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Marriage Doesn't Mean Owning All Your Assets Jointly

Owning assets jointly is more convenient than individual ownership, and it’s the simplest way to avoid probate after a spouse’s death. But couples often should consider separating their assets. Here’s why:

Estate tax implications. Estate rules let spouses leave unlimited property to each other tax free. That’s okay when the first spouse to die leaves everything to the second, but the second death could result in a whopping tax bill for heirs. Couples likely to have estate tax issues could acquire property individually to help maximize the value of each other’s estate tax exclusion. (A 2013 tax law preserved the portability of exemptions between spouses.) While owning a house jointly is important for giving both spouses equal claim if they divorce, other assets may be held separately in roughly equal shares.

Dividing jointly owned property. How you take title also affects who can inherit your property. If you own it individually or jointly as “tenants in common,” each of you may specify in your will that you want a particular asset or share of an asset to go to a designated heir. However, if you take title as “joint tenants” (with rights of survivorship) or “tenants by the entirety”—the most common form of ownership for married couples—you won’t be able to say how assets are split. That may work if you and your spouse share the same beneficiaries. But it could be a problem if, for example, you’re in a second marriage and want to divide assets among children from different marriages.

Consider John and Mary. Because they own their property as tenants in common, each holds a 50% share, and John can bequeath his share to children from a prior marriage. Mary won’t automatically inherit John’s interest.

But if they hold their assets as joint tenants or tenants by the entirety, the surviving spouse becomes the sole owner of everything the couple owned together. If John dies first, the title documents will govern, and Mary will decide how assets are divided when she dies.

Other considerations. Owning assets separately is especially important if your combined net worth is at or above the IRS estate tax exemption. The 2013 tax law retains the $5 million estate tax exemption (indexed to $5.49 million for 2017). Also, since joint-tenancy assets can be taken by creditors or lost in lawsuits once an individual’s assets are exhausted, doctors or others who can be sued easily will want at least half of their assets in their spouse’s name.

Deciding how to hold title to your assets is not a simple decision, as state laws differ and each situation is unique. We can work with your attorney to help decide what’s best for you and your spouse.