Joint ownership used to be a question only for married couples. But nowadays, everyone's getting into the act. Live-together couples, neighbors, parents and children are all buying various types of property together to divide the cost.
So here's the question: Is sharing property a good idea?
*For friends: You may decide to buy a boat or vacation house jointly with a friend because neither of you can afford it alone. You arrange to use the boat or the house on, say, alternate weekends, and split the expenses. These arrangements can work, if both partners will them to. But they teeter on the edge of risk.
What if you want to sell the boat and your partner doesn't? What if your partner doesn't pay his share of the expenses? Who pays if he accidentally damages the property but thinks that your own careless upkeep contributed to the accident? What if his creditors attach the property? What if your friendship fades?
Co-owners should draw up a detailed contract covering all the "what ifs." And take out life-insurance policies on each other, so each of you can afford to buy the other's share if he dies. Otherwise, that share will pass to a stranger -- probably causing you a lot of heartburn.
*For unmarried couples: In short-term relationships, joint ownership isn't even worth talking about. The impulse arises in long-term pairings, where the argument for equitable economic arrangements can be the same as for married couples.
If you want to own a house, a dual investment is probably needed in order to make the down payment.
You can own as tenants in common, which allows each of you to sell, or to bequeath, his share of the property to anyone at all. Or you can own as joint tenants with right of survivorship. The latter lets you sell your share to another party during your lifetime. But if you die, it automatically passes to your co-owner. You might write a contract providing that neither of you will sell your share without the other's permission.
In general, the risks of property sharing overwhelm the emotional rewards.
If the relationship sours, it may be hard to get your share of the property back. Your partner could clean out a jointly held bank account. If he leaves, he could sell his half of a jointly held piece of real estate to a stranger (or threaten to do so, in order to pressure you to agree to selling the house). If he dies without a will, and you have no right of survivorship, his half of a jointly owned house will pass to his relatives, who might force you out. The property is subject to the claims of either partner's creditors.
If the reason for joint ownership is to ensure that your partner gets the property at your death, do it instead by writing a proper will.
However, if separate ownership would be unfair -- for example, because the woman contributes to the household but has no equity interest in the house -- joint ownership is worth the risk. "We are fumbling our way to new relationships," said Edward Fogel, an estate-planning lawyer with Pryor, Cashman, Sherman & Flynn in New York. "No matter which way you jump, it's not simple."
*For parents and children: An elderly parent might find it convenient to put an adult child's name on his bank or brokerage account, if the child is helping to manage the finances. But if the child gets into financial trouble, a lien could be put against the joint property and untangling it would be a mess. Also, the child could take the money and run.
If the income is erroneously reported as belonging to the child, it's a nuisance. "You won't live long enough to explain the mistake to the IRS and get it straightened out," Fogel said. To avoid this, put only your Social Security number on the account, and not the child's.
The joint property normally would pass to that child automatically at your death, which might precipitate a lawsuit if your other children are thereby cut out. You can draw up a letter, stating that the co-ownership is for convenience only and that the property ultimately should be divided among all the children. A better system might be to give your child power of attorney over your affairs but leave the property in your own name.
Some parents try co-ownership with a young child, arranging that part of the income be taxed in the child's low bracket. Two problems: If you die, a court might have to name someone to manage the money until the child grows up. If you co-own stocks, bonds, real estate or mutual funds, you may be prevented from selling them, because a minor's signature on a contract isn't valid.
NEXT: Joint Ownership and Married Couples