Joint ownership refers to two parties owning property together. Property in this sense may apply to a residence, a business, or intellectual property like patents. Joint ownership can be beneficial if one partner dies, as property does not have to go through probate. It can also be problematic, particularly in the area of intellectual property, or property jointly owned by a parent and a child.
Joint ownership is most often applied in the real estate market, where it refers to two people who jointly own a home. In most cases, these two people are a married couple. This type of joint ownership can reduce hassle. It is not necessary for a person to wait for probate in order to own the whole house if his or her spouse dies.
When a spouse dies, it may be necessary to restructure finances immediately. Being able to completely own one’s home immediately assures an easy transfer of assets. Additionally, in many states, a house owned by a married couple, where one partner dies, is not considered an addition of property to the surviving owner, so no taxes are assessed to sole ownership.
Joint ownership can also simplify division of assets in a divorce. Anything that is owned jointly is split. One person can chose to buy out the other’s person’s half, but it is very difficult to contest rights to property when it is jointly owned. Couples may barter their ownership status for access to other portions of the estate, but at least a property that is jointly owned eliminates arguments about the extent to which each partner is entitled to the property.
Joint ownership of property is not limited to spouses. A parent can decide to jointly own his or her house with a child. When the child is financially stable and an only child, this may make good sense, since that child will not require probate to inherit the house. Most realtors and financial advisors, however, caution against joint ownership with a child.
Several concerns come to light immediately. If a parent has joint ownership of a house with one child and there are other siblings, the parent may request that the proceeds of the house be evenly divided between siblings upon the parent’s death. Joint ownership overrides the obligation for the child who jointly owns the house to honor this request. Since parent and child jointly own the house, the house immediately passes to the surviving owner upon the parent's death. Other siblings may never receive whatever entitlements to the house their parents might have desired for them.
Joint ownership can also cause problems if the financial prospects of the child are unstable. If, for example, the child enters bankruptcy or owes back taxes, a parent can lose his or her home when creditors collect owed funds. If the child is uninsured and hospitalized, the same can occur. The child’s future in regards to the house is also at issue if the parent becomes seriously ill or is at financial risk.
Joint ownership of businesses or intellectual property implies certain rights to both parties, and as such may require extensive drafting of legal documents to avoid pitfalls. For example, if a patent is jointly owned, either partner may sell the patent, permit the use of the patent, or release information about the patent without the agreement of the other partner. This violates the whole concept of a patent, in many respects, since the goal of a patent is to keep other manufacturers from producing the same product. To protect both partners, it is necessary to draw up binding legal agreements that prohibit this and other behaviors that could reduce the profitability of the patent.
Further, once one partner dies, the other partner fully owns the patent. The deceased partner’s family has no right to inherit any profits associated with the patent after the partner’s death, because the profits do not belong to them. To reduce these risks, partners may want to consider alternative methods of owning a patent with which inheritance to other family members is ensured.
