Severing Joint Ownership of Property

One of the most common forms of property ownership in the United States is joint tenancy with rights of survivorship (JTWROS or joint tenancy). But what is joint tenancy? Joint tenancy is a legal right to property that provides the owner an undivided right to enjoy the property. In other words, one joint tenant cannot legally stop the other joint tenant from enjoying use of the entire property. The “WROS” part of JTWROS means that when one joint tenant dies, the deceased joint tenant’s share of the property automatically passes to the other joint tenant without the need for probate or other formal proceedings.

Why Joint Tenancy Is Attractive

This survivorship feature of joint tenancy makes it very appealing to married couples and individuals who want to own property jointly with another person, like an adult child, without needing additional estate planning documents. Because the joint interest passes by law to the survivor, there is minimal effort required to transfer the property to the surviving joint tenant at death. And who doesn’t like easy?

Potential Drawbacks of Joint Tenancy

While joint tenancy is attractive because it is generally inexpensive and straightforward to establish, it can sometimes result in unanticipated and unwelcome legal consequences. It’s essential to understand that there are other forms of joint ownership of property, such as tenancy in common, life estates, community property ownership, and tenancy by the entirety, which will not be discussed at length in this article.

Reasons to Terminate Joint Tenancy

Joint tenancy can become undesirable in various situations, including:

• A divorcing married couple
• One joint tenant wants to sell the property, but the other joint owner refuses
• A joint tenant changes their mind about who should receive their property interest at death
• A spouse in a second marriage wants to leave their interest in the marital home to children from a first marriage instead of the current spouse
• Joint tenants cannot agree on management and upkeep of the property

In these cases, it may be time to terminate or sever the joint tenancy because the outcome of JTWROS is contrary to the joint tenants’ current or future wishes. For example, if a divorcing couple continues to own property as joint tenants, upon the death of one, the deceased spouse’s interest would pass to the ex-spouse rather than to the children or a new spouse.

Methods of Severing Joint Tenancy

Gifting

If the joint tenants agree, the simplest way to sever a joint tenancy is for one tenant to file a new deed transferring (or gifting) the property to the other joint tenant. This allows the recipient to own the entire property interest with no right of survivorship. However, federal transfer tax law might treat this as a taxable gift, requiring the donor to file a gift tax return.

Conveyance to a Third Party

Another option is to convey the joint tenancy interest to a third party, converting the joint tenancy to a tenancy in common. Tenancy in common allows each tenant an undivided right to enjoy the property, but without rights of survivorship. The interest will pass according to the deceased owner’s will or state intestacy laws.

Divorce Proceedings

In divorce proceedings, the judge usually severs any property owned in joint tenancy as part of the divorce decree. This ensures that each party can go their separate ways with separate property. The appropriate documents will need to be filed with the county recorder’s office.

Buyouts

One joint tenant can offer to buy the other’s interest in the property. If they agree on a price, the seller prepares a deed conveying the property to the buyer, severing the joint tenancy.

Judicial Partitions

If joint tenancy between non-married individuals leads to conflict, a judicial partition might be necessary. This involves asking a judge to divide the property fairly. Judicial partitions can be costly and time-consuming, and may result in tax liabilities.

Don’t Do It Alone

In certain circumstances, joint tenancy can be a simple and effective method of jointly owning and transferring property. However, it can also have serious unintended consequences. Joint tenancy survivorship provisions nearly always override the provisions of a will or trust agreement.

It is crucial to seek the advice of an estate planning attorney when using joint tenancy. Without careful consideration and planning, you could unintentionally set your loved ones up for significant misunderstandings and legal expenses. If you have questions about your real property and how it relates to your estate planning, please give us a call.

At Cheever Law, APC, we don’t just draft documents; we ensure you make informed and empowered decisions about life and death for yourself and the people you love, starting with a valuable and educational Life & Legacy Planning Session. This will allow you to get more financially organized and make the best choices for the people you love. If you have already completed your estate plan, we will review that plan at your Life & Legacy Planning Session to ensure that it will work the way you intend and address any holes or gaps that may be present if circumstances have changed since you executed your plan. ??

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