"If you’re thinking of investing in property with another party, selecting the right ownership is essential,” says Rick Collova, director of PEB Group.
We find many couples select a “Joint tenants” agreement because they don’t know the difference or they didn’t know there was another option.
Rick says “there is a big difference between the two and selecting the wrong option can result in horrible consequences later on down the track.”
So what are the differences?
This is most commonly used in a husband and wife situation, where they purchase the marital home and effectively means that they own the property conjointly. If one partner passes away their share automatically passes to the other party.
This of course applies regardless of marital status or any other relationship between the parties if the property is held as Joint Tenants.
In a marital situation it is likely that each partner would want the other to have their share if something were to happen to them. This may not necessarily be the case, however, if you were buying a property with a friend or other relative then Tenants in Common needs to be considered.
Tenants in Common
This is used where two or more related, unrelated or financially unrelated parties want to partner up to purchase a property.
In this instance, you can determine who holds what share in the property and this can be documented at purchase. Each party can WILL their share to whomever they wish in the event of their demise.
For example, two brothers buy a house together but one brother can only commit to 30% ownership leaving the other brother to take on the other 70%. Being tenants in common, if one should decide to buy the other out, they both know exactly how much their share of the property value is. Alternatively if something should happen to one of the brothers, the percentage of their investment would go to whoever they have allocated in their Will (their Wife for example), not automatically to the other Brother which it would if they purchased as joint tenants.
Another advantage of tenants in common is being able to maximise your tax benefits as a married couple when your incomes are vastly different.
Keep in mind however, that for married couples the ownership issues may be thrown out in the case of a property settlement and the Family Law Court would determine who gets what. Marriage is the only partnership in the country that has its own court to resolve disputes and there is no appeal.
“Choosing the right ownership situations can save a lot of legal problems down the track in the event of a dispute or if one of the parties wishes to sell their part of the investment, says Rick.
If you’re at the pointy end of your purchase, careful consideration needs to be given to the ownership and if in doubt, we highly recommend seeking legal advice.”
If you’re already investing don’t go past our blog on why you should use a tax variation to reduce your mortgage, it could save you thousands.
We’re always here for a chat, so get in touch for more sound advice
*This article is for general information purposes only. It is not intended as financial or investment advice and should not be construed or relied on as such. Before making any commitment of a financial nature you should seek advice from a qualified and registered financial or investment adviser.
PEB Group is a complete property advisory service for Perth families. Offices are located in Inglewood and Willetton, Perth, Western Australia and offer service in - Financial Planning · Finance Broking · Property Management · Property Sales · Property Investment · Development
PEB Real Estate - Licensee PEB Real Estate Pty Ltd. Trading as PEB Real Estate ABN 33 604 199 617. Triennial Number RA70508
PEB Financial Planning - Howarth (WA) Pty Ltd ARN 433328 trading as PEB Financial Planning is a Corporate Authorised Representative of NEO Financial Solutions Pty Ltd. AFSL 385845 | ABN 64 141 607 098
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