When you purchase any kind of property, you must give careful thought as to how you will be taking title to that real estate. The decision you make when you first go to settlement on your house may make a significant difference — both financially and psychologically — on you and your heirs in the years to come. This is especially important where same sex couples decide to venture into homebuying.
Oversimplified, there are four basic ways to take title.
First, sole owner. This means that you — and you alone — own the property. On your death, your property will go into your estate, and distribution of the property will be dictated by your legal Will.
If you own property with another person, title can be held in one of three ways:
1. If you are married, you should consider taking title as tenants by the entirety. This creates a more sacred relationship for husband and wife that is honored by law. On the death of one spouse, the survivor automatically owns the property as sole owner. Probate is not necessary to transfer title to the survivor. Of equal importance, if someone has a money judgment against one spouse, the house cannot be sold to satisfy that debt.
2. For unmarried people who own property, there are two ways that they can hold title. The first is called “tenants in common” and the second is “joint tenants with right of survivorship.”
Under the first approach — tenants in common — each owner would have a divisible interest in the property. Usually, this interest is owned 50-50, but this is not mandatory. There may be legal or financial reasons for one tenant in common to own a greater percentage than the other. I have even seen tenant in common arrangements where the split is 99-1. Regardless of the split, if one of the tenants in common dies, his/her percentage interest in the property will go into his/her estate, and be distributed in accordance with the terms of the decedent’s legal Will. You should keep in mind that if a judgment creditor wants to try to collect on the moneys owed, the house can be sold to satisfy the debt — but only as to the percentage interest of the judgment debtor. The other tenant in common might lose the house, but would get his/her percentage interest of the sales proceeds.
If title is held as joint tenants with right of survivorship, then, in effect, there is no divisible interest. On the death of one of the joint tenants, the remaining tenant would automatically own the entire property, without having to go through a probate process. It should be noted that some states require that joint tenant arrangements use the words “with right of survivorship” in order to accomplish the desired result. As a measure of precaution, I strongly recommend adding those words wherever you live.
And there are a few states where joint tenants can each own a different percentage.
The question is always asked: my friend/significant other and I want to buy a house. How should we take title? I recommend title be held as “tenants in common”. You can protect your friend by naming him/her in your will. But should you have a falling out with your friend, you want to be able to control the destiny of your interest in the property, and a joint tenant arrangement does not accomplish this.
However, this is a very personal issue between you and your friend, and my general answer may not fit your particular circumstances. Thus, you must consult your financial and legal advisors before you take title. It should also be noted that there are some states in the Western part of this nation which are called “community property states”. This column does not address those unique issues.
Once again, consult your legal counsel to make sure you have all the information needed to make an informed decision — and that your legal title conforms to that decision.