Author: Wendy F. Neill, Supervising Attorney
Purchasing property is a big investment and there are various ways in which title can be held in North Carolina. Prudent purchasers will carefully contemplate the options and discuss the consequences of each with their closing attorney. In North Carolina, there are three types of co-ownership with real estate: Tenancy by the Entirety, Tenancy in Common and Joint Tenancy with Rights of Survivorship.
Tenancy by the Entirety
Tenancy-by-the-entirety (“TBE’) is a type of tenancy reserved exclusively for married couples. If you are married and take title with your spouse, the presumption is that you hold title as TBE. TBE includes rights of survivorship, which means when one spouse dies, their interest automatically passes to the surviving spouse without going through the probate process. TBE also offers judgment protection – a judgment must be entered against both spouses to attach to the real property (however, this protection does not apply to federal liens). If property is held as TBE, then a spouse cannot unilaterally terminate their interest in the property without the joinder of the other (for example, one spouse cannot sell or encumber any interest in the property without the other spouse’s participation). TBE is automatically severed in the event of death of one of the spouses, a final divorce decree entered, or by the spouses voluntarily executing a deed dissolving the TBE. If a couple divorces, the tenancy automatically becomes a tenancy in common in which each spouse has 50% ownership interest.
Tenancy in Common
Tenancy in Common (“TNC”) allows multiple owners (usually non-spouses) to hold title to real property, either equally or with varying ownership percentages. The ownership interest is undivided because each owner has the right to use and possess the entire property. When one co-owner dies, their share passes as defined in their probated will or pursuant to the North Carolina Intestate Succession Act (if the decedent does not have a will) and does NOT automatically pass to the surviving co-owner(s). TNC does not include judgment protection, so if one co-owner is sued and a judgment entered, it will attach to the property. Each co-owner has the right to sell, gift, devise, or otherwise transfer their interest in the property without the permission of the other owner(s). In NC, TNC is the presumption for co-ownership between non-spouses unless specific language is added indicating the parties intend to hold title as Joint Tenants with Rights of Survivorship.
Joint Tenancy with Rights of Survivorship
Joint Tenancy with Rights of Survivorship (“JTWROS”) allows multiple owners (usually non-spouses) to hold title to real property with rights of survivorship, meaning if one party dies, their interest automatically transfers to the surviving co-owners rather than going through probate. Like TNC, JTWROS also permits owners to transfer their interest without consent of the other owners. JTWROS does not offer the judgment protection afforded by TBE. To create this tenancy, the deed must contain the very specific language of “as joint tenants with rights of survivorship” – otherwise, a TNC is created.
A frequent issue arises when a couple not married to each other purchases property and then subsequently marries. Once married, TBE is not automatically created – rather, the parties must execute a new deed to hold title as TBE and benefit from the judgment protection and rights of survivorship it affords.
As demonstrated, the way in which co-owners hold title is important and can have serious consequences in the event of death, divorce, or judgment collection. Moreover, determining the best way to hold title can be a crucial estate planning tool. Purchasers, and their closing attorney, should carefully consider and discuss the various options during the closing transaction.
