When two people own joint property, they both have an equal right to use the property and make decisions about it. This seems like a fair arrangement, but in reality, it can often lead to disputes between partners. If you are considering joint tenancy with a life partner in North Carolina, it is essential to understand the risks involved and how to avoid potential problems. This blog post will discuss common joint ownership disputes and how to avoid them.
Living Trends for Couples
Living with your partner instead of getting married is relatively commonplace these days. Among young adults ages eighteen to twenty-four, cohabitation is more common than living with a spouse. And since 2002, the percentage of adults living with an unmarried partner has more than doubled.
According to Pew Research Center, as marriage and cohabitation trends change, Americans are becoming more accepting of unmarried couples living together, . In addition, arrangements previously only available to married couples, such as car insurance, are available to unmarried couples.
Today, insurers allow a significant other such as a boyfriend, girlfriend, domestic partner, or fiancé on a car insurance policy.
Sharing a single auto insurance policy with a domestic partner can save money on premiums. However, if your significant other has a bad driving history or they get into an accident on a policy that you share, it could increase your rate. Owning property together can be even riskier.
Joint Property Ownership As Life Partners
As the number of cohabitating partners has increased, so has the number of unmarried couples buying homes together. According to the National Association of Realtors, 9 percent of homebuyers in 2020 were unmarried.
Even though there is now a trend toward unmarried couples buying homes together, it’s not always a good idea. You may create unintended consequences by becoming joint property owners, creating issues such as gift taxes or inheritance problems.
If you’re giving interest in property to a partner by signing up for joint ownership, your heart may be in the right place. However, without understanding joint ownership, you could be making a decision you will regret.
Although it might make financial sense to buy a home together, a property jointly owned by both partners presents legal risks and obligations to each co-owner. These same risks and responsibilities can arise if one partner already owns a home (or another asset) and adds their partner to the title. Getting professional advice before signing on to own property with other owners always makes sense.
Joint Ownership: Property Ownership Types
For North Carolina residential property, the state laws provide primary methods for holding title, including:
Joint Tenants or Tenancy in Common
Married or unmarried couples may own property in this manner. As co-owners, you own a fraction of the interest in the property. For example, one person can own 25% while the other owns 75%. Or you can own a property equally.
However, as co-owners, you have full rights to the entire property. No one individual has the right of survivorship. When one owner dies, their interest passes through probate to their heirs.
Joint Tenancy with Right of Survivorship
Whether married or unmarried, this real estate joint owner strategy works the same as joint tenancy or tenancy in common, except that when one owner dies, their interest does not pass to their heirs. Instead, it passes to the other co-owner(s).
Tenancy by Entirety
This is a real estate tenancy in North Carolina that only legally married couples enjoy, where a couple entirely owns the property with one ownership interest belonging to the couple as one unit. When one owner dies, the ownership passes to the surviving spouse who’s left living. This way of owning property blocks judgment creditors from attaching liens to real property when the lien is not against both spouses (except in the case of the IRS).
State Laws for Owners vs. Real Life
In North Carolina, a grant of real estate ownership to two or more persons may create a tenancy in common, unless otherwise expressly stated. (1) However, many banks automatically ask if you’d like to own with the right of survivorship. And many couples say yes, thinking that owning with the right of survivorship is always a good idea.
Bottom line, it is not always a good idea to own property with the right of survivorship in NC. Let’s look at why next.
Joint Property Ownership & Inheritance Issues
You may want to give your life partner a co-owner status, but before you do, consider carefully how joint property disputes arise.
Unmarried partners who buy a home together could inherit each other’s share of the property automatically. This happens when the property deed shows new owners as joint tenants with the right of survivorship.
The problem with the right of survivorship is that if you die, your family and any heirs receive nothing. The property passes in entirety to the surviving joint tenant and then to their heirs.
For example, let’s say you live with your partner Nicky and she has three children, and you have two children. You all live together in a home worth $250,000. You decide to be generous and give her interest in your home through the right of survivorship. But then you suddenly pass away at age 48.
However, now your kids may lose out. Let’s say Nicky gets married two years later. She now owns the property with her new husband as tenants by the entirety. Your kids decide to move in with your sister because her husband does not like them.
15 years later, Nicky and her new husband do estate planning. They write a will leaving the property to Nicky’s three children. Your children receive nothing from your real estate property! And it is now worth $540,000!
How to Avoid Inheritance Issues
The following alternatives to joint tenancy do not trigger survivorship rights:
- Owners holding the property as tenants in common or joint tenants without the right of survivorship
- Drawing up a trust to own the property, with the non-owner partner having a right to occupy the property for a designated period
- Creating a limited liability company to own the property with a retained right of occupancy for the surviving owner
Next, let’s examine why joint control of property (even without the right of survivorship) is not always a good idea.
Joint Property Owners and Gift Taxes
In North Carolina, there is no state gift tax. All gifts in North Carolina are exempt from the state excise tax as well, pursuant to N.C.G.S. 105-228.29(5). So, adding another person to the title of a property does not trigger gift tax consequences in North Carolina.
However, the IRS does levy a Federal Gift Tax on the transfer of property from one individual to another with no consideration or consideration that is less than the full market value. You receive an annual exclusion of $16,000 on gifts. So if your gift is worth less than $16,000 in any one year, you do not need a federal gift tax return.
Due to the high lifetime estate and gift tax exclusion amount ($12.06 million in 2022), it’s doubtful you will owe state or federal tax. However, as the giver, the value gets deducted from your lifetime gift exclusion amount at your death.
Joint Property Ownership and Creditors
Once a joint owner is added to a property, that property can immediately face judgments for any debts the new owner possesses. Their creditors can come after their interest in the property immediately!
If you’re the original owner and new owners have creditors who come after your jointly owned property to satisfy the debt, you’ll wish you had thought twice before taking on a co-owner!
What Can Happen If You Don’t Plan for the Future
Imagine adding your partner to the title of your house so that, legally, half of the house is theirs. Six years later, your partner cheats on you, and you ask them to leave.
However, they are unwilling to return their share to you. To get it back or find a fair resolution may feel impossible!
Consider these scenarios:
- You may need to buy it from them
- They could buy your share
- They could sell their share to another party!! Imagine if they sell to someone you dislike who now has the right to move in with you!
- They could also petition the court to perform a forced sale of the property and distribute the proceeds among the two of you
- They could ask the court for a partition action on the property.
These are probably not scenarios you would have wanted if you had thought through your gift of joint tenancy ahead of time.
Joint Property Ownership Disputes
Even though cohabitation without marriage is more popular than ever, unmarried couples still do not have all the legal protections that married couples can enjoy. You might be sure that you have met “the one,” and you may be right.
However, before you sign on the dotted line with them, there is no shame in talking to a lawyer about protecting yourself and any children. Unmarried couples face joint property ownership disputes at a higher rate than married couples who own by the entirety.
So, if you have any questions about how to gift property to your significant other, don’t hesitate to contact an experienced legal counselor for a favorable outcome.
We Can Help
At Vail Garnder Law, we help couples plan for their lives together, including protecting their relationships now and caring for themselves and their loved ones in the future!
Our experienced estate planning attorneys can talk with you about joint ownership, estate planning, and other options to help you decide what is best for you. We understand that every relationship is different, and we tailor our advice to meet your unique needs!
Schedule a consultation today to get started securing your future!