Tenants By Entireties Account Destroyed By Couple’s Treatment Of Funds

Husband and wife open a joint bank account at a Florida bank, and on the signature card, they pencil in the words “tenants by entireties” to express their intent that the account be an exempt entireties account. Subsequently, the deposit in the account money from another joint bank account and a joint income tax refund. These facts support clearly the conclusion that all money in the account is owned tenants by entireties, and assuming no fraudulent transfers, the money is protected from the individual creditors of either spouse. It would seem very difficult for a creditor or a bankruptcy trustee to defeat the entireties exemption- not exactly.

A decision by a Florida bankruptcy court found that a husband and wife with the above facts could destroy their entireties exemption by their actions and testimony after this account was opened and funds deposited. Here are the most important facts which undid the couple’s exemption.

After the deposit of the joint tax refund and money from the prior joint account the husband wrote a check for half the total amount to his wife who proceeded to deposit her half in her individual bank account. The husband testified that he viewed all remaining money in the account as his money, and he wrote all of the check on the account and was liable for all debts that were paid from the account. The court found that the husbands testimony and the facts established that the joint account was a joint tenancy with survivorship but not an entireties account. The court said that husbands actions had the legal effect of disclaiming entireties ownership and overcoming the legal presumption of entireties under Florida law.

I was surprised by the legal ruling because I had thought that once the couple established the account as an entireties account the funds therein were exempt regardless of what they chose to do with the money thereafter. However, I also see the judge’s point that the couples intended to segregate the wife’s half interest in the original deposits in the wife’s own account leaving what the couples believed was only the husband’s money. The case shows that couples should be careful to maintain entireties accounts under their joint custody and control, and not to split off the interest or funds belonging to the non-debtor spouse. The case is In re Underwood. No. 08-411, Adv No. 08-140, decided September 29, 2009.

About the Author

Jon Alper is an expert in asset protection planning for individuals and small businesses.

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