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One kind of joint tenancy exposes your assets to the claims of any creditors of either joint owner. Another only applies to real estate owned by a husband and wife and is a significant protection from the claims of the creditors of one of the spouses.If you aren't confused about jointly owned assets, you are either a lawyer or you haven't had any reason to try to figure out the difference between the different forms of joint tenancy and how each one affects your ability to protect some of your assets from the claims of future creditors. The following is an attempt to explain the concepts in non-legal terms. If there are any lawyers who read this and feel that the information is not accurate, I'd be glad to publish your clarification within this document. Just send your comments to me by email.
My layman's understanding of this form of ownership is that it's the most common type of co-ownership - usually between relatives. In states that don't recognize tenancy by the entireties, the default would be joint ownership with the right of survivorship. As a practical matter, either co-owner can take full possession of the property at any time. Therefore, the property is available to satisfy the claims of the creditors of either owner.
Tenancy In Common
Barron's Dictionary Of Legal Terms defines "tenancy in common" as,
Tenancy By The Entirety
Barron's dictionary defines "tenancy by the entirety" as,
Because of the lack of severability of this form of ownership, the creditor
of one spouse can't take the property in those states that offer this form
of ownership. However, where a creditor has a claim against both spouses,
the property can be taken by the creditor - like the IRS.
An article in Investor's Business Daily ((July 24, 1995) commented on seven ways that people can protect their assets from lawsuits. Most of what the article said was consistent with comments in past issues of my newsletter - except for one that set me back.
The author said,
A less common form of ownership is tenancy in common. According to Solomon and Saret (Asset Protection Strategies: Tax and Legal Aspects), "... tenants in common may generally transfer their interests without the consent of co-tenants. ... (each) tenant's creditors may generally reach the tenancy in common interest."
As for the more common form of joint tenants with rights of survivorship,
it's my understanding that the creditors of either joint tenant can take
the jointly owned property and can dispose of it as they wish. As a writer,
I certainly sympathize with the difficulty of trying to explain complex
concepts in a short article. However, the loose phrase "jointly held property"
can be very misleading unless it's clarified as to the specific form of
Further details about protecting your assets from future lawsuits are available in our subscriber's web site. Changes in the tax laws and various federal and state laws affecting various asset protection devices are provided in our monthly newsletter on Asset Protection Strategies.
NOTICE: This Information is intended only for educational purposes and may be regarded as controversial by some legal experts. Readers should consult with a qualified professional who is familiar with their specific financial and tax circumstances before adopting any ideas that are discussed in this article.
About the author:
Vernon Jacobs is a CPA/CLU who works as a tax author and consultant. He sponsors and moderates a free discussion group on asset protection and offshore topics. His email address is firstname.lastname@example.org. He can be reached by phone or fax at (913) 362-9667.
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