Becoming a Joint Creditor. iii Ibid. xiv Tex. That can be done by having separate incomes deposited into a bank account that’s owned by the married couple as tenants by the entirety. Because of the often unintended consequences of JTWROS, we almost always recommend alternatives. The TBE trust with disclaimer provisions provides the same estate tax benefits as a complex joint trust or the typical separate trust formats. Mar 9th, 2012 However, the non-debtor owners still lose the property, although they do receive the remainder of foreclosure proceeds. Ann. Some states give married couples another option to own property jointly and avoid probate, but also have protection from creditors. Fam. Ann. If one spouse is sued or incurs a liability of (almost) any kind, assets held in a tenancy by the entirety are exempt. Subsequently, when the husband applied for a 2nd mortgage on their home and failed to make payments, the bank that held the mortgage was allowed to foreclose on the property. Most importantly, owning a home via tenancy by the entirety can help offer key protections from creditors in some circumstances, and can also help streamline the estate planning and transfer process. Nevada allows a spouse’s separate debt to be satisfied from community property, but only if the wife acquires debt because the husband didn’t provide for her necessities. Why should the spouse with most of the assets give those assets back to the spouse who willingly gave up those assets in the first place? That is not the case in tenancy by the entireties, which is a form of ownership eligible to married couples only. A living trust could also be created to quickly and safely pass the account’s ownership to the son when the mother dies. That makes the protection automatic. For example, a 2002 U.S. Supreme Court case allowed an IRS tax lien to ignore the protection normally afforded TBE ownership. Rev. TBE is a special type of tenancy that extends greater creditor protection. TIC does not provide any meaningful asset protection. However, North Carolina law now allows property transferred to a joint revocable or irrevocable trust or to each spouseâs individual revocable or irrevocable trusts to retain tenancy by the entireties creditor protections. One of the main benefits of tenancy by the entirety is the protection of the marital home from the financial woes of only one spouse. A better solution would be for the mother to give her son a durable power of attorney, which would allow him to access the account if she was incapacitated. Consequently, the creditor of one owner can place a lien on that ownerâs portion of the property and foreclose on it, affecting all the remaining owners. §66-1-109; Ver. xv DeElche v. Jacobson, 95 Wn.2d 237, 245, 622 P.2d 835 (1980); 104 Wash. 2d 78, 701 P.2d 1114 (1985). Therefore, these laws and cases must be checked before relying on TBE ownership for asset protection. • Transferring assets to a spouse is almost always done as a gift, and as this book’s chapter on fraudulent transfers explains, gifts are very susceptible to fraudulent transfer rulings. case No. It’s not wise to leave it up to a divorce court to answer this question! For example, Arizona allows a debt acquired by either spouse prior to marriage to be satisfied from community property, but only to the extent of the value of that spouse’s contribution to the community that would have been such spouse’s separate property if he or she were single. 624 (1938), with respect to property owned by the entireties, neither spouse âhas any individual portion which can be alienated or separated, or which can be reached by the creditors of either spouse.â Special bankruptcy protection afforded to property TITLED Tenancy by Entireties. xiii Nev. rev. Greene, 30 N.J. 395, 400 (1959), tenancy by the entirety is an unique form of concurrent ownership by spouses whose roots can be traced back as far as the fourteenth and fifteenth centuries. §34-15-40; Ha. Property also loses the protections if a couple divorces and/or upon the death of a non-debtor spouse (i.e. Upon the death of a spouse (if the non-debtor spouse predeceases the debtor spouse), the creditors will be able immediately to attach the former tenancy by the entireties assets. Instead, the other owners automatically receive the deceased individual’s interest (this is called “right of survivorship”.) Yet merely saying an asset is held as TBE is not sufficient by itself. However, there are exceptions to this rule. In families where both spouses work, a tenancy by the entirety can be used to protect those cash. For example, suppose an elderly widow wanted a joint bank account with her son, so that if anything happened to her, the son could use the money to take care of her, or he could inherit the money sans probate if she died. Gosztonyi Savings & Trust Co., 331 Pa. 476, 200 A. Under Massachusetts law, a non-debtor spouse is protected when holding property in a tenancy by the entirety. All Rights Reserved. 145, 612 N.E.2d 650 (1993) (No. In general, tenancy by the entirety property is better protected than joint tenancy property from creditors of just one spouse. Such a debt can then be satisfied from any community property, or from the husband’s separate property. Unless a contract says otherwise, each person has the right to transfer their interest without the consent of the other owners. TBE ownership must also meet the requirements of JTWROS in order to be valid, and if a couple divorces, then ownership will be held as TIC or JTWROS rather than tenants by the entirety. There are some potential downsides to this solution, however, which we discuss in the next section. If one spouse’s activities expose him or her to a high risk of lawsuits or other creditor threats, titling assets into the other spouse’s name may be a good idea. One of the main benefits of tenancy by the entirety is the theoretical ability to protect marital assets from creditors. It is, however, subject to claims owed by both spouses to the same creditor. Furthermore, a client may move from a state that protects assets through co-ownership to one that does not. Because such broad, “blanket” protection is unavailable through co-ownership planning, assets should, when possible, always be protected by additional measures, such as equity stripping, placing assets offshore, or placing assets in a limited partnership or LLC. Both spouses can act jointly to alienate their entirety property by, for example, both signing a personal guaranty. Conversely, the wife did not have the right to alienate the property without her husband’s consent. TENANCY BY THE ENTIRETY A special kind of title between married couples, meaning that each spouse has the right to enjoy the underlying property by the entirety and when one of the spouses dies, the other inherits the property by the entirety. Furthermore, only