When two individuals buy property together, a primary consideration is whether the creditors of each can reach the real estate, placing liens against it or taking other actions to collect. With some types of ownership, they can do so easily, but with others, it's virtually impossible. What they can't do is place a lien against a co-owner who isn't legally responsible for the debt.
Joint tenants have equal ownership of a property, and joint tenancy creates rights of survivorship as well – if one co-owner dies, the property automatically transfers to the survivor without probate. This makes it an attractive estate-planning tool, but where creditors are involved, joint tenancy has its drawbacks. Creditors of either owner can place liens against the home. Although they can't collect on a lien from the non-debtor's share of ownership, they can force the sale of the property to collect from the debtor owner's share.
Tenants in Common
Like joint tenancies, tenancies in common offer very little protection against a co-owner's debts. With this type of ownership, each individual owns a percentage of the home, and his share is vulnerable to his own creditors. Although they can't touch any percentage of the property owned by the co-owners, they can force a sale to collect from the debtor's share of the proceeds. Creditors usually accomplish this by asking the court to partition the property, severing ownership into individual units according to the percentage ownership. In the case of vacant land, the court divides it into parcels, deeding each tenant a portion equal to his ownership share. This is usually impossible with a home or building, however, so the court would order the property's sale instead. Creditors receive payment from only the debtor's portion of proceeds. Co-owners receive the balance of the proceeds in proportion to their ownership percentage.
Tenants by the Entirety
Only by holding title as tenants by the entirety can co-owners keep property safe from the creditors of the other. However, only married couples can hold title to property this way, and if the debts are joint, the nature of the deed doesn't offer any protection. If a debt is in one spouse's sole name, however, that creditor cannot place a lien against the other spouse's home, provided the innocent spouse actually resides in the dwelling. With a tenancy by the entirety, spouses each hold an undivided -- that is, 100 percent -- interest in the home, so property held this way is not usually subject to partition.
Community Property Deeds
A fourth type of ownership is available in a handful of community property states. Called community property with rights of survivorship, this type of deed is also reserved for married couples, but it may not protect the property against one spouse's debts. In community property states, both spouses are equally responsible for debts incurred during the marriage, even if only one spouse contracts for them. They're considered joint debts under the law, so joint assets are vulnerable to them.
- The New York Times: A Quick Guide to Property Titles
- Massachusetts Association of Realtors: Co-Ownership of Real Property
- Law Offices of Kenneth A. Taheny: What is Community Property with a Right of Survivorship?
- Law Office of Steven Samson: Holding Property in Joint Tenancy Creates More Problems Than it Solves
- Nolo: Debt and Marriage – When Do I Owe My Spouse's Debts?