Tuesday, December 1, 2020

Unilateral severance** of joint tenancy assets

View Legal Blog Unilateral severance of joint tenancy assets

Last week’s post mentioned in passing the ability to unilaterally sever a joint tenancy.

Interestingly, there are in fact 6 ways to sever ownership of a property owned as joint tenants, namely:
  1. an agreement to sever is reached between all parties (this is arguably the most common approach);
  2. by mutual intention, as demonstrated by the conduct of the parties (relatively difficult to prove);
  3. by court order;
  4. due to the bankruptcy of a party (as explored in previous posts);
  5. due to the homicide committed by one joint tenant against another (fortunately, relatively rare); and
  6. a joint tenant unilaterally severs the tenancy.
It is also important to as mentioned last week, that where an asset owned on title records as joint tenants is a partnership asset it will be deemed to in fact be effectively owned as tenants in common. Previous posts have explored this aspect of the rules.

The ability to unilaterally sever a jointly owned property is enshrined in state-based legislation that permits any person who owns a property as a joint tenant to notify all other owners of their intention to sever the joint tenancy and for the registration of that severance to take place without the prior approval of the other owners.

If there are more than two owners of a property and only one owner wishes to sever the joint tenancy, the other owners will still hold their reduced interest in the property as joint tenants.

The legislative provisions in this regard generally require that the other joint tenants be notified by the Titles Office Registrar.

The Registrar may also require the full details of the other joint tenants and a statement by the party seeking to sever that they are unaware of any limitation on their right to do so.

For tax purposes, assets owned via a joint tenancy are deemed to be owned as tenants in common, in equal shares. This means that the conversion from one ownership mode to the other has no tax consequences. It also means that the death of a joint tenant owner will cause a tax event.

For example, on the death of one of two joint tenant owners of a pre-capital gains tax property, converting the ‘notional’ half share of the deceased owner into a post CGT asset (with a market value as at the date of death).

Similarly, there are stamp duty concessions for the conversion.

These conclusions in relation to the legal ability to convert the ownership structure without any tax or stamp duty consequences are however predicated on the basis that each owner will retain their deemed proportionate share in the asset.

In other words, if there are two owners, then they must each have a 50% share as tenants in common, if there are three owners, they must each have a one third share etc.

As usual, please contact me if you would like access to any of the additional content mentioned in this post.

** for the trainspotters, the title here is riffed from a Nick Cave and the Bad Seeds tune ‘The Ballad of Robert Moore and Betty Coltrane