Owning property with another person, whether a spouse, relative, or business partner, can be a great way to share costs and build your wealth in Texas. But how the title is held matters just as much as the property itself.
The two most common forms of shared ownership are tenancy in common and joint tenancy with the right of survivorship. They are distinct in the following ways:
- How ownership is created: Whether by default or through specific deed language.
- How it can be changed or terminated: Including whether an owner can transfer their share independently.
- What happens after an owner’s death: Whether their share passes automatically to the surviving co-owner or becomes part of their estate.
Our Seguin and New Braunfels estate planning attorneys can help you decide which ownership structure might best protect your long-term interests.
How Undivided Interest Works in Property Ownership
When two or more people own real estate, each holds a share of the entire property rather than a specific section. This is called an “undivided interest.” Probably the most common shared ownership structure is when spouses each hold an undivided interest of 50% in the marital home.
However, the ownership percentage does not always have to be equal. For example, three people may share a property, with the first having an undivided interest of 50% and the other two having an undivided interest of 25% each.
In both joint tenancy and tenancy in common structures, each co-owner has an undivided interest and can use the whole property regardless of the percentage they own. However, these ownership structures differ in how the shares are transferred or inherited.
What Is the Difference Between Tenants in Common and Joint Tenants?
Here is how these two ownership structures differ at a glance:
What Does “Joint Tenants with the Right of Survivorship” Mean?
Joint tenancy with right of survivorship, sometimes shortened to “joint tenancy,” is a co-ownership arrangement in which all owners share equal rights and ownership of a property. When one joint tenant dies, their share automatically transfers to the surviving tenant or tenants. The property does not become part of the deceased’s estate or go through probate.
This automatic transfer, known as the “right of survivorship,” is one of the defining features of joint tenancy. It makes this structure especially popular among married couples who hope for a seamless property transfer to the surviving spouse.
For a joint tenancy to be valid, it must comply with the “four unities”:
- Unity of possession: Every owner has the same right to use the entire property.
- Unity of interest: Each owner holds an equal ownership share.
- Unity of time: All owners acquire their interests at the same time.
- Unity of title: Ownership comes from the same deed or legal document.
When any of these unities is broken (for example, if one owner sells their interest), the joint tenancy is destroyed and automatically converts into a tenancy in common.
What Are the Benefits of Joint Tenancy?
Joint tenancy offers simplicity and protection for co-owners who are spouses, immediate family members, or otherwise closely connected. Key benefits include:
- Automatic inheritance: The surviving owner instantly becomes a full owner.
- Equal ownership: Each co-owner has the same rights and responsibilities, simplifying decision-making.
- Probate avoidance: Assets pass on directly upon the death of a co-owner, saving the survivor the stress of court proceedings.
Joint tenancy is often used for marital homes or jointly purchased properties where both parties intend ownership to continue seamlessly after one’s death.
What Are the Disadvantages of Joint Tenancy with the Right of Survivorship?
Despite its convenience, joint tenancy has potential drawbacks, especially for unmarried partners or those with complex family situations. Consider the following risks:
- Limited flexibility: You cannot independently sell, gift, or bequeath your share without ending the joint tenancy.
- Exposure to other owners’ debts: If a co-owner faces creditor claims, the property could be subject to a lien or forced sale.
- No control over inheritance: The property automatically passes to the other owner, even if you’d prefer your children or other beneficiaries to inherit your share.
- Potential for disputes: Major decisions, such as selling or refinancing, require unanimous agreement.
In some cases, such as in blended families or business partnerships, a tenancy in common may provide greater control and protection.
What Does “Tenancy in Common” Mean?
Tenancy in common is a more flexible form of shared property ownership. Each owner holds an undivided share of the property, which can be equal or unequal, and has the right to possess and use the entire property.
Unlike joint tenancy, this ownership structure has no right of survivorship. When a tenant in common dies, their share becomes part of their estate and is distributed according to their will or Texas intestacy laws. This means that when you pass away, your interest in the property can go to your preferred heirs rather than to the surviving co-owners.
Tenancy in common arrangements are common among siblings who inherit property, business partners who co-invest, and unmarried couples who prefer independent control over their shares.
What Are the Benefits of Tenancy in Common?
A tenancy in common structure offers significant flexibility, especially for owners with specific financial goals for themselves or their families. Key advantages include:
- Customizable shares: Owners can hold different percentages that reflect their investment levels.
- Independent transfer rights: You can sell, mortgage, or bequeath your share without the consent of other owners.
- Estate planning control: Your share passes according to your will or trust, allowing you to provide for your beneficiaries.
- Ease of entry and exit: New co-owners can join or exit ownership through sale or transfer without disturbing others’ rights.
For many investors and families, tenancy in common allows for both individual freedom and shared use of the property.
What Are the Disadvantages of a Tenancy in Common?
While tenancy in common offers more freedom, it can also present challenges that require careful management. Common drawbacks include:
- Probate requirement: Shares will go through probate unless they are placed in a trust.
- Shared liability: Each owner is responsible for property taxes, repairs, mortgage payments, and other expenses.
- Potential for unwanted partners: A co-owner could sell their share to anyone, which means that strangers could become tenants in common.
- Risk of conflict: Differences in financial capacity or goals can lead to disputes, potentially resulting in a lawsuit to force the sale of the property.
To head off problems like these, it’s wise to draft a co-ownership agreement that clearly states the rights and responsibilities among tenants in common.
How to Choose the Right Ownership Structure
The right ownership arrangement depends on your relationship with the co-owner and your long-term goals. However, some relationships tend to lend well to specific structures:
- Joint tenancy: Common between spouses seeking simplicity and automatic transfer of ownership.
- Tenancy in common: Popular among investors, business partners, or blended families who desire more flexibility and individual control.
In Texas, the law presumes that co-ownership is tenancy in common unless the deed clearly specifies joint tenancy with right of survivorship. If you’re not sure whether your deed language reflects your goals for your property, bring your concerns to a real estate lawyer.
