Selecting The Right Tenancy When You Co-Own a Property

Many of you reading this probably own a home. Or perhaps you are a first time homebuyer seeking to settle on your new home before rates increase. Or maybe you own several homes with your spouse, with friends and/or with other family members. Regardless of which of the above categories you claim, if you purchase property with another individual(s), you all must answer the same question: how will your property be titled? In other words, what names and which form of tenancy will be on your deed?

There are three ways for multiple people to take title of real estate known as: tenancy by the entirety, joint tenancy with rights of survivorship and tenancy in common. Selecting the right tenancy will depend on whether you are purchasing property with a spouse and how you want your interest in the property to be handled in case of your death.

Tenancy by the entirety
This kind of tenancy is reserved for a married couple and, as a matter of public policy, enjoys special treatment in the eyes of the law. From the legal perspective, each spouse owns the whole property while both are alive and, at the death of one spouse, the surviving spouse continues to own the whole without acquiring a “new interest” from the deceased spouse, thus avoiding probate (survivorship feature). Neither spouse can convey any interest in the property without the other’s consent while both spouses are alive.

An important feature of this tenancy is that the creditors of either spouse cannot reach the home to satisfy the dead spouse’s debt. This includes the creditors of an individual who has filed for bankruptcy. Additionally, a civil judgment in court against one spouse cannot attach, as a lien, to the home while the joint spouse lives. A caveat to this special treatment is that a federal tax lien against one spouse attaches to that spouse’s interest in the tenancy.

A tenancy by the entirety is terminated upon divorce or upon the death of one spouse. Upon divorce, a tenancy by the entirety is automatically converted to a tenancy in common (see below) in the eyes of the law.

Joint tenancy with right of survivorship
This kind of tenancy is beneficial for those who desire the survivorship feature but do not meet the marriage requirements for tenancy by the entirety. Joint tenancy is common for unmarried couples (although married couples can choose to take title as joint tenants instead of tenants by the entirety), parents who purchase property with children, or purchases between close family members and friends. Multiple people can be joint tenants, and this is a desirable mechanism for individuals who wish their fellow tenant(s) to inherit his or her interest upon his or her death. The survivorship feature means that the property avoids the probate process.

Each joint tenant must own an identical interest in their joint tenancy, e.g. ½ and ½ (between two tenants) or 1/3, 1/3, 1/3 (between three tenants). Unlike a tenancy by the entirety, an individual’s interest is not shielded from creditors while the other tenants are alive.

Also, if a married couple owns property as joint tenants (instead of tenancy by the entirety) the joint tenancy is not automatically terminated upon divorce.

Tenancy in common
A tenancy in common is popular for those who do not desire the survivorship feature. Frequently this type of tenancy is seen with friends or business partners who purchase property together. Each tenant owns a portion of the property, whether it is ½ and ½ or 2/3 and 1/3. This kind of tenancy between unmarried individuals is not specified in the deed, a tenancy in common is presumed. Each tenant’s interest passes to his or her beneficiaries through his or her Last Will and Testament upon death or for those without a Will, to his or her heirs according to Delaware law.

If you already own property, you and the other property owner(s) can change your tenancy at any time by making a new deed. The new deed would transfer the property from you and the other owner(s) in one form of tenancy to you and the other owner(s) in another form of tenancy. Because you are not changing the individuals themselves, there is no state or county transfer tax; the only fees involved are deed preparation and the cost to record your new deed.

For more information about tenancy planning, call the Law Office of Susan Pittard Weidman, P.A. at 302-539-1388 in Millville, 302-227-7788 in Rehoboth and 302-934-3999 in Millsboro.