Understanding Tenancy: The Different Ways to Co-Own Property

When two or more individuals own property — whether it’s a condominium- a home- or a piece of land — the relationship between the owners is very important. The form of ownership of the property affects how property is transferred to someone else. It is important to make sure you have the right form of ownership for your property.

Tenancy in common allows an owner the greatest flexibility to transfer the property as he or she wants. Each co-tenant in a tenancy in common has an interest in the property and is free to transfer this interest during life or through a will. The co-tenants can have different ownership interests; for example- three owners could own 5 percent- 35 percent and 60 percent of the property- respectively- as tenants in common. Each tenant can sever their relationship with the other tenants by conveying their interest to another party. This third party then becomes a tenant in common with the other owners.

Joint tenants- on the other hand- have equal ownership interests in the property. So- three joint tenants in property would each have a one-third interest in the property. If one of the joint tenants dies- his or her interest immediately ceases to exist and the remaining joint tenants own the entire property. The advantage to joint tenancy is that it avoids having a deceased owner’s interest pass through probate.

Except for special rules applicable to spouses who hold property as “tenants by the entirety-” discussed below- a serious disadvantage to both joint tenancy and tenancy in common is that creditors of a tenant can reach that tenant’s property to satisfy a debt. So- for example- if a co-tenant defaults on debts- a creditor who proves his case in court can sue to have the property interests divided and the property sold- even over the other owners’ objections.

A third form of tenancy- tenancy by the entirety- is allowed in several states- including Virginia.

It avoids this problem but- unless altered by a state statute- is available only to married persons who elect to own property as tenants by the entirety.   Tenancy by the entirety is based on the societal value of protecting the family. One tenant cannot convey that tenant’s interest without the joinder of the other tenant.  Upon the death of one spouse- his interest automatically passes to the other spouse- as with joint tenancy- and the creditors of the deceased spouse cannot attach the property or force its sale to recover debts of the deceased spouse (unless both spouses are liable for the debt).

Thus- creditors may place a lien on property held in tenancy by the entirety- but they take nothing when the debtor spouse dies before the other spouse; the survivor takes ownership free of the debt. This is why both husband and wife are required to sign the mortgage on their property for the mortgage to be valid. Unmarried couples who buy property and subsequently marry each other should re-title the deed as tenants by the entirety to avail themselves of the greater protections this form of tenancy offers.

In most states- if the form of tenancy that the tenants intended is ambiguous- the tenancy will be assumed to be a tenancy in common.

Contact your attorney to find out which form of ownership is the right one for your circumstances.