Assets in Joint Ownership: Could This Be A Problem?

Joint ownership of assets is quite common. Many people share bank accounts, houses, or even businesses with family members, such as a spouse or children. It often makes managing finances easier and provides loved ones with a sense of security.

However, the law may view joint ownership a bit differently than you, which is why it is important to understand how joint ownership really affects you. There may be legal or financial joint-ownership issues you are not aware of.

Let’s explore the pros and cons of joint ownership and alternatives you can opt for so you can make informed decisions about sharing ownership of your assets.

Let’s start with the pros of joint ownership of assets

1. Joint ownership of assets offers convenience and simplicity

Joint ownership allows two or more individuals to share ownership of an asset, such as real estate or a bank account. It offers convenience and security, as all owners have equal rights to the asset and enjoy the right of survivorship. In simple terms, the right of survivorship means that when one owner passes away, their share of the owned asset transfers to the surviving owner.

Joint ownership can be suitable for married couples, partners, parents, children, and business co-owners. It ensures that the joint assets are transferred smoothly. Joint ownership also splits responsibility equally. Each owner has full legal rights over the property. Any one of them can sell, mortgage, or otherwise encumber the asset.

2. Joint ownership of assets eliminates the need to go through probate

When you co-own an asset, such as a home or a bank account, it automatically transfers to the surviving co-owner upon the death of one of the co-owners. For instance, if you have a joint asset with a spouse, if you pass away, your beloved spouse would not have to deal with the headache of probate. The long, often months-long probate process can be avoided.

Probate has a reputation for being stressful. It often results in delays. It can cost you a lot in court fees. And the worst of all, your loved ones would be stuck in the process, compromising on their peace of mind and spending their precious time and energy on something they do not have to. This is one reason many people choose joint ownership – to simply avoid all of this!

With the right of survivorship, if one account holder passes away, the surviving account holder automatically gains full access to the assets.

3. Joint ownership of assets offers immediate access to the assets

Joint ownership of assets gives you immediate access. When you co-own something, the surviving owner can access it right away. There is no waiting, whether it is a bank account or a piece of property.

If you and your spouse share a joint bank account and one of you passes away, the surviving partner can continue using that account. The same applies to property or investments held jointly. When one owner passes away, the surviving co-owner automatically becomes the full owner. They can sell it, rent it, or keep it for themselves – it is all up to them.

Moving on to the cons of joint ownership of assets

1. Joint ownership of assets can complicate things

Joint ownership sounds simple enough, right? Two people share an asset. But this may not be the case in reality. Joint ownership can complicate things more than you might expect. Having two people own the entire asset may get tricky if things do not go according to plan.

Let’s say you co-own a house with someone, maybe your child, a sibling, or a business partner. When you enter into a joint agreement, you would both see eye to eye on how to manage things.

But what happens when you two have disagreements?

If one of you wants to sell and the other does not, you are stuck. Neither of you can sell, mortgage, or make big decisions about the property without the other’s written consent. This rule is designed to protect both parties from being taken advantage of, but it can also trap you in a situation with no options.

Sounds frustrating, doesn’t it?

Now consider if you have a joint property with a spouse and you end up getting separated or divorced. Divorce can not only disrupt things when you are the one going through it, but it can also impact you if your co-owner is married and goes through a divorce, such as in the case of business partners. If your business partner, with whom you co-own an asset, gets divorced, the property could be treated as their marital property. Their share and possibly half of your assets could be awarded to their ex-spouse. And you may end up owning an asset with someone you do not know or like. This is not an ideal scenario.

Joint ownership can be tricky if a relationship falls apart. To regain full ownership, both joint owners must agree to sign the deed and all the necessary paperwork. If one refuses, you can’t simply take the asset back. You might even have to go to court to force the issue, which can be time-consuming, financially draining, and emotionally exhausting.

It gets even trickier when health issues come into play. Suppose your co-owner becomes seriously ill or mentally incapacitated. Selling the property or making financial decisions can be hard. You may need to have a guardian appointed, which often requires approval from a probate court. Even if the court allows the sale, they might direct that your co-owner’s share of the proceeds be placed in a separate guardianship account to cover their healthcare costs. So, not only would you walk away with only half of the sale value, you would also have to go through probate, something you may have been trying to avoid when you thought of joint ownership in the first place.

