Thursday, November 21, 2013

Same-sex couples face challenges to co-own real estate

Presently the State of Texas does not recognize same-sex marriage.  Implicit in the current state of the law is the inability for a same sex couple, even one married legally in a state which recognizes such marriage, to obtain a divorce in a Texas court.

So if a same sex couple desires to hold title to Texas real estate, jointly, how do they deal with such real estate when they no longer wish to remain together ?    Unlike an opposite sex marriage, such couples cannot use a divorce court to divide assets of the marriage.  Unfortunately, some same sex couple just accept such limitations and have made little planning to deal with the potential problems of jointly owned real estate.

Some couples use a "joint tenancy" or "joint tenancy with right of survivorship" to jointly hold title to real estate -- but there are some limitations imposed by such ownership.   First, Texas law does not favor joint tenancies and construes any attempt to create them very strictly.  They must be created with the written agreement of both joint tenants, and clearly evidence their intent to create a joint tenancy where the survivor would take title to the whole of the jointly owned property.   Careful drafting must be used to ensure that a true joint tenancy, with survivorship qualities, is created.

Second, a joint tenancy only deals with one situation -- death.  It does not deal with the need of one  joint tenant to buy the other out, or to sell if the other owner does not desire to sell.  Without good real estate planning, the only recourse for two co-owners who cannot file for divorce in Texas is to file a partition lawsuit to ask a court of law to divide the jointly owned property -- or, in the case of a single family residence, which often cannot be truly and fairly divided, to order the property sold and the proceeds split.   Such lawsuits are expensive and slow.

The best solution currently available in Texas is for same-sex couples to take title in a well crafted limited liability company or limited partnership.  These vehicles can be drafted to contain buy-sell provisions, to allow one co-owner to trigger a buyout or sale of the other co-owner, to allow sale to third parties, to grant preferential rights to purchase the other co-owner's interest before sale to third parties, and dissolution of the partnership in the event of bankruptcy, death, or other events of "default" however defined by the agreement.  Holding title in a business partnership is perhaps the best way for same sex couples to jointly own real estate in Texas.

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