Most co-op owners have never given much thought to the manner in which they took title of their apartments. But by overlooking this important aspect of such a significant purchase, some shareholders may have put themselves at considerable financial risk. The method by which a married couple takes title to their real estate holdings can have major reper-cussions in the event of the death, bankruptcy or default of a spouse, or in the case of a divorce.

This past spring the 218th session of the New York State Legislature passed a little noticed amendment to the New York Estate Power and Trust Law which has a significant impact on cooperative apartment ownership in the State of New York. This amendment permits married couples to own their cooperative apartments as tenants by the entirety, a legal way of taking title that has been extended to include co-ops for the first time as of January 1, 1996.

Married couples who currently own co-ops may wish to consult their lawyers about converting their form of ownership to this new alternative to better suit their individual needs. And those married couples considering buying a co-op should familiarize themselves with the different methods of taking title so that they can choose the one that will best protect their assets.

Tenancy By the Entirety

Tenancy by the entirety was first codified in New York in 1896. However, since a cooperative apartment purchase is technically a securities transaction and not a real estate purchase, this beneficial form of ownership has not been available to married couples purchasing cooperatives until this new legislation went into effect on the first of this year. At last, husbands and wives living in cooperative apartments have been put on an equal plane with married couples owning private homes, condominiums or land.

Under this form of ownership married couples who take title to a cooperative apartment and either specify title to be by the entirety, or fail to make any selection as to title, will be deemed to own their apartment by the entirety. Under this form of ownership, the two spouses are viewed as a single person, and it is in this joint persona that title is vested. Each spouse, therefore, owns an undivided 100 percent interest that cannot be sold or diminished by the other. Upon the death of one spouse, the survivor is fully titled with the shares and Proprietary Lease and is deemed by the law to have always been the sole owner.

So long as the couple remains married, the survivorship right of each spouse cannot be terminated. Accordingly, while a cred-itor of one tenant by the entirety can obtain a lien on that spouse's interest in the apartment, the lien will only survive if that particular spouse is the surviving spouse. Should the debtor die prior to his or her spouse, the creditor's interest in the apartment is extinguished and the surviving spouse takes the apartment free of all liens. Similarly, New York cases have held that a receiver in bankruptcy cannot reach or sever ownership when it is by the entirety.

The ability to prevent creditors of one spouse from reaching, attaching and possibly selling the joint marital property of tenants by the entirety is one of the unique and important benefits of this type of ownership. Accordingly, if you are a married owner of a cooperative apartm ffb ent who may be at financial risk in the business world or otherwise, you may wish to select ownership of your cooperative apartment as tenants by the entirety, so as to protect the marital asset from your creditors for the benefit of your surviving spouse.

Also important in this type of ownership is the fact that neither spouse can unilaterally sever or sell his portion of the property without the consent of the other. It should be noted, however, that divorce will automatically convert this type of ownership into a joint tenancy.

Joint Tenancy

Prior to January 1, 1996, those couples (married or not) who wanted to provide their partner with survivorship rights to an apartment would have to specify to the co-op's transfer agent (managing agent) that title was to be taken as joint tenants. This type of ownership is somewhat akin to tenants by the entirety in that each of the co-owners will have the right of survivorshipthat is, the absolute right to receive title to the entire prop-erty upon the death of the other owner.

Each joint tenant owns an undivi-ded interest in the apart-ment with the other co-tenant. However, under joint tenancy, such an interest can be pledged or transferred by either joint tenant without the authority or consent of the other. Moreover, the interest of each joint tenant is subject to attachment by creditors and by the Bankruptcy Court. If such attachment takes place, the joint tenancy can be terminated and the apartment either divided (unlikely) or sold, and the proceeds divided between the unencumbered joint tenant and the creditor or trustee in bankruptcy.

In another vein, it should be noted that a joint tenancy presents an opportunity for a warring spouse to undo the estate plan of his or her mate, by voluntarily transferring his or her interest in the apartment to a third party, thus converting such ownership into a tenancy in common with no survivorship rights.

Tenancy In Common

The third most common method of taking title is called tenancy in common. Under this method, each owner is deemed to hold title to an undivided interest in the entire apartment that each may dispose of as he or she wishes. They share a right of possession only. There is no right of survivorship, meaning that upon the death of one of the owners, his or her shares are passed on to any designated hier or beneficiary. There is also no unity of ownership (as is in a tenancy by the entirety) that would prevent one of the co-tenants from transferring his or her interest to a third party. Accordingly, one tenant in common could transfer his or her interest in the apartment to a third party who could demand to concurrently reside in the apartment with the remaining ownerin effect forcing a roommate on a unwilling cotenant, who could only protect himself by demanding a sale of the unit, and a division of the proceeds. Of course, as previously indicated, a tenancy in common is subject to attachment by judgment creditors and the Bankruptcy Court, who could then force the sale of the unit.

It is important to note that prior to January 1, 1996, any cooperative apartment in which title was taken in two or more names (whether husband or wife or not) without an indication that title was to be as joint tenants, was deemed to be taken as tenants in common without any survivorship rights attached.

Check With Your Attorney

While there are other methods by which one can own cooperative apartments, such as ownership by one spouse only, ownership by a qualified personal residence trust (QPRT) or revocable or living trust, the three addressed above are the most common forms of ownership.

Co-op owners who have been unaware of the differences may wish to check with their attorneys to see what form of ownership they currently have and to discuss whether it would be wise to convert to a different form. Any conversion of the current form of ownership will require the approval of the co-op board and the present lender. While such approvals and retitling of shares and the proprietary lease will undoubtedly incur some costs, such expense may be a very small price to pay for the long-term protection that tenancy by the entirety may afford.