What are the implications of holding a property one way or the other? Are there any benefits associated with one but not the other? The ways in which a property can be held are often not fully understood, and at a later date, this can cause all sorts of problems.
We are seeing a trend whereby properties owned by a couple are retained by one of the spouses following divorce. The divorcee then re-marries, adds the new spouse as a joint owner of the property, and on the divorcee’s death, the new spouse then takes the full benefit from the property. The reason for this occurring is due to the way in which the property is held.
In these circumstances, the property passes outside of the Deceased’s estate and is not available for distribution to the beneficiaries of the Deceased’s Will (or in accordance with the Intestacy Rules if no Will has been made). Should the divorcee have had children with his former spouse, they would then lose out, as property does not form part of the divorcee’s estate.
If a property is owned as joint tenants, that means that there is no divisible share owned by any of the co-owners. The property is held jointly and when the first co-owner passes, under the rules of survivorship, the property passes to the survivor. The survivorship rule means that the asset passes outside of the Deceased’s estate and is not influenced by the terms of any Will which might be in place. The result is that the survivor will take full benefit from the property, which, once a simple change has been made to the Land Registry title, will be for the survivor to dispose of as they see fit.
It is easy to see how in these circumstances, the survivorship rule may mean only one side of a family benefits, or an asset which was a family home but later inhabited by one parent and their new partner/spouse becomes an asset of the incoming family, thus disinheriting the children from the first relationship.
The second way in which a property can be held is as tenants in common. It is possible to hold a property in equal shares or unequal shares. Ordinarily, if a property is held as tenants in common, a Declaration of Trust will be drafted alongside the conveyancing documents so as to record the shares in which the property is held, so that the type of ownership can be recorded on the Land Registry title. Unhelpfully, when properties are owned in this way, the Land Registry title does not make reference to the property being held as tenants in common but rather places a restriction on either or any of the co-owners being able to dispose of the property without the consent of the other(s).
An implication of holding a property as tenants in common is that each co-owner owns a specific share of the property, whether that be equal or unequal. The owner is then able to dispose of their share as they see fit under the terms of their Will. This type of ownership is often recommended where there are children from a previous marriage or where differing amounts of funding have been invested by the co-owners at the outset.
It is becoming increasingly common for enquiries to be made where a property has passed outside of an estate as a result of it being held as joint tenants. If a property is held at joint tenants, and after having received legal advice, a decision is made that it would be more advantageous to hold the property as tenants in common, the type of ownership can easily be amended by a Deed.
If you have concerns about the way in which your property might be held, you can request copies of the title of your property from the Land Registry if it is registered. If you think that you have not been given the correct advice about the types of property ownership and this has resulted in you suffering financial loss, there may be merit in investigating a claim against your advisor.
*The information in this article may not apply to the country you reside in. Refer to a family lawyer in your area for relevant advice.
Certified Divorce Financial Analyst
Business Valuators / CPAs