2. Joint ownership of assets can result in loss of control

Joint ownership can force you to give up control. When you add someone as a co-owner, you are giving them equal rights over the asset. As a result, any major decision that you make, like selling a property, closing an account, or withdrawing money, may require their approval. Imagine having your adult child or sibling as a joint owner on your house deed. If you ever want to sell or refinance the home, you can’t just go ahead with it. Their signature will be needed. And if they disagree, you will be stuck until the matter is resolved legally.

The same applies to joint bank accounts. Both parties usually have full access, and your co-owner can withdraw money at any time, even if you do not want them to. Estate planning can also become complicated. You might plan to distribute your assets in a certain way through a will, but joint ownership can override that plan. For example, if you hold property jointly with someone, it typically passes automatically to the surviving co-owner after your death, regardless of what your will says.

Therefore, before you add someone’s name to your property or account, you need to be 100% sure and think about why you are doing it. If you want 100% control over the property, owning assets jointly may not be the right choice.

3. Joint ownership of assets makes you vulnerable to creditors

When you own property or a bank account jointly, both owners get equal rights to that asset. That also means that their creditors can come after their share. Now, if your co-owner runs into debt, the creditor can legally claim their portion of the joint asset.

This situation can get even more complicated with real estate. If a creditor takes an interest in your co-owner’s share of the property, they can go as far as filing a partition action and sell the property to get their share. So, your home could end up on the market because of someone else’s financial misfortunes.

The same risk applies to joint bank accounts. You might feel safe because you know your co-owner would never withdraw money without asking, but creditors don’t care so much. Since both names are on the account, all the money in it is considered fair game. A creditor could still seize it to settle your co-owner’s debts. If your co-owner is going through a divorce, your jointly owned assets may again become part of a legal dispute.

Estate planning alternatives to joint ownership

Now, if you are steering away from joint ownership of assets, you have a few alternatives. Let’s understand them one by one.

1. Will

A will allows you to control how your assets are distributed after your death, including any portion of jointly owned property that does not carry the right of survivorship. If you are considering the joint ownership versus the will dilemma, you must know that the key difference between the two is control. With joint ownership, when one of you dies, the surviving joint owner automatically becomes the full owner, regardless of what your will might say. So even if you intended for your share to go to someone else, your will cannot override joint ownership.

That is why both owners in a joint ownership arrangement need to have their own wills. No matter who passes away first, without a will, the surviving owner’s heirs may not know who inherits what. For example, if you and your spouse own a house jointly and you pass away first, your spouse will automatically get full ownership. But what happens after that depends entirely on whether they have a will.

There is also the risk of unintentionally disinheriting someone. Suppose you wanted your share of the property to go to your children after your death. If your spouse or co-owner survives you, they become the full owner and can later choose to leave the asset to someone else. Your children might end up with nothing from that property, even though your will said otherwise. Joint ownership can also cause legal disputes among family members. When your will says one thing but the ownership structure says another, it can lead to conflict.

So, even if you already have jointly owned property or accounts, creating a will is still essential.

2. Trusts

Another alternative to joint ownership of assets is setting up a revocable living trust. When you create a revocable living trust, you, the principal or grantor, transfer ownership of your assets into the trust. As long as you are alive, you still control everything.

When you pass away, the trust takes over. The person you have named as trustee steps in to manage and distribute the assets in accordance with your instructions. The estate does not go through probate.

If both you and your co-owner or spouse pass away at the same time, the property held in a trust is still protected from probate. And, as long as the assets are still held within the trust, they’re not directly accessible to the beneficiaries’ creditors.

Whether you decide to create a will or set up a trust, having a financial advisor by your side can be helpful.

Verdict – Joint ownership of assets can be beneficial, but it’s also a flawed concept that requires caution and vigilance

You can co-own assets with someone if that is what you want, but it is important to understand exactly what it entails before proceeding. Hiring a financial advisor is essential to ensure you know where you are headed and what potential situations could arise in the future. You may use our advisor directory to find a qualified professional to guide you through the process.

Frequently Asked Questions (FAQs) about joint ownership of assets

1. What do you mean by joint ownership of assets?

Joint ownership refers to having more than one person as the owner of a financial asset, such as a bank account or real estate. It gives all co-owners equal rights and control over the asset.

2. Is joint ownership of assets ideal?

It depends on your situation. Joint ownership can make asset management easier, but it also comes with risks. Understanding the pros and cons of joint ownership before deciding is essential.

3. What are the advantages of a revocable living trust?

A revocable living trust allows your assets to bypass probate court after your death and still gives you full control over them while you are alive.

4. Why is estate planning important?

Estate planning protects your assets and ensures your loved ones’ financial interests are secure.