Joint Tenancy is when two people own a piece of property together, and each one has the right of survivorship to that property . The following information is a small subchapter from my book Protecting Your Financial Future.
Something as simple as a bad business deal or a fender bender on the street can result in a big time lawsuit that can take your house. Even a catastrophic illness, which is totally unpreventable and unpredictable, can take your house. If you cause the accident or get sick, you might expect your house to be lost or at least threatened.
What you don’t expect is to lose your house because your son or daughter has the accident or gets sick. That is exactly what can and does happen if the child’s name is on the deed as a joint owner of the house.
Joint Tenancy Story
John was a contractor, and the housing market collapsed in his part of the country. He declared bankruptcy. The bankruptcy court sold his parents’ home to help pay the debt, because his name was on the deed to his parents’ home. In this case, Mom and Dad got to keep the portion of the proceeds that represented their stake in the joint tenancy relationship, but they lost their home.
Cars cause trouble. The owner of the car is always a target in any lawsuit that results from the use of the car. The owner always gets sued even if he or she wasn’t in the car when the accident occurred. Never have two names on the title to a car. Have the husband own the car he drives most of the time and have the wife own the car she drives most often.
If you have to help one of your kids by throwing your financial weight behind them when they go to get a car loan, don’t put your name on the title to the car. Simply sign the loan as “guarantor.” Secure your interest in the car by having the child sign a note saying they will pay you back. You can get a copy of a note to use at the local office supply or stationery store. To protect your interest, you should file a security interest on the title to the car.
Joint Tenant Bank Accounts – a Bad Idea
Never put your kid’s name on a bank account, deed, or any other asset as a joint tenant. The kid owns 100% of the asset along with your 100% of the asset. (Yes, that doesn’t make sense, but the law doesn’t have to make sense.) Kids are like yogurt – you never know when they are going to go bad. If they go bad, you can lose 100%.