Joint Ownership of Property - Risk Management
Traditionally in Australia the major asset was the family home which was always jointly owned by husband and wife as joint proprietors.
Over the last 20 years it has become common for the family home to be held in the name of husband or wife alone in order to minimize the risk of professional or commercial liability of a spouse resulting in the loss of the family home.
Property Ownership - Joint Proprietor or Tenant in Common?
When purchasing a property with another person, the question of how the property is to be held is an important consideration.
A property may be held by two people as joint proprietors or as tenants in common.
If a joint proprietor dies, the property automatically passes into the ownership of the surviving joint proprietor, and does not form part of the deceased’s estate.
If a tenant in common dies, the share held by that person will form part of their estate and be distributed pursuant to their will.
Often a married or de facto couple will own a property as joint proprietors. However, if there are children from a previous relationship, it may be more appropriate to hold the property as tenants in common. This is because those children may need to benefit from a share of the property as part of their deceased parent’s estate. The estate will not include the property if it has passed to a surviving proprietor at the time of death.
A couple may hold a property as tenants in common in equal or unequal shares, depending on the contributions of the respective parties towards the purchase of the property.
Clients making unequal contributions to a property often request that a co-ownership agreement be prepared and executed by the parties to pre-determine the treatment of the property if the property is sold, particularly in the event of a relationship breakdown.
While this may remove some uncertainty, a simple agreement such as this may serve only as a record of the contributions made, and as evidence of the intentions of the parties at the time they entered the agreement.
In the absence of a Financial Agreement, complying with the strict formal requirements of the Family Law Act 1975 (Cth) specifying the couple’s financial arrangements should their relationship break down, the simple co-ownership agreement will not be binding or enforceable by one party against the other. The Family Court will retain jurisdiction to decide how the property is to be divided between the parties.
Borrowing Additional Funds from a Relative
Another issue may arise if the couple is borrowing part of the funds from a bank and part of the funds from a third party, usually a relative.
The bank may require confirmation from the third party, by way of a statutory declaration, that the advance is a non-refundable gift.
In the event that the parties have in fact executed a loan agreement, that statutory declaration should not be provided. The dilemma may be solved by characterizing the loan as “not repayable unless and until the property is sold or otherwise transferred”, and by providing a modified statutory declaration or letter to the bank confirming the nature of the advance, and the limited circumstances of repayment.