#3 Real Estate Law Surprise
Real Estate Law Surprises And The Family Cottage
When thinking about the future of your family cottage, it is important to understand how various forms of ownership of real estate can have unintended consequences.
Real estate laws provide rights and duties attached to different forms of ownership that can be surprising to cottage owners. In my next few blogs I will identify various surprises and what impact they can have on the future of the family cottage.
Surprise #3
Ownership in the cottage passing to a child’s spouse after divorce or death.
Under real estate law in most States including the State of Michigan, any direct ownership interest (even a shared ownership with other individuals) in real estate by a man is subject to a dower interest by the man’s spouse.
This means that in the event of the man’s death, his spouse has an automatic right and claim to his ownership interest in the real estate and that means the man's widow, without any planning, would have the right to occupy and use the property even if she got remarried.
She could also leave the ownership interest she acquired from her deceased husband to her second husband in the event of her death.
That would result in a total stranger co-owning the property.
Similarly, in divorce situations, a spouse’s shared ownership interest in the cottage would be included in the marital estate and subject to an allocation or award of ownership in a property settlement. In some instances, this could result in a divorce judge awarding an ex-in law an interest in the family cottage.
These Surprises Resulting from shared ownership among your children or grandchildren are easily avoided by implementing a cottage succession plan using an entity to control ownership and then awarding a shared interest in the entity to your children. This is referred to as indirect ownership of the real estate where the entity and its rules control ownership rights and thus can be constructed to avoid the unintended consequence or surprises identified above.
