Joint Ownership of a Car: What To Know
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A co-owner is a person who shares ownership of an asset with another person. In the case of a car, the title lists both the owner and the co-owner together as equal owners.
Joint ownership of a car has its pros and cons, but it makes no difference whether just one of the owners is listed on the car’s insurance or registration for administrative purposes.
What Does it Mean to be a Co-owner and Why Should You Share?
One of the most common reasons for joint ownership of a car simply comes down to household use. It’s easy to share a car with a family member, and when it just takes adding someone to the existing owner’s insurance, it’s not a colossal hoop to jump through.
When you decide to share a car with someone who isn’t a relative, this is where the trickiness can come into play. For example, if you share with a non-family member, like a coworker or a neighbor, many insurance providers will decide not to add non-relatives to existing policies.
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The legal basis for co-ownership can be established in two ways. Joint ownership of a car implies that both listed individuals own it, but if one dies, the other immediately get it, and the deceased’s share can also be passed to someone else.
The transfer process is relatively simple and quick. It’s common to have the title state something like “joint tenants with the right of survivorship” if you’re a pair, whether married or not. That way, if one owner dies, the car will pass to the other owner without the need for probate court processes.
The main downside of joint ownership of a car, of course, comes down to mutual responsibility. Whether damage or payment, regardless of who caused the accident or let a monthly bill go by, both are equally accountable for it.
Just like sharing money with family (or friends) can be tricky, this is a worst-case scenario for which you should at least be prepared.
Making a Joint Tenancy Agreement
Joint ownership of a car can be regionally specific, and in certain places like Oregon, you don’t need to include any special terms in the title document.
If you jointly own a vehicle with someone else and one dies, it immediately passes to the survivor. This scenario in Kentucky only happens if the co-owners are married.
However, in most places, you need an additional step so that the survivor can inherit the car without going through probate.
The certificate of title for the vehicle typically will need to state that you own it “in joint tenancy with right of survivorship.” Your state’s motor vehicles office or the seller should be able to notify you when you apply for a title certificate for the car.
In Texas, it will need to contain a “Rights of Survivorship Agreement Form” for married couples to sign on their certificates of title.
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Including a Co-owner to Stay Out of Probate
While it may not seem all that significant to include someone else as a co-owner to avoid the transfer hassle, it can create its own problems.
Many single, elderly drivers consider adding a grown son or daughter as a joint owner of a car specifically to avoid probate; however, this can cause more trouble than good in many cases.
Consider leaving other items behind for inheritance. A gift is irreversible, and you won’t be able to acquire your portion of interest back unless the other co-owner agrees to return it. A creditor might confiscate the co-stake owner’s in the vehicle if they lose a lawsuit or file for bankruptcy.
You must file a federal gift tax return if the half-interest is worth more than the yearly federal gift tax exclusion, which is around $13,000.
Considering how rapidly new vehicles typically depreciate after a few years, this should only be considered if you’re sharing a brand-new car that might be applicable for the gift tax. Even though this would be unlikely, filing this out can be a chore.
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The Transfer of Joint Ownership after Death
When one of the owners dies, the car immediately passes to the surviving owner. However, the new single owner must still alter the vehicle’s title to their name.
Clearing title is a term used to describe this procedure. It’s usually simple, and all the state DMV agency will need is a written declaration from the new owner. Some additional paperwork may be required in addition to a death certificate, and some states may provide a new certificate of title to reflect the new ownership.
All in all, joint ownership of a car can make a lot of sense, but also not necessary for every scenario. It’s relatively common and an easy process with the state and insurance companies and will mainly require analyzing the pros and cons before you start the semi-easy paperwork.
Co-Owning vs. Co-Signing a Car: What’s the Difference?
Co-owning and co-signing a car are often confused together. However, these are two different approaches to applying for an auto loan with an additional borrower. In both situations, the additional borrower should have a good credit standing and income to support the loan independently.
In the case of co-signing, the co-signer will assume responsibility for monthly repayments if the primary borrower can’t make them. The main benefit of co-signing is that it helps the primary borrower to qualify for a loan that otherwise they won’t qualify for. Plus, if the co-signer has good credit, the primary borrower may qualify for lower fees and interest rates. However, the co-signer will not be in the title and has no legal claim to the car.
In the case of co-owning, both the owner and co-owner have their names on the title. Even with the co-owner, the primary borrower is still the owner of the vehicle. This arrangement is safer for the co-owner since their names are in the title. The co-owner also has equal rights to the property and must be involved in the sale of transfer of the car.
Car Joint Ownership: FAQs
Q: What’s the drawback of joint ownership of a car?
A: There are not too many disadvantages to vehicle co-ownership, but it does have some glaring drawbacks. For instance, co-owners are equally accountable for an accident or missing a car payment. Insurance-wise, joint ownership may also mean a higher insurance premium. For example, if you own the vehicle with your child, you’ll likely have to pay a higher insurance premium.
Q: What happens if a co-owner dies?
In most cases, if one co-owner expires, the ownership is automatically passed to the surviving owner. In some states, the ownership transfer will only be allowed if the co-owners are married. More often than not, the survivor will have to process some documents and do some steps before the ownership transfer.
Q: How do you remove a co-owner from a car title?
To remove a co-owner from a car title, you’ll go through the same process as if you’re gifting or selling the vehicle. To complete the process, you’ll need the signature of the person being let go as the seller, while the person who assumes ownership will sign as the buyer. This rule applies to all U.S. states.
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