When one spouse is subject to a judgment their jointly owned property is exempt as tenants by entireties. If the couple gets a divorce, can the creditors of the debtor spouse levy upon property formerly owned jointly by the married couple because the divorce destroys the unities of entireties?
I came across this issue recently when conducting legal research for a client on a related matter. I read a Florida bankruptcy case that involved a divorce that left the non-debtor spouse with most of the marital assets so that there was little or no property allocated to the debtor spouse. The court explained that if a court order of dissolution acts to transfer entireties property to a non-debtor spouse the creditor of the debtor spouse cannot attack the transfer as a fraudulent transfer even if there appears to be a disproportionate allocation of marital property to the non-debtor spouse. However, if the court order acts to approve a marital settlement agreement, and after the court order the spouses then transfers assets to the non-debtor spouse to implement the settlement, a creditor may attack a disproportionate allocation of assets to the non-debtor as a fraudulent transfer.
Tenants by entireties property is not an “asset” for purposes of fraudulent transfer analysis pursuant to Florida statute. An order of dissolution that acts to convey property to one spouse transfers the property as if the transferring spouse had predeceased. In that event, the exempt entireties property can transfer to a non-debtor spouse instantaneously without attachment of a judgment applicable to a debtor spouse. If the dissolution order merely approves a settlement agreement that must subsequently be implemented, the court order will dissolve the entireties protection and thereafter subject property to creditor claims against the debtor spouse before property transfers to the non-debtor spouse. It’s complicated.