Each co-owner in a tenancy-in-common or
tenant-in-common owns a divided fractional share of the property. This creates serious
lawsuit dangers and, reciprocally, no creditor protection. There are many
examples to illustrate the risks of tenants-in-common. For instance, if
you and your friend John are tenants-in-common and own an apartment building,
each of you can sell, gift, or mortgage your half interest in the building
without the consent of the other. You are thus essentially 'partners'
in the business of renting apartments, collecting rents, maintaining the
premises, etc., and the building provides you an income.
Since you and John are tenants-in-common, you each own a separate share
in the building which is distinct from the interests of the other tenants-in-common.
Your personal creditors cannot claim your co-owner's interest and,
conversely, if John is sued for reasons unrelated to the building, John's
creditors can only claim
his half interest in the building. Your half remains safe from John's
creditors. While this may seem acceptable, particularly if you see yourself as the
safe co-owner, a tenancy-in-common can nevertheless cause problems.
One big risk is that your co-owner's creditors can force a sale of the
entire property to satisfy your co-owner's personal debts. Since your co-tenant, John, can transfer his share of the tenancy-in-common
property without your consent, John's creditor can 'step into
his shoes' and similarly sell his interest. You may possibly negotiate
to buy your co-owner's interest to avoid the forced sale of the entire
property, but this is not always practical; you may not have the money.
Should the court force the sale of the entire property, you will nevertheless
lose the property, although you will recover your half share of the net
proceeds from the forced sale.
Suppose John's creditors do not force the sale of the entire property
but instead successfully bid for John's half interest in the property.
You now have a new partner – John's creditor! It can and does
happen. More importantly, how safe is
your ownership interest from your own creditors when you own property as tenants-in-common?
You already know the answer: If John's creditors can seize his interest,
your creditors can seize
This is why co-owning property as tenants-in-common is too risky. If you
or your co-owner has financial problems, you can easily lose control of
the property or you might lose significant money. Avoid this trap. If
you insist upon titling assets as tenants-in-common, then make certain
that your co-tenants are financially secure; otherwise you risk a forced
sale, a new co-owner or lost control of your investment.
Aside from the vulnerability of your co-ownership interest, perhaps an
even bigger pitfall is that tenancy-in-common
expands your liability. If John accidentally injures somebody through his negligent
management of the co-owned property, who gets sued? Both you and John,
of course. Since you co-own the property, you essentially created a general
partnership. Should the plaintiff win a $5 million judgment or any amount
that exceeds what the property or John is personally worth – who pays?
You, of course. As co-owners, you and John have joint and several liability
for any liability that arises from co-ownership of the property. The bottom
line is never to own property directly as tenants-in-common. Co-own the
asset indirectly through a protective entity.
For help setting up your protective entity or reviewing your assets for
their level of Asset Protection safety contact the Presser Law Firm P.A.
for a complimentary preliminary consultation.
The Presser Law Firm, P.A.
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