Alaska, Hawaii, Tennessee, and Vermont specifically allow rental real estate to be held as TBE.1, TBE Allowed for property types besides real estate. One obvious weakness is that property held in this form of ownership is accessible by a married couple’s joint creditors. For example, a client can move from a state that allows TBE ownership to a state that forbids it, or to a state that allows it but does not allow TBE ownership to protect assets. the death of the spouse who is “free and clear”). So if you both “signed on the dotted line” for that loan that’s now going bad, T by E probably isn’t going to offer very much protection. For example: • In non-community property states, or in a community property state with a transmutation agreement, titling the bulk of marital assets in a single spouse’s name can cause obvious problems in the event of divorce. Asset Protection Articles, asset protection, tenancy by the entirety, Tenants by the entireties, Wayne Patton JD, LLC §509-2; Tenn. Code Ann. Property owned under tenants by the entireties avoids claims by creditors against either spouse as an individual. Tenants by entirety (TBE) is a method in some states by which married couples can hold the title to a property. And if one spouse dies, the other spouse automatically takes sole ownership of the property, but that ownership is as an individual. Furthermore, neither spouse owns a fractional share in the property. A transmutation agreement is a type of post-nuptial agreement wherein each spouse agrees to keep their own property separate and outside thecommunity estate. But there is a catch: You have to be consistent. For example, let’s say a man married and had three children. The property is typically exempt from judgments obtained against one spouse for his sole debts or liabilities unless the other spouse agrees otherwise. A creditor can place a lien on the debtor's interest, but the non-debtor is protected from execution against the property during his or her life, as long as it is the non-debtorâs principal residence. One could say that TIC actually makes things worse from an asset protection perspective; because the more owners there are, the more likely it is that one of them will encounter creditor problems, which could cause everyone to lose the property. vi Coraccio v. Lowell Five Cents Savings Bank, 415 Mass. If someone sues one spouse and wins a court judgment, in most states the creditor can't seize and sell tenancy by the entirety property to pay off the debt. Tenants By The Entireties Asset Protection in New Jersey. Subsequently, he titled his home and liquid assets in his and his spouse’s names as JTWROS. Most TBE states do not allow a creditor of one spouse to attach any TBE property without the consent of both spouses. Tenancy by the entirety can serve as a good asset protection tool. TBE offers the right of survivorship benefits (like JTWROS), but it may also protect the asset in certain states, as long as only one spouse comes under creditor attack. Unlike tenancy by the entirety, described below, there is no creditor protection. Code §910(a); Id. We therefore never recommend TIC as a means to protect assets. Tenancy by the Entirety has the following characteristics: In Texas, only tort debts (but not contract debts) may be satisfied from community property, but if the debt arises from a tort, then it may be satisfied from any and all community property. A tenancy by the entirety trust (TBE trust) can provide the married couple with both creditor protection and the various nontax benefits of a trust. Joint tenants with right of survivorship (JTWROS) is akin to TIC ownership, except when one owner dies, their interest does not pass to his or her heirs. The downside is that this account could be seized by either the son’s or mother’s creditors. 58, Ex. vii Janet D. Ritsko, Lien Times in Massachusetts: Tenancy by the Entirety After Coraccio v. Lowell Five Cents Savings Bank, New England Law Review, vol. The last form is âtenancy by the entiretyâ. Although most states that specifically allow TBE ownership do not have adverse case law like the Corracio case, one law professor notes that “only Massachusetts, Michigan, and North Carolina have brought into modern times the tenancy’s ancient husband-oriented form.”. Therefore, a creditor may do likewise, meaning a creditor of either joint owner may seize all of the account’s funds in order to satisfy their debt. Tenancy by the entirety is a powerful asset protection tool in Kentucky, because Kentucky case law provides strong support for âinnocentâ (or non-debtor) spouses against creditors of the other spouse. An inheritance acquired by one spouse during marriage may or may not be considered community property, depending on state law. To overcome these weaknesses, it’s a good idea to use a limited liability company, in addition to tenancy by the entirety. §123.090. Protection From Creditors. Neither of these tools would expose the account to the son’s creditors during the mother’s lifetime. 92-P-0175). 30, no. In states where it is available, it may not be allowed for all property types. However, doing this would probably not avoid a fraudulent transfer ruling for several reasons. We’d be happy to spend some time discussing it and your other asset protection questions. Terms & Conditions That way your bases are really covered. Because the ownership interest is not divisible, and may not be transferred without the other spouse’s consent. §766.55(2)(b). A boat one spouse acquired before marriage, for example, will not be considered community property, unless the boat is subsequently titled in both spouse’s names. Marital property is defined as any property acquired during the marriage. Email: wayne@mwpatton.com 2003-39, 9/11/03. A well-drafted transmutation agreement thus supersedes community property law. At the same time, it is easy for one spouse’s pre-marital non-titled property, especially cash, to be commingled with the community and thus be considered community property. If a court determines the sale was done to protect assets, they may determine such as prima facie evidence of intent to defraud creditors, even if creditor threat was not imminent when the transfer was made.17. What that means, in a nutshell, is that if you are married and owe a debt alone (i.e. Kentucky, as well as many of the states, recognizes tenancy by the entirety. P Property owned by the entirety creates a ⦠Rather, each spouse claims an entire ownership interest in the property, but such ownership is subject to the other spouse maintaining their property rights as well. We can expect parts of this protection, at least, to continue to erode in the future. If desired, the trust could be structured so that even after the mother’s death, trust assets would remain out of the reach of her son’s creditors. 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