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In Texas, there are three ways to own property jointly with another owner. Looking at joint tenancy vs community property ownership, there are distinct differences. With joint tenancy and tenancy by the common, both owners have a share in the property. However, with community property, a married couple each owns 100% of the property. Let’s look at these three ways to own property and some of the issues with each.
What is Community Property?
Texas is a community property state where married couples hold title to real property by community. Many community property states include the right of survivorship in a community property ownership arrangement.
However, in Texas, community property laws say that when a married couple purchases property, the assets acquired become community property unless the property is acquired separately.
According to Texas Law, the state assumes property possessed by either spouse during the marriage is community property. If you need to establish that property is separate, as in a divorce, you’ll need clear and convincing evidence to show the court that you are the sole owner of the assets.
A spouse’s ownership interest in the entire property is 100%. Each spouse fully possesses real estate ownership of the same property. It’s an undivided interest ownership with the other spouse.
Unlike joint tenancy, a married couple owns common and community property together by the entirety.
Community Property and Death of a Spouse
Anytime a married couple purchases property together, they each hold the property together and separately. If one spouse dies, the deceased spouse’s interest, owned by their estate, is still 100%. So the property must go through probate upon the spouse’s death.
To avoid probate court, which can be long and expensive, you can sign a right of survivorship agreement with your spouse. Survivorship community property immediately passes to the other spouse.
In the case of community property with right of survivorship, the other spouse immediately inherits the real property when the other spouse passes away.
When drawing up an estate plan to avoid the probate process, you can ensure that on one spouse’s death, the property will automatically transfer to the surviving spouse with a right of survivorship agreement.
What is a Joint Tenancy?
In Texas, you can own property as a “joint tenant by common.” As a joint tenant by common, no owner has a right of survivorship if a co-owner dies. If you hold property as a joint tenant by common and your housemate dies, their family may decide to sell their share. In that case, you might have to buy their family out or sell your share to them.
However, real estate ownership by joint tenancy is not the same. Joint tenancy includes a right of survivorship. This ownership arrangement means you’ve signed a legal agreement for a surviving joint tenant property owner to inherit your share of ownership if you die.
In a joint tenancy legal arrangement, you gain the surviving co-owner’s interest if they pass away. The property immediately passes to you on their death.
So let’s say that 2 individuals purchase a home together under joint tenancy and each co-owner has equal shares at 50% each. If one of the property owners dies, the property automatically passes to the other owner. The deceased co-owner leaves their interest to the other owner. The surviving tenant receives ownership of the whole property upon the death of the other co-owner.
However, they would not inherit the other co-owner’s share if they didn’t own the property as a joint tenancy (which includes right of survivorship). In this case, they would only own together as joint tenants by common, including no survivorship rights.
What Happens When Joint Tenants Disagree?
Property acquired with a joint owner often leads to ownership disagreements and issues down the road.
Sale of Joint Tenancy Property
Let’s say that two equal right owners in a joint tenancy arrangement disagree. One owner wants to sell their share of the property and move away. They want to purchase new property but need to liquidate their share of the co-owned property.
The other owner wants to stay. So they offer to buy property interest from the other joint tenant. However, they can’t agree on a fair market value for the shares of property held.
Disagreements about what to do with jointly owned property can often lead to one owner forcing a sale. A partition lawsuit occurs when the judge orders the sale of the property with proceeds divided fairly among owners.
If you need to discuss your options as a joint tenancy with survivorship rights, find out about your ownership rights by talking with an experienced real estate attorney.
Debts and Obligations
Any debt or obligation your joint owner incurs could affect you. If they file bankruptcy, have a tax lien, or judgment against them, creditors could place a lien on the home.
And suppose you don’t have a homestead exemption. In that case, creditors could seize your property to collect your co-owner’s debt! Your property could end up on the auction block!
If this happens, you can file an injunction. However, It’s a good idea to call a local real estate attorney to plead your case. An experienced attorney will know how to consider local and state laws best when pleading your case.
Difficulty Selling or Refinancing Your Home
If there are multiple property owners, all owners must agree on and sign off on any property sale. It’s easy to disagree on whether or not to sell, how much to repair/remodel, or even whether an offer is acceptable.
Choosing to refinance your home is a personal decision that comes with many variables. Interest rates, credit scores, and who you decide to use as your lender all play a role in this process. Maybe you and the other owner of your home disagree on whether refinancing is the best option- one of you may think interest rates are too high or argue about the terms of a new refinance contract.
If you are the owner with good credit, perhaps you can buy out the other person.
Incapacitation or Incompetence
If your co-owner falls ill or becomes injured, you may need to go to court to have a guardian represent their interests during the sale. If you disagree with the new guardian, legal action may be the best way to protect yourself
Tax Disagreements
Usually, you pay capital gains tax when you sell a home for more than what it was purchased for. The amount of tax payable depends on the increase in value.
If you disagree about selling a property with another owner, additional tension can grow as one or more people might need to pay capital gain taxes.
Also, be aware that you can create a gift tax by sharing property jointly. The IRS will see the purchase of a property as joint tenants by common or joint tenancy with an unmarried partner as a taxable gift.
Joint tenancy and community property issues come up when individuals own property together. However, when there are two or more co-owners, it can become even more legally complex. Other joint tenants add to the complexity of legal issues!
That’s when it’s time to contact an experienced real estate attorney to protect your rights!
Our Experienced Real Estate Legal Team Can Help
At Jarrett Law, whether you’re in a domestic partnership, have housemates, or are married, we can help you work out real estate property issues with your domestic partner, spouse, or housemate and help you can negotiate confidently.
If you have questions about real estate ownership, transferring deeds, or selling real property shares, contact us today and find solutions to move forward!