TITLE RESIDENCE AS TENANTS BY THE ENTIRETY

March 2005

  I know this sounds like that business law class that you hated. You had to memorize the terms joint tenants, tenants in common and tenants by the entirety. Your memorization had the added annoyance of wondering why anyone would care. Well, read on as titling your residence as tenants in the entirety can be one building block to protect your assets in today’s litigious world. 

Individual liability continues to be an issue for our clients, in particular the professionals (doctors, lawyers, architects etc). Also, entrepreneurs who personally guaranty debt also face the daily fear of losing all of their assets. To a lesser degree, we all face some exposure to liability as we drive a car, have people to our residence or go to a professional basketball game. Perhaps, the greatest fear revolves around losing your residence.

With tenancy in common, you own an undivided interest in the property and are free to dispose of your interest during lifetime or death.  Any creditor can file a lien against your interest in the property and may ultimately force a sale. You are probably more familiar with joint tenancy. In a joint tenancy, all of the owners hold the property jointly and upon death the property passes to the survivor. Joint tenancy is therefore a logical way to title assets among spouses, particularly your primary residence.  But in joint tenancy, a joint owner generally can convey their interest in the property without the consent of the other co-owner.  As a result, if one joint tenant falls into debt, a creditor of the joint owner can file a lien against the jointly owned property and attempt to force a sale.  You may have tried to circumvent the exposure of joint tenancy by titling your residence in the name of the spouse with least liability exposure.  However, you cannot always foresee which spouse will have a significant liability brought against them personally.

Alternatively, joint tenancy by the entirety is a form of co-ownership which applies to only a husband and a wife. Each tenant effectively owns the entire real estate and cannot convey the property independently of each other. As a result, judgment creditors of one of the owners cannot enforce claims against the others property unless both spouses are indebted to the creditor.  Delaware and Pennsylvania are each one of twenty-three states that offer tenants in the entirety. Delaware law generally assumes that a property titled in the name of husband and wife, in the absence of proof to the contrary, is a tenancy in the entirety. We recommend that the title to the property refers to the owners as tenants by the entirety to remove any question regarding intent.

Titling your residence as tenants in the entirety is not a panacea in warding off creditors.  First, either death or divorce will result in the asset being exposed to the creditors of one the spouses since obviously the assets are no longer an asset held in entirety.  Also, the Supreme Court has held that IRS enforcement of tax liens cannot be stopped by titling as assets as tenants in entirety.  Other complications include an inability to convey an interest in the property to a child without the consent of your spouse. Further, such titling may run counter to estate planning objectives whereby you want assets held in individual names in order to maximize unified credits. 

Interestingly, Delaware is one of a handful of states that extends asset titling as tenants in the entirety to personal property, i.e. bank and investment accounts. If liability is a major concern, you can try to get your bank, mutual fund or brokerage company to title your accounts as tenants in the entirety.  You will probably be limited by their internal policies but it may be worth a try.

As with all asset protection plans, there is no guarantee that such strategies actually protect your assets as intended. However, titling your residence as a tenant in the entirety should give you some piece of mind regarding your important family residence.

Call us at 302-656-6632 with questions and issues and we at Cover & Rossiter will be happy to help.  Or, you can email us at CoverRossiter@CoverRossiter.com.