Most married couples and registered domestic partners living in California soon learn about community property. “What’s mine is yours and what’s yours is mine” governs most property ownership here. Pre- or post-marital agreements and state law will provide clear guidance for settling property issues, if the relationships end.
But what about partners who don’t marry or register? Do California statutes govern their separate and joint property? No. They are two individuals with no recognized legal relationship, and they usually don’t have any legal responsibility for each other or for each other’s property.
What happens if one of them becomes ill or dies? Or if they just decide to split up? I see
the fall-out from broken relationships every day in my practice. And this is what really worries me. There are far too many unmarried or unregistered couples who do nothing to protect themselves and their assets. Or think there are simple do-it-yourself tools for protecting themselves. Worst of all, some believe that a “palimony” suit can resolve everything, if they split up and disagree about assets.
Couples often buy a home together, and open joint checking and savings accounts. They may own cars, buy furniture, make other investments together. Who owns all these things? Both of them? What if one paid a little more of the down payment on their home than the other? Does he or she own a little more of the property? How much more? Is it a gift to the one who paid less?
One “simple” way to share property is to own it as joint tenants with right of survivorship. Cash accounts, investments, houses and cars can be owned this way. If one partner dies, the other fully owns the property. No probate. No hassle. It was ours, now it’s mine. But this is a risky way to protect yourself and your property. Here are a few of the very serious pitfalls:
If one joint owner has a legal liability, creditor judgment, or is found at fault in an
accident, the entire bank account, house or other property can be taken, even
though the other joint owner is not involved.
Joint ownership of a house, for example, requires the agreement and signature
of both owners to sell, refinance, rent out, or carry out other transactions. One
owner can act only for his or her share of the property, not the entire property.
Suppose the two owners disagree about selling or managing the property? There
can be deadlock until mediation or some other intervention resolves it.
If one joint owner becomes mentally incapacitated, the property is in legal limbo.
It might be necessary to go through a lengthy, expensive court process to secure
a conservatorship for the incapacitated partner, so the other can legally manage the entire property.
If one joint owner dies, even if there is a Will or Trust passing his or
her ownership share to someone else, the other joint owner automatically
becomes full owner of the property. Wills and Trusts have no control over
property owned in joint tenancy.
There may be tax consequences for transferring property into joint tenancy.
Adding a joint tenant to your bank account or house title is a gift, subject to your
annual gift exemption of $14,000.00. If over that amount, you may owe taxes on
the gift, depending on your financial situation.
Do-it-yourself estate planning rarely works, and simple tools like joint tenancy are very risky. Too often someone is left crying the blues. There are far better ways for couples to manage their assets, and most of them can be easily obtained with a little planning ahead and the good advice of your attorney.