What is a Joint Tenancy?
When you own a property as joint tenants, you don’t own a specific share of the property. Instead, each of you owns the entire property together. The key feature of a joint tenancy is the “right of survivorship”. This means that if one of the joint tenants dies, their share in the property automatically transfers to the surviving joint tenant (or tenants), regardless of what is said in their will.
The right of survivorship is a major reason why people choose a joint tenancy, as it can be a straightforward way to pass on property without needing a complicated legal process.
What is Severing a Joint Tenancy?
Severing a joint tenancy is the process of converting the joint tenancy into a tenancy in common. When a joint tenancy is severed, the right of survivorship is removed. Each co-owner then holds a distinct, divisible share of the property. This is often an equal share (for example, 50% each for two owners), or it can be different unequal proportion if the owners agree to it.
The most significant change is that if one of the owners dies, their share of the property does not automatically go to the other co-owner. Instead, it forms part of their estate and is passed on according to their will or the rules of intestacy (if they die without a will).
Why Would Someone Want to Sever a Joint Tenancy?
There are many reasons why someone might choose to sever a joint tenancy. These often relate to changes in personal circumstances or a desire to have more control over their property. Reasons typically include:
- Relationship breakdown: When a marriage or de facto relationship ends, the owners often want to separate their financial affairs. Severing the joint tenancy ensures that each owner’s individual share of the property is protected during family law proceedings and doesn’t automatically go to the former partner should one party die before finalising a family law property settlement.
- Estate planning: A person might want to leave their share of the property to someone other than the other co-owner. For example, they may want to leave it to their children from a previous relationship. Severing the joint tenancy allows them to include their share of the property in their will.
- Financial reasons: A joint tenancy may be severed because of a tax planning strategy requiring specific ownership structures or in business partnerships to facilitate succession planning.
- Disputes: If co-owners are in a serious dispute and can no longer agree on how to manage the property, severing the joint tenancy may be necessary to separate their interests.
How to Sever a Joint Tenancy
Severing a joint tenancy typically involves lodging the appropriate transfer documentation with the relevant Government body authorised to deal with land titles in your state or territory. A lawyer or conveyancer can assist with preparing the necessary documents and will consider any stamp duty implications, if relevant. Different jurisdictions may have different procedures; however, the most typical ways are:
- Unilateral severance: One joint tenant can sever the tenancy by a unilateral declaration. This is done by registering a legal document (i.e., transfer or notice of severance) with the relevant land titles office. This process does not require the other owner’s agreement or signature. The other owner is typically notified by the land titles office after the change has been registered.
- Mutual agreement: The simplest way is if all the joint tenants agree to sever the tenancy. They can sign a transfer document to change the ownership structure to a tenancy in common.
In other cases, a joint tenancy may be severed by:
- Court order: In cases of a dispute, a joint tenancy may be severed by court order.
- Bankruptcy: If one joint tenant becomes bankrupt, the joint tenancy may be severed, and the bankrupt co-owner’s interest may vest in the trustee for bankruptcy.
What Happens After the Joint Tenancy is Severed?
Severing a joint tenancy changes the ownership structure of the property to a tenancy in common, in shares apportioned to each party’s respective or agreed contributions. Once a joint tenancy is severed, the co-owners may deal with or dispose of their individual interests as they wish. They can:
- Sell or transfer their share
- Borrow against their share (mortgage it)
- Leave their share to a beneficiary in their will
Note that, although the tenancy is severed, the co-owners are still financially linked in some ways, particularly if there is a shared mortgage on the property.
Legal Advice is Key
Severing a joint tenancy is a significant legal step with serious consequences for your property and estate. While this article provides a general overview, it does not constitute legal advice, and the specific requirements can vary depending on your state or territory.
Before taking any action, please seek professional advice so you understand the implications for your specific situation and can ensure that the process is completed correctly and legally. It’s a small investment that can prevent major problems down the track.
If you or someone you know wants more information or needs help or advice, please call 02 9150 6991 or email ad***@**********om.au.