If you are recently married or have been married and are acquiring additional assets, know that you have options when it comes to how the property will be titled. And, although joint tenancy seems like an easy and convenient choice, it may not work as well as you would think.
What is Joint Tenancy?
After getting married, it is common for couples to take title to one another’s bank accounts, brokerage accounts, personal property, and other assets as joint owners. There are two versions of joint tenancy available in Maryland: joint tenants with right of survivorship (JTWROS) and Tenants by the Entireties (TBE or T/E). There are several distinctions between the two forms of joint tenancy, one of which is that, a JTWROS joint owner can take unilateral action to get out of the joint tenancy very quickly, a TBE joint owner must be divorced in order to change the titling.
JTWROS is a form of titling where any two, or more, parties can jointly own an asset, with title passing to the survivor(s) upon the death of one. If the creditors of one joint owner get a judgment lien against one joint owner’s interest in JTWROS property, the joint tenancy is destroyed and the titling converts to tenancy in common. Then the creditors can take collection action against the debtor-owner’s interest in the property.
A tenancy by the entireties is reserved for married individuals and came out of the Judeo-Christian tradition of a married couple being seen as “one person”. As a result of that history, titling as TBE carries with it an innate asset protection quality that the TBE property is not available to satisfy the claims of only one owner’s creditors. That is, there is no place where a judge can draw a line to separate between the two owners’ interests. Maryland is one of approximately 25 states which permits titling as TBE.
The owners of an asset that is titled as either TBE or JTWROS have an equal right to the asset. Each tenant is also afforded survivorship rights in the event one of the other tenants passes away. For example, if a married couple owns a bank account as TBE or JTWROS and one spouse dies, the surviving spouse automatically inherits sole ownership of the account. Although this may seem like an easy solution to owning your assets and avoiding probate, there are some pitfalls to holding property as TBE or JTWORS, especially if you are married.
Issues with Joint Tenancy
When two people own an asset jointly there can be problems, especially when a relationship is not stable. This is because neither party has the ability to encumber (that means sell or refinance, among other things) the property without the other party’s consent. There may also be additional concerns when dealing with bank accounts because since both people have unrestricted access to the account, either party could go to the bank and drain the account without the consent of the other.
There are also issues with attempting to using JTWROS as a probate avoidance tool. When one spouse passes, the surviving spouse assumes control over the asset and may not follow the deceased spouse’s wishes regarding the distribution of the property. This is particularly risky when it comes to inherited or separate (non-marital) property, like a farm or ranch that’s been passed down the generations in the deceased’s spouse’s family.
JTWROS can also cause serious issues in the event of a divorce. Moreover, if the married couple entered into a prenuptial agreement prior to marriage, holding assets as JTWROS may run counter to the agreement and result in an unintended outcome.
Proper estate planning, including creating a trust in which to hold the asset, can allow for better control and protection of the asset. Whether it be because of creditor issues, divorce, incapacity, or death, the right estate plan will ensure that you and your spouse will be able to continue enjoying the asset as intended with a minimum of taxes and court costs.
For all these reasons, it is important to consult with an estate planning professional to understand your choices when it comes to choosing how to title property. If you recently got married or are acquiring additional assets with your spouse, contact us right away to learn about your options.