Today it’s common for couples to purchase a property before they’ve walked down the aisle or even lived together.
Naturally they assume they’ll be together forever, and don’t put a lot of research into the long term consequences of how their ownership should be structured.
So to help better understand this, let’s take a look at the law surrounding property ownership.
In Australia, if you’ve bought a property with your partner there are two ways your ownership could be described.
You have entered into either a joint tenancy or a tenancy in common agreement.
Either way you end up owning a share of the property but the two different structures determine that and have very different consequences depending on which agreement you choose.
The nuts and bolts of join tenancy
Joint tenants together own the whole property “jointly” (together) equally and the interests of one party is not separate or distinct from the other.
This is regardless of who the main contributor to the deposit or the mortgage is.
For example, in a joint tenancy, one partner may start earning more and hence paying more off the mortgage but this does not increase their stake in the asset.
A joint tenancy has no severable share, which means if one of the partners passes away, the surviving partner automatically receives ownership of the property.
This also means they’ll also incur full responsibility for the outstanding debt.
The joint tenancy, therefore, is all about equality and lenders will treat the couple as one person, or one mortgagee.
This also means that from an estate planning perspective, you can’t leave your share in a jointly owned property to your beneficiaries.
Tenancy in common
On the other hand, if you own your property as tenants in common, you own a separate and distinct individual share in the property.
You could own an equal 50 percent share or in any other proportion.
For example, you may choose to only contribute $25,000 of the $100,000 deposit and pay 25% of the mortgage, then you’ll be entitled to 25 per cent of the asset, while your partner holds the other 75 per cent.
These percentages are described on the Certificate of Title and if no percentages appear on the Title it is deemed that the property is held as tenants in common.
If you separate from your partner, under a tenancy in common agreement you maintain your share of the property but the family court will take your asset into account as part of the ” joint asset pool.”
And in the event your partner dies in a tenancy in common, their share doesn’t automatically default to you, but rather is delegated in accordance with their will.
That’s why if you’ve entered into a tenancy in common arrangement and have split from your partner, make sure you update your will.
But there is a little hitch… the banks don’t see it that way.
Your mortgage under tenancy in common is typically a shared responsibility -what the banks call joint and several liabilities between all parties.
This means if one person defaults, then the other will need to make up the repayments.
When do you decide which way to go?
The best time to decide how you are going to own your property is when it is purchased., but you’re likely going to have to instruct your solicitor or conveyancers, as most seem to assume you’ll automatically purchase as joint tenants.
If you’re unsure which structure is right for you seek advice as there are equally good reasons to own property as joint tenants or as tenants in common.
I see people choosing to be tenants in common in the case of second marriages where there are children from a first marriage or when they want to split the tax deductibility of mortgage payments between the higher and lower income spouses.
Here’s something you could do now!
Remember attaining wealth doesn’t just happen – it’s the result of a well executed plan so please click here and find out more about our services.
We offer you guidance and support that contribute to seamlessly combining the essential financial areas of your life.
Whether you are a business owner, a professional or a high-income earner we provide you with an individually tailored solution integrating the core disciplines of taxation, superannuation and property investment interwoven with finance, asset protection, succession and estate planning, personal risk insurances and philanthropy.
Using our depth of skills in these core disciplines, we adopt a coordinated project management approach and access other specialists as needed to further enhance our integrated advice solution.
Please click here to organise a time for a chat. Or call us on 1300 20 30 30.
This article is general information only and is intended as educational material. Metropole Wealth Advisory nor its associated or related entitles, directors, officers or employees intend this material to be advice either actual or implied. You should not act on any of the above without first seeking specific advice taking into account your circumstances and objectives.
Subscribe & don’t miss a single episode of Michael Yardney’s podcast
Hear Michael & a select panel of guest experts discuss property investment, success & money related topics. Subscribe now, whether you're on an Apple or Android handset.
Need help listening to Michael Yardney’s podcast from your phone or tablet?
We have created easy to follow instructions for you whether you're on iPhone / iPad or an Android device.
Prefer to subscribe via email?
Join Michael Yardney's inner circle of daily subscribers and get into the head of Australia's best property investment advisor and a wide team of leading property researchers and commentators.