Michael and Susan – Buying Property Case Study
Michael and Susan have been together as a couple for several years and have both been renting separate properties.
They decide to take the plunge and get engaged and also buy a home together – they are unable to afford a mortgage by themselves individually, but they can if they pool their incomes. Susan’s father gifts them a deposit and is happy to do so because Michael and Susan are going to be getting married and he wants to give them a good start in married life.
When they buy the property, Michael and Susan opt to own it as Joint Tenants because they feel it is the better option for them. Susan’s job is more highly paid than Michael’s so she contributes more money to the mortgage payments and doesn’t think twice because she feels that if the situation were reversed, Michael would do the same.
Time passes and Michael and Susan never do set a wedding date. They grow apart and decide to go their separate ways and sell their house.
Susan would like to recover both her father’s initial deposit and the difference in her financial contributions out of the proceeds of sale. However, because they are Joint Tenants, and not Tenants in Common, she is only entitled to 50%. Michael is not going to willingly volunteer any extra distribution to Susan, so she settles for her 50% entitlement as a joint tenant.
The situation would have been very different if Michael and Susan had taken advice on the benefits of owning the property as Tenants in Common and, unfortunately, it’s been a financially expensive lesson for Susan.
Please don’t let this happen to you. This scenario, and the pain that comes with it, can be avoided by putting in careful estate planning measures such as the ones recommended by our expert Estate Planning Advisers, so contact LPA Guardian to see how we can help you.
THE LEGAL BIT – BUYING A PROPERTY WITH SOMEONE ELSE – JOINT OWNERSHIP
Whether you are buying a property together for the first time, or the tenth time, it’s an exciting time (despite any conveyancing nightmares you may experience!).
There’s also a great level of responsibility that comes with ownership, so you really need to ensure that you jointly hold the property in the right way that best suits your individual circumstances. Making sure that you own your property in the most appropriate way means that you have made the right choice to avoid potentially complex legal issues.
Most people don’t realise that there are two ways in which you can jointly own property:
- as Joint Tenants; or
- as Tenants in Common.
As co-owners, you will need to decide which way you wish to hold your property, and it’s an important decision.
Whichever way you go, your decision will have an impact on various life events such as:
- if you decide to separate or divorce;
- if you decide to pool resources with family and friends to purchase property;
- if you are married and want to minimise how much Inheritance Tax you will pay.
What’s the difference between Joint Tenants and Tenants in Common?
Joint Tenants – each co-owner owns the property equally ie they both have an equal interest or share in the property.
When one of the co-owners passes away, their share automatically passes to the surviving owner without any need for going through the process of Probate, and regardless of what it says in any Will left by the deceased owner. In this way, assets pass by the laws of survivorship.
This is traditionally the most common way for married couples to co-own their property, but it may not necessarily be the best.
A word of caution – any joint tenant can sever the joint tenancy independently at any point. This means that the consent of the other joint tenant is not needed and results in the creation of a tenancy in common allowing the owner to leave their share of the property to whoever they wish as explained next.
Tenants in Common – each co-owner owns a specified share of the property which can be whatever you wish for example 50/50; 30/70; 60/40 and so on and this reflects the owner’s percentage interest in the property.
When one of the Tenants in Common passes away, their share passes to whoever they have named as their beneficiary in their Will – it does not automatically pass to the other co-owners.
Which form of ownership should you choose?
We’re all different, so this will depend on your individual circumstances. Things that you need to take into consideration include:
- are you an unmarried couple;
- are you in a second marriage;
- are your financial contributions (deposit/repayments) equal or different;
- is one of you contributing more to the upkeep of the property;
- are you a ‘blended’ family ie have children from a previous relationship who you want to provide for;
- are there likely to be any future financial difficulties;
- are you business partners.
How you decide to co-own your property will depend on these factors and what you are trying to achieve. At LPA Guardian, our expert estate planning advisers can look at your situation as a whole and at what you are trying to achieve and recommend the best course of action for you.