To reduce costs, many people who aren't married or part of the same household choose to share items of property. Everything from a boat to a washer/dryer is fair game for such a group arrangement. If, however, you are sharing a tangible asset, such as a house, car, or appliance, you'll want to be clear about who legally owns it.
The way you own shared items will determine a number of issues, such as who is entitled to the property or the proceeds from selling it if the group disbands, and who is entitled to any tax breaks associated with the property. This will also prevent later confusion about, for example, whether the original owner of the item intended to give it to the group.
Do You Want Direct or Indirect Ownership of Shared Property?
The first choice to make is whether you want to own the shared property directly or indirectly:
- Direct ownership: Your group's members can own the shared items themselves, in any combination they choose. Most small groups choose direct ownership because it is relatively simple and straightforward.
- Indirect ownership: Alternatively, your group can form a separate entity, such as a nonprofit organization, to own the property. Creating such an entity has many advantages for large sharing groups.
Arranging Direct Ownership of Shared Property
There are many ways to share ownership. Imagine, for example, that David, Adrienne, and Nettie decide to share a set of tools. Here are a few different ownership possibilities:
- Sole ownership: David owns all the tools and allows the others to use them.
- Each person owns a divisible part of the property: Each owns specific tools in the set, but may use the entire set; David owns the saw, Adrienne owns the drill, and Nettie owns the wrench set, for example. This is an easy way to determine ownership if each person brings different property to the share. Members continue to own the property they brought into the share and take it with them when they leave the group.
- Each person owns a fractional share of the property: David, Adrienne, and Nettie could each own one third of the tool set (equal shares), or their shares could be unequal, based on how much money they invested in the tool set or how often they plan to use the tools. Fractional shares might be a good option if everyone chips in to buy the property rather than bringing their own property to the share. Fractional shares also make sense for property that can't be easily divided, such as a snow blower or house.
No matter what you decide, the form of ownership should be spelled out in your sharing agreement, so that everyone understands it and you avoid later disputes based on faulty memories.
Consider owning property in joint tenancy. To ensure the continuity and smooth operation of your sharing group, you might want to consider owning shared property in joint tenancy. If one owner dies, the other owners automatically inherit joint tenancy property. This spares the estate administrator and the sharing group from having to divide or sell the shared property upon a co-owner's death.