Marriage and Real Estate

You might be surprised to know that in about half of the states, marriage provides a special kind of real estate ownership known as Tenancy by the Entirety. This type of ownership is unique in that the law in essence treats the married couple as though they were one unit. The interest in the property cannot be severed without the consent of both or the death of either. Upon death of one, the surviving spouse remains as sole owner.

In other states, married couple may own property according to the legal concept of Community Property. These laws treat the married couple as though they are business partners. States recognizing the concept of Community Property consider property acquired during the marriage to be equally co-owned by husband and wife. Each has a one half interest in property acquired by either during the marriage no matter how the title of the property is held.

This is not to say that spouses cannot have individual title to property, however. Even in Community Property states, there is a concept of Separate Property which separates property as belonging specifically to one spouse if it was acquired prior to their marriage or if it was acquired during the marriage by gift or inheritance.

While these may seem like bland concepts, this information will become very important to you IF you have a real estate deal go bad, you find yourself in the unfortunate position of facing divorce, or someone wants to collect some debts by foreclosing on real estate.

Especially in Commercial Real Estate, it is commonly assumed that these laws do not apply. And in practice, the majority of commercial real estate deals occur without a hitch. But it is a mistake to think they do not apply. Kentucky real estate law requires a listing contract to be written and signed by all owners. Likewise, real estate contracts must have the signatures of all of the owners. Also, you may not be able to borrow money without your spouse's approval.

If you are married, your spouse may well be partial owner of the property. The net effect here is that in Kentucky you cannot legally sell your property without your spouse's consent, nor can you legally buy property using borrowed money without your spouse's consent. You can purchase property for cash without your spouse's approval however you may well share ownership with your spouse in that transaction.

An agent friend of mine recently discovered the difficulties that these laws can cause when he sold an office condo. He had a signed listing agreement from the owner of the condo, received an offer on the condo which the owner of the condo accepted. He had a contract signed by both buyer and seller. Unfortunately, the Seller got cold feet and decided he did not want to sell after all. None of the contingencies of the contract would allow him to renege on the offer. The Seller relied on Kentucky State law to declare that the listing contract and the purchase and sales contract were both invalid because they did not have the signatures of his wife, a partial owner by Kentucky State law. Since state law requires a written contract with signatures of all of the owners of the property, the contract was not valid.

These kinds of problems can sometimes be avoided with a little foresight.   If a property is held in a company name, I like to ask for a copy of a company resolution which states that the signing party has the authority to bind the company.    If the property is held individually or jointly with individuals, the best practice is to have all parties sign, including spouses even if they are not listed on the deed.   If for some reason, it is not practical for all parties to sign, I like to ask that the signing party have an executed power of attorney to demonstrate that he / she has the authority to sign for all parties.  These documents can then be added as exhibits to the contracts.  

Let me know if you have any questions or comments.   Thanks for reading.

Notes, Disclaimers and such -

BTW - If you need any help with real estate, give me a call.   I specialize in Commercial Real Estate and work with Buyers, Sellers, Landlords, Tenants and Investors.   I handle Office, Industrial, Land, Investment and Retail properties.   Heck, I can even set you up with a residential specialist if you need help there.  

ALSO - I am sure that my managing broker would appreciate me clarifying that the view expressed here are my own and not necessarily those of Commonwealth Commercial Real Estate, its brokers, agents, or employees (other than me, of course).   If you have a question, comment or opinion you would like to express, you are free to add one in the comments sections.   What you are not free to do, is to make inappropriate, or offensive remarks.   Should I see any such remarks,  I will exercise my right to delete them.


David

David W. McCoy
Associate Broker
Commonwealth Commercial Real Estate
10444 Bluegrass Pkwy
Louisville, KY  40299

ofc: (502) 379-6005
cel: (502) 905-5274
www.ccre.biz