How “Making Things Easier” Can Hurt
Many people will try to take a legal short cut through joint ownership in a variety of situations. Sometimes these “shortcuts” work. When they instead cause problems, joint ownership can cause big problems. We will look at why people use joint ownership. We will also look at the problems that come up from using joint ownership. Each situation is very unique. The information provided here on joint ownership is for information purposes. Before making a choice, proper legal direction is important. The lawyers at Kahane Law Office in Calgary, Alberta can help with any questions you have regarding joint ownership, its risks and benefits. Call 403-225-8810 today.
Joint Ownership Distinguishing Factor
The distinguishing factor about joint ownership is what makes it inviting. Joint ownership is jointly and equally owned. There is a right of survivorship in joint ownership. This means that if one of the joint owners passes away, the other joint owner(s) will automatically acquire that deceased persons share. As will be described below, this makes joint ownership attractive in certain situations. It must be repeatedly pointed out that there are also significant legal consequences that go with this factor. These will also be described below.
Common Situations For Joint Ownership
There are a number of reasons for choosing joint ownership. The more common ones include:
Spouses Owning a Home Together
When spouses own a home together, they often want to do so as joint owners. This is called owning the property as joint tenants. The will also often be joint owners on bank accounts and investment accounts. They are partners in life and want to equally own their assets that they have grown together. They can both equally manage their jointly owned assets (although real estate will require both signatures to mortgage or sell) This also means that when one of them passes away, they are able to avoid probate and the estate through their right of survivorship.
Joint Ownership to Avoid Probate
Due tot he right of survivorship, some people will use joint ownership to avoid probate. This can be an effective tool but one that has risks. Since there is a right of survivorship, jointly owned assets will become the property of the other joint owner. This means no will, no probate and no settlement. The asset just becomes the full property of the surviving joint owners.
Joint Ownership to Avoid Dower Rights
In Alberta, there are Dower Rights. These rights are created by legislation, the Dower Act. In essence, an individual who is married but who is on title by themselves, cannot dispose of any interest in real property (land, houses) without their spouses consent. If there is a third party on title, then there are no dower rights. Dower rights have no relation to equitable rights. This means that with or without dower rights, whether your spouse is entitled to any of the equity in the home is a completely separate issue.
Joint Ownership to Secure a Mortgage
When starting off, many young people have trouble qualifying for a mortgage. In some cases, a parent is able to co-apply for a mortgage with them. When this happens, that parent must also be on the title to the property. They are usually added as a joint tenant. This means that they have joint ownership. (Although there are other ways for them to go on title such as being a tenant in common: which has its own set of issues.) In order to avoid the risks of joint ownership the parent can be a guarantor instead of a joint owner. This does not avoid the risk in a situation of mortgage default.
Joint Ownership In Divorce
When people divorce, financial issues are usually problematic. People tend to add third parties to homes in joint ownership for a variety of reasons. These include qualifying for a mortgage, avoiding dower, trying to hide assets, etc. As will be set out below, there are problems with doing so.
Avoiding Trusteeship / Dealing With Loss of Capacity
As parents grow older, they sometimes add one of their children in joint ownership to their assets. That child can make life easier by dealing with banking issues and being able to act in the event that the parent loses capacity.
The Risks Of Joint Ownership
When deciding to create joint ownership, it is important to know the risks. Many married people know this and put their property in the name of the spouse who is not likely to be sued in their profession. The following are the risks associated with joint ownership or owning assets as joint tenants.
Breakdown in Relationships
No one likes to think that they will have a breakdown in their relationship with their parent, sibling, spouse, best friend etc. Relationship breakdowns can and do happen. If your relationship does breakdown with the person you added with joint ownership, then they may decide not to allow you control of those assets. They can keep you from selling it, mortgaging it, or making use of it. While you may have a legal right to get the asset back, it will likely involve a court application with the costs associated with doing so.
It is hard to picture a relationship breakdown with someone you care about. Another risk of joint ownership is if your joint owner ends up owing money or declares bankruptcy. Creditors can go after most assets owned by a debtor. This can include assets jointly owned (at least up to that person’s share). Creditors can arise from litigation, not making mortgage payments, causing damages to someone, business debts, etc. Joint ownership can put your asset at risk through your joint owner.
If your joint owner goes through a divorce, their spouse may go after the assets they hold jointly with you. This is a similar situation to that of creditors. Jointly owned homes, banks accounts or investments, may be claimed by their soon-to-be former spouse.
Fights over who owns what come up. This can be as a part of an estate, someone needing the jointly held assets for their own use, a sense of entitlement, etc. These differences in opinion often end up in court to have a judge determine who is the rightful owner of jointly held assets.
Control of Assets
Some jointly owned assets will require all joint owners to sign off on liquidating, selling, pledging or re-investing those assets. Having your joint owner sign can be difficult due to relationship breakdown, that person being out of the country, losing touch with that person, that person losing capacity (in which case you will need an enduring power of attorney or trusteeship order. Included in this loss of control is the ability to remove them as a joint owner. Joint ownership may also give the other person the right to withdraw “your” assets at their leisure and/or make choices you do not agree with in terms of investments.
Loss of Inheritance For Other Beneficiaries
More Information on the Risks of Joint Ownership
The lawyers at Kahane Law Office in Calgary, Alberta can help understand the risks and benefits of joint ownership. There are other estate planning tools that can help. There are also some ways to reduce your risks of joint ownership. Jointly owning assets have very long term implications and you should have proper advice. CONNECT NOW. We can be reached at 403-225-8810 or toll-free at 1-877-225-8817 or email us directly here.