Why Tenants in Common Solves the 70/30 Split

Marcus Reed

Imagine walking into an office, signing a standard piece of paperwork, and with a-a single, seemingly minor checkmark on a brokerage account form... accidentally disinheriting your business partner's family from hundreds of thousands of dollars. It-it sounds like a legal thriller, but it happens. If a registered representative doesn't fully understand the legal mechanics of joint registration, a simple administrative decision can become a devastating financial mistake. Let's look at a concrete scenario to see how this plays out in the real world. Let's say we have two business partners, Sarah and David. They decide to open a joint brokerage account right here at Reed Wealth Management to fund a future expansion for their business. Now, the funding isn't equal. Sarah contributes seventy thousand dollars, which is seventy percent of the initial capital, while David contributes thirty thousand dollars, or thirty percent. They want this unequal contribution reflected in the account structure, and they agree on a crucial point: if either partner passes away, that partner's share must go to their own estate and heirs, not automatically transfer to the surviving partner. So, as their registered representative, what do you recommend? Let's look at the options. A, Joint Tenants with Right of Survivorship. B, Tenants in Common. C, an Individual Account with a Transfer on Death, or TOD, designation. Or D, a Partnership Account. I want you to actually pause the audio right here. Don't just guess. Look past the tempting distractors, make a definitive choice in your head, and think about why you chose it. I'll give you a moment.

Marcus Reed

Okay, did you make your choice? If you went with Choice B, Tenants in Common... you got it. Tenants in Common, or TIC, is the only option here that actually satisfies both their custom seventy-thirty ownership split and their estate-planning goals. But let's dive into the mechanics of why that is, because on the FINRA exams, the examiners love to test the fine lines between these different joint accounts.

Marcus Reed

So, let's unpack this. Why does Tenants in Common work so perfectly here? Well, with TIC accounts, each owner has a specific ownership percentage. That is the key. They don't have to be equal. Sarah can have seventy percent, and David can have thirty percent, and the brokerage firm tracks those specific slices of the pie. But the real magic, or well, the real legal distinction, happens if one of them dies. Under a TIC structure, if an owner passes away, their specified percentage doesn't go to the survivor. It goes directly to their estate, which means it goes through probate and is distributed according to their will or state law. So if Sarah passes away, her seventy percent goes to her family, not to David. That matches their goals perfectly. Now, let's look at the distractors, because understanding why the wrong answers are wrong is how you actually master this material. Choice A was Joint Tenants with Right of Survivorship, or JTWROS. This is a massive trap for this scenario. JTWROS legally mandates equal, undivided ownership. In a two-person account, it has to be fifty-fifty. You can't do a seventy-thirty split. On top of that, the "Right of Survivorship" part means that if David passes away, his share automatically bypasses probate and transfers directly to the survivor, Sarah. That completely violates their instruction to have David's share go to his own heirs. Imagine David's family finding out Sarah gets his thirty thousand dollars just because of a bad account registration. It's a disaster. Now, what about Choice C, the Individual Account with a Transfer on Death designation? Some people think, oh, well, just put the account in Sarah's name and name David as the TOD beneficiary. But wait, think about the practical reality of that. If the account is solely in Sarah's name, David has absolutely no lifetime ownership, no asset control, and no trading authority while Sarah is alive. He's just a beneficiary waiting in the wings. That doesn't work for business partners trying to run an expansion fund together. And finally, Choice D, the Partnership Account. Yes, they are business partners, but opening a partnership account requires a formal partnership agreement and a legal entity structure. If they are just two individuals co-owning a retail investment portfolio, forcing them into a complex legal partnership structure is totally unnecessary and restrictive. So, how do we keep this straight under exam pressure? I have a simple memory aid that I teach my students. Think of the letters "I" and "S." For TIC, Tenants in Common, think of the letter "I." "I" stands for Individual ownership percentages, and "I" stands for Inheritance, meaning the estate inherits the assets. For JTWROS, think of the letter "S." "S" stands for Same ownership percentages, meaning they must be equal, and "S" stands for Surviving owner gets everything. Let's do a quick mental flip of the scenario to see how this works. Let's say instead of business partners, we have a married couple. They are pooling one hundred thousand dollars equally, fifty-fifty, and they want to bypass probate entirely so that if one spouse dies, the surviving spouse immediately controls all the money. In that case, the unequal split isn't needed, and they want the survivor to get everything. That instantly flips our correct recommendation to JTWROS. It's all about matching the registration to the client's specific intent. Hopefully, that helps you visualize the legal mechanics behind these accounts. Keep focusing on the underlying "why," and those exam questions will start to feel a lot more intuitive. Talk to you next time.