Asset Protection Of Tenants By Entireties Property
Tenants by entireties is a form of joint property ownership available only to married couples in Florida and in some other states. Most jointly owned property includes survivorship rights meaning that upon the death of either c0-owner the legal title to the joint property automatically passes by operation of law to the surviving owner. Tenants by entireties property title includes rights of survivorship, but entireties property additionally has substantial asset protection benefits. While both spouses are alive any Florida property owned by the spouses jointly as tenants by the entireties is protected from a judgment creditors of either of the individual spouses. Tenants by the entireties protection exists when a creditor has a claim against only one of the spousal owners. In the case where both spouses are jointly indebted to a particular creditor, that joint creditor can involuntarily seize tenants by the entirety property. 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 tenants by the entireties or an alternative form of joint ownership 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 spouses intended to own the account property in some other manner of joint ownership. Incorrectly filling out a bank account application and/or signature card is a most common error resulting in a legal disclaimer of entireties protection and ownership of the account in a alternate form of joint title.
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 for some people 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 interfere with estate tax avoidance.
How To Establish Tenants By Entireties Ownership
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.
These ownership characteristics require that 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. You cannot own entireties property with any family member other than a spouse.
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. Court decisions have stated that entireties protection is based upon asset location rather than debtor residency.
Tenants By Entireties in Bankruptcy
In bankruptcy, there is a general rule that Florida bankruptcy debtors cannot claim Florida exemptions of their assets until they have resided in Florida for two years. Technically, tenancy by entireties is not a property exemption because it is not excluded from execution by Florida statutes. Instead, it is a feature of Florida property law. Therefore, bankruptcy debtors do not have to reside in Florida for two years or any other minimum time before they can file bankruptcy and protect entireties assets located in Florida as long as only one spouse files and the couple has no joint unsecured debts.
If you’d like advice about whether your property is protected as tenants by entireties, or about how to better protect your current assets, give us a call to schedule an asset protection planning session.