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Introduction: Real Estate Can Be Held Multiple Ways
When we think of real estate ownership, many people tend to associate ownership with a single person, but the reality is that real estate is frequently jointly or co-owned. Real estate may be co-owned in various different arrangements, and different arrangements carry different potential legal and financial ramifications. For example, real estate may be held in “joint tenancy,” which means that the co-owners are joint tenants who, in the event of a death of one co-owner, agree to transfer their share to the other tenants. Another arrangement is known as “tenancy-in-common,” or “TIC.” In this arrangement, the default mode is not for co-owners to leave their share to other co-owners, but instead each co-owner treats his or her share as an “undivided fractional interest.” In other words, although the real estate is jointly owned, each co-owners acts as though he or she possesses an independent ownership interest which isn’t diluted or mixed together with other co-owned.
What happens when real estate is co-owned in one of these co-ownership arrangements and then becomes entangled in a divorce? In other words, what are the legal implications of co-owned real estate in the context of a Maryland divorce? Is co-owned real estate treated specially? Let’s explore this situation a bit.
(Marital) Co-Owned Real Estate May Be Forcibly Sold Off
When it comes to understanding the implications of co-owned real estate, one of the main points to know is that courts will need to develop a characterization of co-owned real estate as either marital property or separate property, or mixed. This characterization is needed because otherwise the court cannot go about developing a fair distribution of the asset. Assuming that all co-owned real estate isn’t part of a private settlement agreement (such as a prenuptial or postnuptial agreement), the court will conduct an independent analysis to properly determine the character of a given piece of real estate.
Ordinarily, characterization of assets heavily depends on when an asset is acquired, as assets acquired during marriage are presumed to be marital property. With real estate, things can be a bit trickier, because real estate can be proactively “titled” in particular ways, and titling may affect property characterization. If co-owned real estate be acquired prior to marriage, and there is no private treatment of the asset in an agreement prior to divorce, then the co-owners will typically be regarded as having their own separate property.
Picture the following scenario: two individuals each buy an undivided TIC interest in a commercial building. The TIC interest provides consistent returns (in the form of rental income) for both co-owners. Each individuals holds the TIC interest without any conditions or restrictions, in fee simple, and then the two individuals marry after this acquisition. In this scenario, although both individuals co-own this commercial building together, the TIC interests were acquired prior to marriage, and so both TIC interests would almost certainly be characterized as the separate property of the co-owner. Hence, because of this separate property classification, the individuals would retain their separate property; this is the case despite the fact that the real estate is quite literally co-owned in a multi-owner arrangement.
Again, what readers need to take away here is that timing and titling are critical things which will be used to determine property characterization and the full ramifications of co-owned real estate. Real estate which is titled a certain way can impact the court’s analysis. If, for instance, real estate acquired prior to marriage and co-owned in joint tenancy is titled as though there is only a single owner (the married couple or person), this might conceivably lead a Maryland court to characterize the real estate as marital property, even though each party technically has a “separate property” interest in this type of co-ownership arrangement. To this extent that co-owned real estate is characterized as marital property, it may be subject to division by the court. This means, as one possibility, that co-owned marital real estate may be sold off in a court-mandated sale as part of a larger judgment on property division.
Co-Owned Real Estate May Be Addressed within Marital Settlement Agreements
Readers need to remember that courts will conduct a characterization analysis whenever there is “eligible” property involved, but things can change depending on how property is treated in private agreements. Even if a property would normally be characterized a certain way, parties can always privately contract with each other to settle property related disputes. Co-owned real estate can become part of a postnuptial agreement or marital settlement agreement, and these private arrangements will supersede default rules on characterization.
Contact the Murphy Law Firm for Additional Resources
If readers want to learn more about the potential ramifications of co-owned real estate in a Maryland divorce, holding assets in a business entity in a Maryland divorce, titling property, or any other pertinent family law matter, contact one of the family law attorneys at the Murphy Law Firm today by calling 240-219-1187.
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