To understand the tenants by entireties exemption, first recognize that most married people own property as joint tenants with rights of survivorship. Upon the death of one spouse, ownership is vested by operation of law in the surviving spouse. Many married people incorrectly believe that their jointly owned property is protected from their creditors. Joint ownership with rights of survivorship offers no asset protection, and a creditor of either spouse may seize the interest the debtor spouse holds in joint tenant property and force the property’s sale.
Unlike joint ownership with rights of survivorship, “tenants by the entireties” ownership affords excellent asset protection benefits. Tenants by the entireties is a special form of joint tenancy ownership which is available only to married persons. Some states have statutes that define and protect tenants by the entireties property. In Florida, tenants by the entireties protection has been established by judicial decisions interpreting common law. Under Florida judicial law, in order to qualify as tenants by entireties property, the property in question must have certain characteristics:
- joint ownership and control,
- identical interest in the property,
- the interest must have originated in the same instrument,
- the interest must have commenced simultaneously,
- the parties must have been married at the time they acquired the property, and
- the surviving spouse will own the property after either spouse dies.
Both spouses must acquire their ownership interest in an entireties asset at the same time during their marriage. Adding a spouse to an account or title of an asset owned prior to your marriage will not create tenants by the entireties ownership or protection. Premarital accounts should be closed, and the married couple should open a new entireties account.
Asset Protection Of Tenants By Entireties Property
In the case where both spouses are jointly indebted to a particular creditor, that creditor can involuntarily seize tenants by the entirety property. Tenants by the entireties protection exists only if a creditor has a claim against only one of the spousal owners. The general rule is that separate judgments in the favor of one creditor based on separate causes of action against each spouse does not constitute a joint judgment against both spouses.
Most states with entireties protection afford the protection only to real property. In Florida, unlike most other states, all types of property — including all real property, tangible personal property, and intangible personal property — may be owned by a married couple as tenants by the entireties. Whether a married couple owns property as unprotected joint tenants with survivorship or as protected tenants by the entireties depends on the intent of the spouses.
The Florida Supreme Court has said that any real or personal property owned jointly by a husband and wife is presumed to be owned as tenants by the entireties. Additionally, Section 655.79 of Florida Statutes states that any bank account owned by husband and wife is presumed to be a tenants by entireties account unless there is clear and convincing evidence of their contrary intent. A creditor could rebut this presumption of entireties bank accounts by showing that the property ownership does not possess all six entireties characteristics or that the husband or wife indicated an intent to own the property in some other manner. Incorrectly filling out a bank account application and/or signature card is the most common error resulting in a legal disclaimer of entireties protection.
In Florida, tenants by the entireties is relatively quick and simple asset protection against individual judgments against either spouse. Tenancy by the entireties, however, may not provide secure asset protection over the long term. First, a divorce between the spouses immediately converts the tenants by the entireties ownership into a joint tenancy as tenants in common between the former spouses. In that case, the assets of the debtor spouse would immediately be exposed to his or her creditors. Likewise, a death of one spouse terminates tenants by the entireties and vests the property solely in the surviving spouse. If the surviving spouse has creditors, the asset protection afforded by the tenants by the entireties ownership is lost. Secondly, tenants by the entireties ownership may create issues for estate planning and may interferes with estate tax avoidance. There are some estate planning techniques which properly combine entireties asset protection and optimal estate tax planning after the first spouse’s death.
Tenants By Entireties Ownership In Other States
Florida residents who maintain property or accounts in states other than Florida are subject to exemption laws of the state where the property is located. Most states do not offer unlimited tenants by the entireties protection. On the other hand, Florida’s tenants by the entireties protection is afforded to real property and tangible personal property located in Florida and owned by debtors who reside permanently outside Florida.
Tenants By Entireties in Bankruptcy
Technically, tenancy by entireties is not a property exemption because it is not excluded from execution by Florida statute. Instead, it is a feature of Florida property law. In bankruptcy, debtors cannot claim Florida exemptions of their assets until they have resided in Florida for two years. But, bankruptcy debtors do not have to reside in Florida for any minimum time before they can file bankruptcy and protect entireties assets as long as only one spouse files and the couple has no joint unsecured debts.