Few people can afford to buy a property alone. If you are a couple, the chances are you will buy together. If you are not a couple, you could buy with parents, other siblings, or even friends.

When you purchase a home with someone else, there are two ways of organising the ownership: joint ownership or as tenants in common. And just because you are a couple, do not assume there is only one way – especially if you are in a de-facto relationship.

I often get confused between the two, too, so I am constantly reminding myself. When you buy property, you want to make sure you pick the right one. Choose the wrong one, and it could be a disaster.

Joint ownership

Also known as joint tenancy, this is the most common way to own a home when you buy with a partner or spouse. But be careful if you are in a de-facto relationship and do not want a world war should the unfortunate split happen.

The co-owners own the property as a whole, and neither party has a specific share, even if one pays the lion’s share of the deposit or the running costs – even if they pay all of it.

When it comes to a mortgage, it will be a joint loan based on both people’s incomes with the usual affordability checks undertaken by a bank.

Both borrowers will be jointly liable for the mortgage debt, so if one person can’t pay their share of the payments, the other will be expected to make up the difference.

Joint tenants are best suited to couples who are married or in a civil legal partnership. But only sometimes. If you have a relationship based on a financial agreement, also known as a prenup, follow what the financial deal says. If you are a blended family, you want to be careful, too. If you are in a de facto relationship, this may not be for you either.

Just remember one thing. If you sell, the owners are entitled to an equal share of the proceeds regardless of how much they contributed to the deposit, running costs at the outset, or the mortgage.

Should one of the parties die, the surviving co-owner automatically owns the whole property, irrespective of any wishes contained within a will. And that means any assets held as joint tenancy or ownership should never be included in a will.

That is why this may not be ideal if you are in a relationship and want to avoid your share going to your partner. Why would that be the case?

If you split up, you cannot give your share of the property via a will to your new spouse, kids, or even siblings or parents. It automatically goes to your ex-partner, whom you may now hate, and they will be laughing all the way to the bank.

The same is true if you have children from a different relationship. They will not be able to ‘inherit’ your share of property.

Joint tenants in common

This option is best suited to friends or family members buying a property together, but it also makes sense if you are in a de facto relationship and even in blended families.

Each tenant owns a specific share of the property, which is legally documented. The proportions don’t have to be equal so they could be noted as 50:50 or 99:1 – or anything in between.

You must instruct a solicitor to ensure the correct percentage is noted on the title deed.

This arrangement can work well if all parties want to remain living on the property. But if circumstances change and someone wants to leave and sell their share, it could mean the remaining owners have to buy their share out.

This option may also benefit couples who buy a property with the intention of passing it on to the next generation.

That’s because if one tenant-in-common dies, their share of the property doesn’t automatically transfer to the surviving owner(s). Instead, the share of the property passes to their estate and then the beneficiaries of their will. This means their will can state who gets their share of the property.

This can be useful in blended families. I often see people with children from previous relationships who choose the tenants in the standard option because it guarantees that their children will benefit as their share is left to them in a will.

Tenants in common also suit couples looking to maintain their financial independence or safeguard individual investments, particularly where one holds significantly more wealth than the other.

I recently met a doctor who is in a de facto relationship with another medical professional. They are living together in the partner’s home and are about to purchase property together as an investment. The doctor has ‘given’ the medical professional $500,000 to set off against her house loan. The doctor also provides the lion’s share of the deposit and will fill the gap of the negatively geared property.

There could be dangers if they decide to buy the investment as a joint tenancy. What happens if they split up and must subsequently sell? What happens if one dies? The $500,000 could also be at risk. The medical professional can claim it was a gift from the doctor to them.

As you can see, there are many variables, and often, the conveyancer dealing with the purchase will try and discuss this over a simple 5-minute phone call. Do that at your peril.

Protecting your assets is step 1 of our 9 steps to working less, earning more, and building wealth. If you would like to know more, contact Hitesh@wowadvisors.com.au or Ros at ros@wowadvisors.com.au or call us on 07 3161 9548.