One question that I frequently receive is, “why does my spouse have to sign the deed to sell real estate if he or she is not on the title?” In some states, it is not required that a spouse sign to convey property if he or she is not on the title. In North Carolina, however, in order to convey clear title, a non-owning spouse must sign the deed. The common misconception is that a spouse is half owner of everything the other spouse owns. Oddly enough, the reason is related to spousal rights at death and not to any community property rights.
In North Carolina, when a spouse dies, the surviving spouse has certain rights of inheritance. These rights extend to real property owned by the deceased spouse during the marriage. Essentially, the surviving spouse has special rights of inheritance unless he or she has waived them. This is true unless that spouse has legally waived those rights, in writing, such as in a separation agreement, prenuptial agreement, or by signing the deed.
Being separated is not enough to create a waiver. Being separated simply means living apart with the intent to remain apart. It does not change the status of ownership or the right to inherit, unless the spouse has done some act which would bar his or her rights to inherit. I’ve had clients separated for 20 years without anything in writing. We have had to hunt down the spouse to have her sign a deed.
The potential right of inheritance of a spouse applies to all real property owned during the marriage (not just acquired during the marriage). For example, if a husband sold some land that was in his name while married without the wife’s signature, then upon his death the wife has a right to make a claim against the land because she did not waive inheritance rights.
This right should not be confused with marital rights during a divorce. Divorce property rights, known as equitable distribution, must be claimed as part of a divorce proceeding. In an equitable distribution action, the court has the right to divide the marital assets only. It does not involve property acquired prior to marriage or received by gift, which is considered separate property. The presumptive division is a 50-50 split, but under special circumstances, the court may order an unequal distribution. If you hear someone say that it does not matter how property is owned, since the spouse owns half of it anyway, that is not entirely correct.
For example, Mary owns a house prior to her marriage to Bob. If after marrying Bob, she conveys the property without Bob’s signature, and she later dies while still married to Bob, then Bob would have the right to make a claim for a life estate in that property. However, if Mary and Bob divorced, then Mary’s house owned prior to marriage would be her separate property, and Bob would not be entitled to a division of that property.
Using this same example, if Mary conveyed her house without Bob signing, Bob would have a claim only if, (1) he survives Mary; (2) he did not otherwise waive his rights; and (3) Bob must elect to claim a life estate in the property after Mary’s death.
There is a phrase that real estate agents often use to remind themselves of this law: “It takes one to buy and two to sell.” This serves as a reminder to agents that if they have a married seller, both spouses need to sign the listing agreement, the contract and the deed. If a married person buys with cash, then his or her spouse would not be required to be on the purchase contract or the deed.
The answer depends largely on the circumstances. Other ways in which real property may be owned, is with spouses owning jointly. This is referred to a “tenants by the entirety” which only applies when spouses take title at the same time in joint names. Therefore, if Bob and Mary are married and purchase real property together, it does not matter if the deed states it is to “Bob and Mary”, “Bob and wife, Mary”, or “Bob and Mary, as tenants by the entirety. “ All three will be held in the same manner. The significance of this form of ownership is that the property is protected from each spouse’s individual creditors and it has a right of survivorship. If in this example, Bob is sued and has a judgment against him, the creditor cannot sale the land to satisfy the debt.
Often, a couple will purchase real property prior to getting married, acquiring it in joint names. It is important to note that even if the couple later marries, the property does not convert to tenants by the entireties by reason of the marriage. Ownership as tenants by the entirety has to do with the marital status at the time of taking title. Therefore, if an unmarried couple acquires property and wants it to be owned as tenants by entirety after marriage, they would have to re-convey the property to themselves after marriage.
If an unmarried couple does acquire title jointly, they can own it either as tenants in common or joint tenants with right of survivorship. Tenants in common is simply co-ownership by more than one person or legal entity, who do not own it as tenants by the entirety or as joint tenants with right of survivorship. Property owned as tenants in common passes under the deceased owner’s will or to their heirs. An interest owned as tenants in common never passes to the surviving co-owner(s) (unless they otherwise would be entitled to inherit).
Property owned as joint tenants with right of survivorship, passes to the surviving owners upon death. This form of ownership does not protect the property from the claims of separate creditors. Also, the right of survivorship can be terminated by any owner who conveys his or her interest. For example, if Bob, Mary and Larry acquire title as joint tenants with right of survivorship, and Bob conveys his interest to Michael, Mary and Larry’s interests will still be held with right of survivorship as between them, but Michael’s newly acquired interest will not be. Bob’s conveyance eliminated him and Michael from having rights of survivorship with the other owners.
There are several other ways to own real property that deserve mention. Ownership can be by a corporation, a limited liability company, a trustee of a trust or a partnership. Usually a corporation is not a preferred method to own land since if the corporation wants to distribute the land to the shareholders, any appreciation is taxed as if the land was sold for fair market value. A partnership was a popular form of ownership years ago prior to the introduction of limited liability companies in most states in the early 1990s. The problem with partnerships is that each individual partner is liable for the debts of the partnership. When the North Carolina legislature began allowing limited liability companies (LLCs) to be formed, LLCs became the preferred method of ownership of commercial real property. Property can also be owned by a trustee of a trust, but its disposition would be controlled by the terms of the trust.
One reason someone might want real property owned by an entity other than individually is for liability purposes. Another reason is to avoid having to have their spouse sign. If Bob and Mary are married and Bob forms an LLC to own real estate, then the LLC can sell the real estate with only Bob’s signature and Mary’s is not required. However, if Bob already owns the property and wants to convert the ownership to an LLC, then Mary would have to sign conveying the property to the LLC in order for Bob to convey it later without Mary having a claim at his death.
These are just some of the issues that may arise regarding ownership of real estate and is certainly not intended to address every issue.
John W. King, Jr. is a licensed attorney at Stubbs & Perdue, P.A. with 38 years of experience. He is certified by the North Carolina State Bar as a specialist in Commercial, Business, Industrial Real Estate, Residential Real Estate, and also in Estate Planning and Probate. He can be reached at 252-633-2700.