Forms Of Co-Ownership. Identify the parties in the co-ownership.
Are two or more individuals, spouses, or entities such as
corporations and LLCs (Limited Liability Company) forming the
co-ownership? Decide how the co-ownership should be formed.
There are numerous possibilities including a simple partnership,
LLC, and a corporation. An LLC is more in tune with how the
boat should be held. As a hybrid entity, an LLC generally
provides some of the best features of both a partnership
and a corporation in terms of flexibility, limited liability, and
tax treatment.
Term Of The Agreement. The length or term of the agreement is
from your purchase date until one or both co-owner(s) sell their
interest in the boat.
Specify The Boat And Equipment. Once you have a specific boat
in mind, it must be specified in detail in the agreement listing the
manufacturer, model, size, and serial numbers. Also mention the
equipment, such as engines, dinghy, and navionics, as well as
the items on the boat that are not included in the agreement like
bikes, linens, binoculars, etc.
Selecting A Broker. If you are purchasing a new or used boat
and not selling an interest in a boat you already have, do you
want to use a broker to help locate the boat of your dreams? If
so, whom? If the co-owners have determined what make they
want, but don’t have the particular boat picked out yet, then it
might be wise to use a broker who is familiar with that make
of boat.
Sea Trial, Pre-Purchase Inspection, And Haulout. When you find
the boat you want, both partners must take it out for a sea trial
to see how it feels and to determine if everything is working the
way it should. It is certainly wise to have an expert with you
during the sea trial and to inspect the boat, both in and out
of the water. A number of ABYC ( www.abycinc.org) experts
should be at the boatyard you choose and you or your surveyor
should decide which mechanics you want to look at certain items
on the boat. A surveyor, accredited by the Society of Marine
Surveyors ( www.marinesurvey.org), the National Association
of Marine Surveyors ( www.namsglobal.org), or PMM Technical
Editor Steve D’Antonio ( www.stevedmarineconsulting.com) are
great sources of expertise. This inspection will undoubtedly cost
a few thousand dollars, but could give you bargaining power
on the final price and will allow you to discover items that may
need attention.
Boat Closing And Registration. The co-owners must decide
where and how they want the boat registered. An attorney
knowledgeable in marine sales or a broker can assist in lien
searches, U.S. Coast Guard documentation, bills of sale,
escrow, and tax matters.
State Sales And Use Tax. This could be costly, but if you want to
keep the boat in the same location, you are probably going to
have to pay it. States are becoming more and more aggressive
Co-Ownership: Is It Right For You?
in collecting sales tax. Also, find out whether there is personal
property tax or a use tax in the state where you want to keep
the boat.
Financing. I strongly recommend against co-owners financing
the boat. If you do, then you will have to co-sign for each other
and if one of you defaults, for whatever reason, the other co-owner will be financially responsible for the entire amount. If
you need to borrow money for the boat, think of using a home
equity loan or other financing.
Insurance. The co-owners must agree to keep the boat insured
at all times and come to a consensus on the amount and type
of coverage. There are many considerations when purchasing
boat insurance, including type and amount of coverage (which
will be determined by your agreed value), boat location,
salvage insurance, partial loss, replacement cost (new or value
of loss), liability, protection and indemnity, medical payments,
personal property, uninsured boaters, towing, etc. Also, don’t
forget to insure your dinghy, either as part of your boat or under
a separate policy. In your co-ownership agreement, stipulate
who pays the deductible if a mishap or claim occurs. It may be
a good idea to specify that the co-owner in control of the boat
at the time of the accident pay the deductible. In addition, set a
time limit for which the boat must be brought in for repair. Your
insurance company may have a say in who repairs the boat,
but in all cases you want to expedite the process. What if it is
neither co-owner’s fault? Who is responsible for paying legal
fees if the LLC or the co-owners are sued?
Hailing Port. The co-owners need to determine the boat’s home
port not only for the immediate future, but also for the next
couple of years. Take a look around together at marinas and
decide where you would like to dock the boat. Determine if
the marina meets both your needs for location, cost, amenities,
parking, smell, and noise.
Boat Scheduling. This is one of the drawbacks of co-ownership—the fact that you don’t have the freedom to go
cruising whenever you please. How do you determine who gets
the boat and when? I recommend dividing the year in two-,
three-, or four-week blocks with each owner getting primary
use every other block. If one co-owner wants to use the boat
during the other co-owner’s block of time, then just ask. The key
here is communication, flexibility, and cooperation. If the boat
is out of commission for weeks getting the bottom painted or
maintenance performed, don’t schedule it all to be done on one
co-owner’s block of time.
Leaving Home Port: How long, how far? This relates to both
scheduling and insurance. For purposes of insurance, you might
have location (latitude) limits depending on the time of the year,
such as during hurricane season. And as far as scheduling, you
can’t take the trawler 600 miles out and back in three weeks (or
whatever your schedule period allows) unless you agree upon a
one-way trip for each partner.
