How Spouses Share and Transfer Property

Most married couples’ cornerstone of estate planning is transferring their biggest asset: their home. So,  mustteams be aware of the many roads this process can take.

Married couples who own real property have many options when deciding how to share the asset. Traditional approaches include joint, tenancy in common, tenancy by the entirety, and community property. All have advantages and disadvantages.

Joint Properties Between Spouses

Joint tenancy is a form of concurrent ownership where each owner has an equal interest in the property. It is also available to unmarried couples, though I will focus on married couples in this article.

Arguably, the most useful feature of a joint tenancy arrangement is the “right of survivorship.” When the first spouse dies, their stake in the property passes directly to the surviving spouse without probate administration. During probate, a court determines the validity of the decedent’s estate documents and helps to settle any claims against the estate before the property is distributed to the heirs. Avoiding this process can save the beneficiary of an estate substantial costs and time. By preceding probate, the surviving spouse also gains additional privacy since the probate process is a matter of public record.



Tenancy in common usually does not have the right of survivorship. However, it allows other customizations and offers greater flexibility. As in joint tenancy, tenants in common do not have to be married; unlike in joint tenancy, tenants in common may hold unequal interests in the property. Tenancy in common is not dissolved when one of the tenants dies, either. If John and Jane are tenants in common, each with a 50 percent interest in their property, John can bequeath his 50 percent to their son, John Jr., and Jane’s claim will remain unaffected.

Tenancy by the entirety is available only to married couples, though Hawaii and Vermont offer options for domestic partners and those in civil unions, respectively. For legal purposes, it is as if the property is owned by a single entity (the couple) instead of two parties. Neither party can dissolve the tenancy without the other’s consent, except in cases of divorce or annulment. Like joint tenancy, living by the entirety offers a right of survivorship, allowing the surviving spouse to avoid probate. It can also shield the property from creditors of one spouse only, though not from creditors to whom the couple is jointly in debt. Not all U.S. jurisdictions recognize tenancy by the entirety.

Community property laws exist in only nine states: Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. In Alaska, couples may enter into community property arrangements but must do so by signing agreements or forming a trust. The validity of such structures is still untried on a federal level, though, and it is unclear whether the Internal Revenue Service will honor them for federal tax purposes.

Although the specifics of community property laws vary from state to state, the basic idea is the same. Like tenancy by the entirety, community property is an option only for married couples. Generally, any property acquired by either spouse during the marriage becomes community property unless it is a gift or an inheritance. Property owned before the wedding is also excluded. Spouses may enter into agreements, such as prenuptial or postnuptial arrangements, that preclude otherwise eligible property from being subject to community property laws or convert separate property to community property.

Community property has no right of survivorship. Each owner can dispose of their interest individually. As a result, without additional estate planning, most transfers will be subject to probate, even if one spouse leaves the entirety of their claim to the other. Creditors can also generally reach the deceased spouse’s interest through normal estate administration rules. Community property offers the advantage of allowing a full step-up on a basis upon the death of either spouse, which typically allows the survivor to pay taxes on a smaller capital gain should the property be sold.

This is illustrated in the example below, contrasting joint tenancy with community property:

John and Jane purchased a home for $1 million, and it is now worth $2.5 million. Jane has died, and John inherited the house. If they owned the property as joint tenants with the right of survivorship, John’s basis in the property would be $1.75 million. This is because only Jane’s half of the interest is stepped up to the current market value ($1.25 million). The cost basis of John’s half of the claim continues to be based on the $1 million purchase price ($500,000).
In contrast, John’s and Jane’s interests would be stepped up to the current market value of the home if they had owned it as community property, and John would inherit the house with a cost basis of $2.5 million. This could mean a significant reduction in taxable capital gains if John were to sell the property after Jane’s death, even allowing for a potential decrease due to the home-sale exclusion rule. This would also be the case for the couple’s other property, such as investment assets.

These arrangements offer benefits and drawbacks, which may weigh differently depending on a couple’s situation. Joint tenancy and tenancy by the entirety allow the surviving spouse to avoid probate but do not offer community property’s generous terms for a full step-up in basis on the property. Community property risks giving creditors access to the decedent’s portion of the property but also allows more flexibility in the way that property is distributed. Tenancy in common offers the option of unequal interests in the property but does not have a right of survivorship.

In certain states, couples have yet another relatively new option: community property with the right of survivorship. The law has been on the books in several states for less than 15 years. California – the state that has arguably received the most attention on the topic – first implemented these ownership rights in 2001. Of the nine community property states, Arizona, California, Idaho, Nevada, Texas, and Wisconsin currently offer the right of survivorship option. Laws also vary by state regarding which property is eligible to be titled as community property with the right of survivorship. For example, the only real property in Idaho may be titled this way.

The states that offer community property with the the right of survivorship seek to make it easier for couples with relatively simple estates to transfer property to a surviving spouse. Before the advent of community property with the right of survivorship, married couples had to draft special agreements or use trusts to convert the joint property into community property. Community property with the the right of survivorship allows married couples to take advantage of the full step-up in basis while avoiding probate administration, all without needing more complex estate planning.

Like any estate planning method, community property with the right of survivorship is not a cure-all. For example, should bankruptcy be a concern, joint tenancy or (in some cases) tenancy by the entirety would leave the debtor’s property out of the bankruptcy proceedings. In contrast, property held as community property, with or without the right of survivorship, would move entirely to the bankruptcy trustee’s control until proceedings were complete. Couples should carefully examine their situations before deciding which arrangement will likely carry the most benefits.

Though this option is not prevalent nationwide, financial advisors should know its benefits and potential drawbacks. Even if a couple does not currently live in a community property state, they may have once lived in such a state, or they may move to one in the future. Suppose a client lived and purchased real estate in a form that offered community property with the right of survivorship. In that case, the property may continue to be characterized that way, even if the owners have since moved elsewhere.

About author

I work for WideInfo and I love writing on my blog every day with huge new information to help my readers. Fashion is my hobby and eating food is my life. Social Media is my blood to connect my family and friends.
    Related posts

    Real Estate Improvements That Will Not Increase The Value Of Your Home


    Top 6 Garage Door Repair Tips


    Trying Something Different in the Kitchen


    What Type Of Home Should You Buy?

    Sign up for our newsletter and stay informed !