing, but they have significant impact in the event one of the owners dies. Especially if you want to avoid probate.

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Before we identify the differences, let’s start by defining three common types of concurrent ownership in home ownership.

3 types of concurrent ownership

Joint tenancy

When two people own a home together as co-owners with the right of survivorship, they are said to be joint tenants.  Joint tenants are equal, undivided owners.tenants in common, joint tenants and community property - what's the difference?

Undivided ownership means each joint tenant owns every square foot of the property together with the other joint tenants.  Joint tenants don’t just own a piece of the home.  Each tenants owns and has access to the entire home.  The term undivided refers to how much of the property they have access to, not how much they own.

What is joint tenancy with right of survivorship?

Joint tenancy includes the right of survivorship.  The right of survivorship is important. A couple can own property together and not worry about their home going through probate if one of the spouses dies.  If a spouse or domestic partner dies, the surviving party automatically owns the property without the need for probate.

In order for joint tenancy to exist, there are four requirements that must be satisfied.

4 requirements for joint tenancy

  1. All parties must become joint tenants at the same time.
  2. Each parties must take title via the same deed.
  3. The parties must all have an equal and undivided interest in the property.
  4. All the parties must have an equal right of possession.

These requirements protect existing owners from potential fraud and title defects.  No one can simply add themselves to the title as joint tenants without the permission of the current owners.  If someone wants to be added to the deed, then the current owners must complete a new deed.  Existing owners must sign a new deed and grant joint tenancy rights to the additional party.

For more information on the different types of deeds see: What is a quitclaim deed and why are they problematic?

Tenancy in common

Sometimes, two or more persons may own an interest in a property that is not required to be equal percentages.  If each party owns, an undivided interest in the property, a tenancy in common exists.

For example, suppose a couple wants to co own a house with their child.  They may wish to partner with their child to help them build some equity.  Or, they may be purchasing a property with an Accessory Dwelling Unit (ADU) and sharing the costs.   The couple may own 75% of the home, while their child own 25%.  The couple owns 75% of every square foot of the home including the ADU, as does the child.  While the access and use is undivided, the ownership percentage is not.

Unlike joint tenancy, tenancy in common does not include the right of survivorship.  If an owner dies, the decedent’s portion of the ownership does not automatically pass to the other owners.  We’ll talk more about this in a moment.

Community property

Nine states have community property laws: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington and Wisconsin.  While the definitions are for community property are similar, the rules regarding real property are different between the states.

Property acquired by a husband and wife, or by registered domestic partners is called community property. There a few exceptions for separate property.  Property that was owned prior to the marriage, inherited or received as gift to one of the partners, or income received from separate property is not included in community property.  Community property cannot be sold or encumbered by only one of the partners.  While, either partners can buy property without the consent of the other, they both are bound to the contract.  The exception is if the property is bought using only funds from separate property, and designated as separate property.

Couples who purchase property in California have three options for vesting property.  The first is joint tenancy, which includes the right of survivorship.  The second is community property, but but does not include the right of survivorship and would require probate in the event of an owner’s death.  The third option available, is community property with the right of survivorship.  When vesting as only community property, either party can give or will their ownership portion away.  On the other hand, if one spouse dies without a will, all of the property goes to the surviving partner.

This can cause problems when there are children from multiple marriages.  It may be the desire of a spouse that their children inherit their portion of the home.  If there is no will, the surviving spouse will inherit the home, rather than the children.

How is joint tenancy different from tenants in common?

Understanding the differences between joint tenancy and tenants in common is significant in estate planning.  When you hold property as tenants in common, a tenant’s ownership passes to their heirs when they die, not necessarily to the other owner of the property.  With joint tenancy ownership passes to the other owner.  If you want your ownership to pass to your partner without requiring probate, you need to hold title as joint tenants.  Otherwise, your partner may end up being co owners with your surviving relatives when you pass.

When your deed does not specifically state the type of ownership, a tenancy in common is presumed.  Additionally, unlike joint tenancy, tenants in common can take title at different times.  New, additional owners can be added to the existing ownership with separate deeds.

Joint tenancy and tenants in common can co exist on the same deed.  Let’s use our example above of a couple who wishes to co own a home with their child.  The spouse may wish to protect the other spouse in the event of one of them passing.   A joint tenancy between spouses would automatically convey ownership to the surviving spouse, and not the child.  Additionally, the couple may have a joint tenancy together, but be tenants in common with their child.  If one spouse dies, the other spouse automatically owns their deceased spouse’s interest in the home. Upon both spouses passing, their ownership interest in the home would be passed to beneficiaries according to a written will, but not directly to the child.

Additional reading:  What happens to my mortgage when…

Can joint tenancy be changed to tenants in common or vice versa?

Changing the type of ownership requires the existing owners to convey the property with a new deed.  If one wants to change the type of ownership, all of the current owners must sign a new deed conveying ownership to the new party, and specifying the new ownership type.

Conclusion

There are three common forms of home ownership.  Joint tenancy, tenants in common and community property.  The key difference is that tenants in common does not include the right of survivorship.  Additionally, with tenants in common, the ownership percentage may not be equal.  One party may own 60% while another party owns 40%.  With tenants in common and community property, probate will be necessary to transfer ownership of the home.  The one exception is if the property is held as community property with the right of survivorship.