What Is a Co-Owner?
A co-owner is an individual or group that shares ownership in an asset with another individual or group. Each co-owner owns a percentage of the asset, although the amount may vary according to the ownership agreement. The rights of each owner are typically defined in accordance with a contract or written agreement, which often includes the treatment of revenue and tax obligations.
- Co-owners can be a group or individuals that own a percentage of an asset in conjunction with another individual or group.
- The revenue, tax, legal, and financial obligations can be different for each co-owner.
- There are risks to co-ownership, which can include shared responsibility for the other party’s reckless or negligent actions.
The relationship between co-owners can vary, and the financial and legal obligations depend on the benefits each party ultimately wishes to receive. For real estate, the legal concept of co-owner, in which the parties involved may operate under joint tenancy or tenancy in common, has important ramifications.
Similarly, co-owners of a brokerage account or bank account are bound by strict procedures and legal constraints concerning account activity and the benefits obtained from the account during the time when the account is active. When the account is closed, co-owners or legal representatives of the co-owners must be involved.
Co-owners are bound to different legal constraints depending on the ownership structure. In real estate, for example, co-owners could operate as joint tenants or tenants in common.
Partners vs. Co-Owners
Partnership and co-ownership are two different things. For example, if two brothers purchase a property, that is co-ownership. Both brothers must agree if the property is to be sold, and the two would share the proceeds from the sale. However, the original purchase of the house was not necessarily intended as a profit-making transaction.
However, if the property was bought with the intention of earning rental income, then this would be a partnership because there is both joint ownership and a business motive for the investment.
Additionally, partners can act in the interests of the business or as agents of the business. With co-ownership, there is no such agency relationship. Each co-owner is only responsible for their own actions, and they do not have to act in the interests of the owned asset.
Problems With Co-Owners
Sharing ownership of an asset has risks. For example, co-owners of a firm may not agree on how to run the business. Buying out a co-owner can be very difficult if they are not willing to sell their share.
Real World Example
For example, consider a situation where a co-owner of a bank account irresponsibly gambles away a large sum of money on casino credit. The casino, as the creditor, could come after the account, leaving the responsible party exposed to a significant loss. Careful titling of accounts is particularly important in estate planning. If someone chooses to name a co-owner to an account and is not strategic about who is named, they run an enormous risk that the assets will not be distributed as desired upon passing.