A joint tenancy is a common way for two or more people to own property together in Australia, particularly for married couples or domestic partners. However, life changes, and sometimes what made sense at the start no longer does. One owner may want to end the joint tenancy and “sever” it.
What is a Joint Tenancy?
When you own a property as joint tenants, you don’t own a specific share of the property. Instead, each of you owns the entire property together. The key feature of a joint tenancy is the “right of survivorship.” This means that if one of the joint tenants dies, their share automatically transfers to the surviving joint tenant(s), regardless of what is said in their will.
The right of survivorship is a major reason why people choose a joint tenancy, as it provides a straightforward way to pass on property without a complicated legal process.
What is Severing a Joint Tenancy?
Severing a joint tenancy converts it into a tenancy in common. When severed, the right of survivorship is removed. Each co-owner then holds a distinct, divisible share of the property. This is often equal (for example, 50% each for two owners) or can be a different proportion if the owners agree.
After severing, if one owner dies, their share does not automatically go to the other co-owner. Instead, it forms part of their estate and passes on according to their will or the rules of intestacy.
Why Would Someone Want to Sever a Joint Tenancy?
People choose to sever a joint tenancy for various reasons, often related to personal changes or a desire for more control over their property. Common reasons include:
- Relationship breakdown: When a marriage or de facto relationship ends, owners may want to separate their financial affairs. Severing the joint tenancy protects each owner’s individual share during family law proceedings and prevents it from automatically going to a former partner.
- Estate planning: A person may want to leave their share to someone other than the co-owner, such as children from a previous relationship. Severing allows them to include their share in their will.
- Financial reasons: Severing may support tax planning strategies or business succession planning.
- Disputes: If co-owners cannot agree on managing the property, severing may be necessary to separate interests.
How to Sever a Joint Tenancy
Severing a joint tenancy usually involves lodging the appropriate transfer documentation with the government body authorised to deal with land titles in your state or territory. A lawyer or conveyancer can assist with preparing the documents and consider any stamp duty implications. Procedures vary by jurisdiction, but the most common methods are:
- Unilateral severance: One joint tenant can sever the tenancy by a unilateral declaration. They register a legal document (e.g., transfer or notice of severance) with the relevant land titles office. The other owner is typically notified after registration.
- Mutual agreement: If all joint tenants agree, they can sign a transfer document to convert ownership to a tenancy in common.
Other methods include:
- Court order: A court can order the severance in case of a dispute.
- Bankruptcy: If one joint tenant becomes bankrupt, their interest may vest in the bankruptcy trustee, severing the joint tenancy.
What Happens After the Joint Tenancy is Severed?
Severing changes the ownership structure to a tenancy in common, with shares apportioned according to contributions or agreement. Co-owners can then:
- Sell or transfer their share
- Borrow against their share (mortgage it)
- Leave their share to a beneficiary in their will
Even after severing, co-owners remain financially linked in some ways, especially if there is a shared mortgage.
Legal Advice is Key
Severing a joint tenancy is a significant legal step with serious consequences for your property and estate. This article provides a general overview and does not constitute legal advice. Requirements vary by state or territory.
Before taking action, seek professional advice to understand the implications for your situation and ensure the process is completed correctly. This small investment can prevent major problems later.
This is general information only and does not constitute legal advice. You should obtain professional advice relevant to your circumstances. If you or someone you know wants more information or needs help or advice, please call (02) 4987 3344 or email [email protected].