Caution: Your Traditional Asset Protection Plan Is Set Up to Fail

With rising housing costs and the appeal of shared financial responsibilities, more people are considering co-owning a home with someone other than a spouse—such as a friend, relative, or significant other.

While this arrangement can offer financial and lifestyle benefits, it also comes with legal complexities and potential challenges. To protect your interests and avoid future disputes, it’s essential to approach co-ownership with careful planning, open communication, and clear legal agreements.

Co-Ownership on the Rise

The trend of non-spouse co-ownership is growing. According to Zillow, while 62% of homebuyers co-own with at least one other person, only 50% are partnered with a spouse or romantic partner 1. The rest are teaming up with friends (14%) or relatives (12%)—with affordability being the top motivating factor.

Whether your goal is to split costs, share responsibilities, or invest together, it’s important to understand both the benefits and the risks before entering into a co-ownership arrangement.

Co-Ownership Challenges and Legal Considerations

While sharing ownership can make homeownership more accessible, it also introduces potential legal and financial complications. Even the strongest relationships can be strained by conflicting expectations, financial pressures, or lifestyle differences.

To avoid misunderstandings, it’s essential to have clear, honest discussions upfront and formalize your agreement in writing. Here are five key areas to address:

1. Financial Contributions:
   
   

• How will the down payment, mortgage, taxes, insurance, and maintenance costs be divided?

• Will you open a joint account for shared expenses?

• What happens if one person can’t meet their financial obligations?
  
  

1. Exit Strategy:
   
   

• What if one co-owner wants to sell their share?

• Will the other owner(s) have the right of first refusal?

• How will you determine the property’s value?
  
  

1. Death or Incapacity:
   
   

• What happens if one co-owner passes away or becomes incapacitated? Will their share automatically transfer to the other owner(s), or will it go to their beneficiaries?

• Does the ownership structure align with your estate plans?
  
  

1. Usage and Responsibilities:
   
   

• Will the property be a primary residence, vacation home, or investment property?

• How will you divide household chores, maintenance, and repairs?

• Will there be rules regarding guests, pets, or subletting?
  
  

1. Dispute Resolution:
   
   

• How will you handle disagreements?

• Will you require mediation or arbitration before resorting to litigation?
  
  

How to Address Potential Co-Ownership Issues

The property deed is a legal document that names the co-owners and defines how they hold title. However, the deed alone may not cover complex co-ownership issues, such as financial obligations, exit strategies, or dispute resolution.

To fully protect your interests, you should create a comprehensive co-ownership agreement that clearly defines rights, responsibilities, and protocols for handling potential conflicts. This agreement should be reviewed periodically and updated if circumstances or ownership interests change.

Establishing the Right Ownership Structure

Before purchasing a home with someone other than a spouse, you’ll need to choose the right ownership structure. The rules vary by state, so consulting an experienced real estate attorney is essential. Your chosen structure will be reflected on the property deed.

Joint Tenancy with Rights of Survivorship (JTWROS):

• Each co-owner has an equal and undivided interest in the property.
• If one owner dies, their share automatically transfers to the surviving owner(s).
  This arrangement is common among married couples and close family members.

Tenancy in Common (TIC):

• Each co-owner holds a specific share of the property, which may be equal or unequal.
• If one owner dies, their share passes to their beneficiaries (per their will or state intestacy laws) rather than automatically transferring to the other owners.
• TIC offers more flexibility, making it a popular choice for non-spouse co-owners.
  
  

Defining Responsibilities and Rights

To avoid disputes, your co-ownership agreement should clearly outline each owner’s rights and responsibilities, including:

• Financial Obligations:
  
  
• Specify how you’ll split the mortgage, taxes, insurance, and maintenance costs.
• Consider creating a joint fund for ongoing expenses.
  
  
• Usage and Access:
  
  
• If the home is a vacation or investment property, clarify how you’ll divide usage.
• Include guidelines for scheduling, guest policies, and shared spaces.
  
  
• Maintenance and Repairs:
  
  
• Define how you’ll handle maintenance, repairs, and upgrades. Will responsibilities be shared equally or proportionate to ownership shares?
• Consider setting up a reserve fund for larger expenses.
  
  

Addressing Potential Conflicts

Even with the best planning, disagreements can arise. Including conflict resolution clauses in your co-ownership agreement can help prevent costly legal battles.

• Dispute Resolution:
  
  
• Include a clause requiring mediation or arbitration before pursuing litigation.
• This can save time, money, and stress.
  
  
• Buyout Provisions:
  
  
• Outline a process for one co-owner to buy out another’s share.
• Specify the valuation method and payment terms.
  
  
• Sale or Transfer of Ownership:
  
  
• Define conditions for selling the property, such as requiring unanimous consent.
• Include a process for resolving disagreements over the sale.
  
  

Protecting Individual Interests

To protect your personal interests, consider adding the following provisions to your co-ownership agreement:

• Liens and Encumbrances:
  
  
• Ensure that each co-owner is responsible for their own debts.
• Prevent one owner’s share from being used as collateral for another’s debts.
  
  
• Partition Action:
  
  
• In cases of irreconcilable differences, include a provision for a partition action.
• This legal process allows the court to divide the property or order its sale.
  
  

Co-Ownership and Estate Planning

Owning property with someone other than a spouse adds estate planning complexities. Your estate plan should address the following:

• In Tenancy in Common:
  
  
• Your share will pass to your beneficiaries, not your co-owner.
• Your will or trust should specify who inherits your share.
  
  
• In Joint Tenancy:
  
  
• Your share automatically transfers to the surviving co-owner.
• Still, it’s wise to address the property in your will to cover simultaneous death scenarios.
  
  
• Trust Ownership:
  
  
• Placing your share of the property in a trust can help avoid probate, ensure a smoother transfer of ownership, and provide greater control over how the property is managed after your death.
  
  
• Life Insurance:
  
  
• A life insurance policy can offer financial security to your co-owner.
• The death benefit could cover your share of the mortgage or fund a buyout.
  
  

Secure Your Co-Ownership with a Solid Legal Plan

While co-owning a home with someone other than a spouse can be a smart financial move, it also requires careful legal planning.

• A thorough co-ownership agreement ensures you are protected and prepared for any eventuality.
• By incorporating estate planning strategies, you can safeguard your interests and reduce future risks.
  
  

Contact us today to discuss how we can help you create a co-ownership agreement and estate plan that protects your investment—and your future. 

1. Manny Garcia, Buyers: Results from the Zillow Consumer Housing Trends Report 2023, Zillow (Aug. 23, 2023), https://www.zillow.com/research/buyers-housing-trends-report-2023-32978.