MAKING CENTS: Joint ownership can create problems

Having more than one owner for just about anything may be appropriate for some married couples, but for non-married people, joint ownership often creates more problems than it’s worth.

‘Joint tenants in common’ is a term that means each individual owner has an undivided ownership interest in the property, whether it is a baseball card collection, a bank account or real estate. So if you are a joint tenant in common in a two-family house, you can sell your half whenever you want to whomever you want. When you die, that half of the property will pass to whoever is so appointed according to your will.

The other type of joint ownership is called 'joint tenants with rights of survivorship'. It is an ownership interest that is somewhat limited in terms of the rights of the owners. For example, if you own a two-family house with your brother as joint tenants in common, and one of you passes away, the decedent’s half of the property goes to the surviving owner – regardless of what your will says.

Other problems with joint ownership include asset protection and flexibility. Your brother – that wonderful, huggable bear of a guy – is involved in some sort of financial difficulty or litigation. Should he lose, or receive outstanding judgments from creditors, any asset that he owns is subject to the claims of those creditors. That may include your two-family house.

A similar unfortunate situation could develop if one of the owners is suddenly unable to pay his share of the mortgage or the cost of upkeep. The mortgage holder doesn’t care that you paid your half; he needs the whole payment and considers you equally delinquent.

The solution: avoid owning property jointly with anyone but your spouse. I suggest establishing a limited-liability company, partnership or corporation to own the property, with each person owning a share of the new entity.

Be aware that such an entity is not, by itself, the holy grail of protection; you must have a legal agreement behind the entity that spells out the duties, obligations, rights and remedies of the owners. Hiring a qualified attorney could give you the best ounce of protection you’ve ever paid for.

John P. Napolitano is CEO of U.S. Wealth Management in Braintree, Mass., and 2012 president of the Financial Planning Association of Massachusetts. He may be reached at jnap@uswealthmanagement.com or on Facebook as JohnPNapolitano and US Wealth

John Napolitano is a registered principal with and securities offered through LPL Financial. Member FINRA/SIPC. He can be reached at 781-849-9200.

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