An important consideration when purchasing property is how to “take title,” meaning how you will legally own the property. If there is only one owner of the property, the form of ownership is simple. However, things become more complicated when two or more people or entities will own the property together. In Illinois, two or more owners may hold property as tenants in common, joint tenants, or tenants by the entirety. The form of ownership you choose will define the rights between the owners, the rights of creditors, and what happens to the property when an owner dies.
Do not let the word “tenant” confuse you. In this context, it has nothing to do with renting. A “tenant” here is simply an owner. The form of ownership is stated on the deed you receive at closing, so it should be decided before closing, not after.
Tenants in Common
Tenancy in common is the most basic form of co-ownership, and it is the default in Illinois. If the deed does not clearly state another form of ownership, the owners will hold the property as tenants in common. Tenants in common each have an “undivided fractional interest” in the property. In other words, each owner owns a percentage of the property, and those percentages can, but do not have to, be equal. For example, one owner may own 60% while the other owns 40%. Although each owner holds a percentage, the property itself is not physically divided, and each owner has the right to use and enjoy the entire property.
A tenant in common can sell or transfer his or her share without the consent of the other owners. A tenant in common can also mortgage his or her share, or ask a court to divide or sell the property (called a “partition”), without the consent of the other owners. When a tenant in common dies, his or her share does not go to the other owners. Instead, it passes under his or her will or, if there is no will, to his or her heirs under Illinois law. Lastly, a creditor of one tenant in common can reach that owner's share of the property, even though the other owners do not owe that creditor anything.
Joint Tenants
The next form of ownership is joint tenancy. Joint tenants each own an equal, undivided interest in the property. This means that each joint tenant has an equal share and the right to use and enjoy the entire property. Because tenancy in common is the default, a joint tenancy exists only if the deed expressly states that the owners hold title as joint tenants, and not as tenants in common.
The main difference between joint tenants and tenants in common is that joint tenants have the right of survivorship. This means that when one joint tenant dies, his or her ownership interest automatically passes to the surviving joint tenants, outside of probate. Even if the deceased joint tenant's will directs his or her interest to pass to another person, that direction will be ignored, and the interest will pass to the surviving joint tenants.
Like tenants in common, a joint tenant can sell or transfer his or her interest, mortgage his or her interest, or seek a partition, without the consent of the other owners. A creditor of one joint tenant can also pursue that owner's interest in the property. However, timing matters. If the joint tenant dies before the creditor has taken the necessary legal steps to enforce its claim against the property, the surviving joint tenants generally take the property free of that creditor's claim.
A joint tenancy can be ended, or “severed,” if a joint tenant sells or transfers his or her interest to another person. A joint tenant can also sever the joint tenancy by transferring his or her interest to himself or herself, provided the deed is recorded before that owner's death. If this happens when there are only two owners, the property will then be owned as tenants in common. If there are three or more owners and one of them transfers his or her interest, the remaining original owners will still own their shares as joint tenants in relation to each other. However, the new owner (or the owner who transferred his or her interest to himself or herself) will own that share as a tenant in common in relation to the other original owners.
For example, suppose Ann, Bob, and Carl own a property as joint tenants, and Carl sells his one-third interest to Dana. Ann and Bob continue to own two-thirds of the property as joint tenants with each other, while Dana owns one-third as a tenant in common. If Ann later dies, her interest passes to Bob, not to Dana. Bob would then own two-thirds of the property, and Dana would still own one-third.
Tenants by the Entirety
The last form of ownership is tenancy by the entirety. Tenancy by the entirety is a special form of ownership reserved for married spouses (and, in Illinois, partners in a civil union). In Illinois, it is available only for the couple's homestead, meaning the home they live in as their primary residence, and the deed must expressly state that the couple holds title as tenants by the entirety. Like joint tenants, tenants by the entirety have the right of survivorship, so when one spouse dies, the surviving spouse automatically owns the entire property.
However, unlike tenants in common or joint tenants, the creditors of only one spouse generally cannot reach the property. Only creditors holding joint debts of both spouses, such as a loan both spouses signed, can reach the property. In addition, the property cannot be sold, mortgaged, or partitioned without the consent of both spouses. Lastly, if the marriage is dissolved, the tenancy by the entirety automatically becomes a tenancy in common, unless the court orders otherwise.
At a Glance
| Tenants in Common | Joint Tenants | Tenants by the Entirety | |
|---|---|---|---|
| Who can use it | Anyone | Anyone | Married spouses (or civil union partners), for their homestead only |
| Size of each share | Equal or unequal | Always equal | The couple owns the whole property together |
| When an owner dies | Share passes by will, or to heirs if no will | Share passes automatically to the surviving joint tenant(s) | Surviving spouse automatically owns the entire property |
| Can one owner sell or mortgage without the others? | Yes, as to his or her own share | Yes, as to his or her own share (a sale or transfer ends the joint tenancy as to that share) | No, both spouses must sign |
| Creditors of only one owner | Can reach that owner's share | Can reach that owner's share, but generally lose that claim if the owner dies first | Generally cannot reach the property |
In any real estate transaction, it is important to discuss with your attorney the different forms of ownership, and the estate planning, asset protection, and tax consequences of each, before you close.
This post is for informational purposes only and does not constitute legal, tax, or estate planning advice. Consult a qualified real estate attorney before deciding how to take title to your property.