At its core, the distinction between a tenant in common and a joint tenant lies in the ownership share and the rights upon an owner’s death.
Tenant in Common: In this arrangement, each owner holds a distinct share of the property, which can be equal or unequal. For example, one owner can have a 50% share while another holds the remaining 50% or any other percentage division. Importantly, tenants in common can sell, transfer, or bequeath their share of the property to someone else in their will.
Joint Tenants: Joint tenancy is characterised by the right of survivorship. This means that upon the death of one owner, their interest in the property automatically passes to the surviving owners, irrespective of the deceased owner’s will. Joint tenants own the property equally, regardless of their contribution to the purchase price.
Also read: Bankruptcy Joint Property
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ToggleTax Implications
The ownership structure of a property affects legal rights and estate planning and has significant tax implications. These implications can influence whether to hold property as tenants in common or joint tenants.
For Tenants in Common, tax considerations are directly tied to each owner’s share of the property. Income, such as rent received, and expenses, like interest on loans, are attributed to owners according to their ownership percentage.
This can offer tax advantages if owners are in different tax brackets, allowing for more efficient income distribution and tax deduction claims. Capital gains tax (CGT) liability upon selling the property or part thereof is also proportionate to ownership shares.
On the other hand, Joint Tenants share income, deductions, and CGT liabilities equally, regardless of any individual financial contribution to the property. This simplifies tax reporting but may not always result in the most tax-efficient outcome, especially if owners have significantly different financial circumstances.
Key Takeaway 🗝️
The choice between tenant in common and joint tenant affects tax liabilities and benefits, with tenants in common allowing for proportionate distribution based on ownership shares, potentially offering more tailored tax planning opportunities.
Also read: Do You Have to Pay Taxes on a Divorce Settlement?
Implications of Divorce
Divorce or separation can complicate property ownership, with the type of tenancy playing a crucial role in how property is divided.
For Tenants in Common, since each party owns a specific share of the property, those shares are treated as part of individual assets in divorce proceedings. This can make determining what each party is entitled to clearer, though it may also lead to the need to sell the property if one party wishes to buy out the other’s share and cannot reach an agreement.
Joint Tenants face a unique challenge in divorce because the property is owned equally. The right of survivorship is nullified in divorce, meaning the property doesn’t automatically transfer to one owner upon the other’s death. Instead, the property will likely be considered a joint asset and subject to division under family law.
This may result in the property being sold and the proceeds divided, or in some cases, one party may buy out the other’s interest, necessitating a severance of the joint tenancy to a tenancy in common to facilitate such arrangements.
Also read: Can a Separated Spouse Enter the Home?
Key Takeaway 🗝️
Divorce significantly impacts property owned as common or joint tenants, with the division of assets and potential conversion of ownership type being central considerations in settlement negotiations.
Choosing the Right Option for You
The decision between being a tenant in common and a joint tenant depends on personal circumstances, financial goals, and relationships between the owners. Considerations include:
- The level of control desired over the property.
- Plans for the property’s future.
- The importance of automatic succession.
Consulting with property settlement lawyers can provide tailored advice, ensuring that the chosen type of ownership aligns with long-term objectives and provides the desired balance of control, flexibility, and simplicity.
Director of Melbourne Family Lawyers, Hayder manages the practice and oversees the running of all of the files in the practice. Hayder has an astute eye for case strategy and running particularly complex matters in the family law system.
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