I was working this week with a married client who owned a piece of real property in his own name. The property had equity which equity the client wants to protect from a potential judgment creditor.The client proposed refinancing the property to cash out the equity. He suggested depositing cash from the refinance in a joint checking account which he understood is exempt from his individual creditors as a tenants by entireties account. He and his wife each have individual bank accounts as well as a joint account.
I explained to this client that his plan could be challenged as a fraudulent transfer. Because this property is titled in his name alone he owns any proceeds from its sale or refinance. His refinance money should be deposited in his own bank account. Depositing money obtained from his solely owned property into a tenants by entireties bank account owned with his non-owner spouse may be considered a fraudulent transfer of his equity to his wife, or a fraudulent conversion of money to an entireties account.
A better plan would be to have his wife co-sign the promissory note to the bank which refinances the property. If the wife makes herself jointly liable to repay the refinance proceeds she logically is entitled to some ownership in the loan proceeds. If both husband and wife have an interest in the loan proceeds it makes sense to deposit the money into an entireties bank account. Of course, a default on the jointly guaranteed loan has more serious consequences as all jointly owned assets would be at risk, but the protection of the money from the husband’s prospective creditors may be worth the additional risk of a joint debt.