Know the Ins and Outs of Joint Tenancy

Joint tenancy refers to a type of account that is owned by at least two people who have an equal right to the account's assets. In fact, they have survivorship rights in the event of the death of the other accountholder. So, if you are married and your spouse dies, you receive all the money or property you both own. What are the advantages and disadvantages?

• Joint tenancy can help avoid probate — Probate courts decide whether a will is valid and legally binding. After a thorough review, which can take weeks or months, or even years when there is no will, inheritors can grow old and quite impatient waiting for the process to be over. But in the case of joint tenancy, automatic transfers of ownership to the other spouse or business partner on the death of the first partner avoid probate. This comes in handy if you need funds immediately.
• Both parties have equal responsibility — Both enjoy the positive attributes of the asset, and both share in its liabilities. This means that neither can incur a debt without being equally responsible for its repayment. A business partner who is about to dissolve the partnership can't lease a portion of the business property without sharing the proceeds with his or her partner.
• There is danger when a relationship is unstable — If two business partners are on the outs, neither party can sell or encumber the asset without the other party's consent. This same principle applies for a couple who own property and have marital problems or an estranged offspring — the parents would have to get permission from the child and maybe even from the child's spouse before the assets can be sold.
• Banks accounts may be frozen — If the deceased was heavily in debt and the probate court is afraid that the surviving spouse or business partner may liquidate funds to avoid paying the debt, the court might freeze the account. Disputes also may turn up concerning whether the surviving spouse or business partner actually contributed to the account or whether ownership was merely for convenience. The asset may remain frozen until the death of the other spouse or partner.
• The partner controls the asset — The deceased loses control over the ultimate disposition of the asset. It's the survivor who assumes control and gets to bequeath it to an heir — or sell it.

​These outcomes can make some spouses or business partners turn to tenancy in common. This way, fractional ownership can be established. For example, each owner holds half an asset, and each party can legally sell his or her share without the other's approval or consent. People favor tenancy in common because the asset doesn't automatically transfer to the surviving owner's account. Instead, the deceased can make provisions in his or her will to pass the asset to heirs or to the other account owner.

Obviously, it behooves you to look at the attractive features of joint tenancy before taking title to an asset; assess your situation and determine which option is more favorable to you. Talk to a financial professional before making a major ownership decision.
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