Non-Debtor Spouse Liability and Fraudulent Transfers to Entireties Accounts

Tenancy by the entirety protects jointly owned assets from the creditors of either individual spouse. But this protection creates a temptation. A debtor spouse who holds non-exempt assets in their own name may try to convert those assets into protected entireties property by transferring them into a joint account or jointly titled asset with their non-debtor spouse. When a creditor challenges that transfer as a fraudulent conveyance under Florida Statutes Chapter 726, the non-debtor spouse who received the transfer becomes a defendant in the creditor’s lawsuit.

This article examines how fraudulent transfer law intersects with tenancy by the entirety, what liability the non-debtor spouse faces as a transferee, whether depositing wages into an entireties account creates fraudulent transfer risk, and what defenses are available.

How Transfers to Entireties Accounts Create Fraudulent Transfer Exposure

Florida’s Uniform Fraudulent Transfer Act (Chapter 726) allows creditors to challenge transfers that a debtor makes with the intent to hinder, delay, or defraud creditors. The statute also permits challenges based on “constructive fraud” when a debtor makes a transfer without receiving reasonably equivalent value while the debtor is insolvent or about to become insolvent.

When a debtor spouse takes money from an individually owned account and deposits it into a tenants by the entirety account, the debtor has changed the character of the asset from non-exempt to exempt. The money that was previously reachable by the debtor’s individual creditors is now shielded by entireties protection. Courts treat this conversion as a “transfer” within the meaning of the fraudulent transfer statute because the debtor has disposed of an interest in an asset.

The critical distinction is between assets that were already exempt before the transfer and assets that were not. Florida law is clear that there can be no fraudulent conveyance of an exempt asset because exempt property was already beyond the creditor’s reach. If a married couple holds money in an existing entireties account and transfers that money to the non-debtor spouse individually, no fraudulent transfer has occurred because the money was already protected. The Third Circuit confirmed this principle in In re Blatstein, 192 F.3d 88 (3d Cir. 1999). The Tenants by the Entirety article explains the scope of this protection across different asset types.

The problem arises when the debtor converts non-exempt individual assets into exempt entireties property. That conversion is subject to creditor challenge regardless of the debtor’s stated purpose.

The Non-Debtor Spouse’s Liability as Transferee

When a creditor successfully establishes that a debtor made a fraudulent transfer to an entireties account, the creditor’s lawsuit names the non-debtor spouse as a defendant because the spouse received the transferred property. This can come as a shock to an innocent spouse who had no involvement in the debtor spouse’s financial decisions.

A Florida bankruptcy court addressed this scenario directly in Regions Bank v. MDG Lake Trafford, LLC (In re McCuan), 603 B.R. 829 (Bankr. M.D. Fla. 2019). The debtor transferred his own money to an account titled tenants by entireties with his non-debtor spouse. The non-debtor wife contributed no money to the account, wrote no checks from it, did not receive account statements, and played no role in managing the account or deciding to make the transfer. The court applied equitable principles under Florida Statutes Section 56.29 and concluded that it would not be fair to impose full liability on the spouse given her complete lack of involvement.

Even when courts exercise equitable discretion in favor of the non-debtor spouse, the spouse still faces several consequences. The spouse is named as a defendant in the fraudulent transfer lawsuit and must hire an attorney to defend the action. The spouse is subject to discovery, including depositions and document requests about family finances. The litigation itself creates stress and expense regardless of the outcome.

The Remedy Is Limited to Value Received

The remedy for a fraudulent conveyance is the return of the transferred property to the debtor. A fraudulent conveyance action cannot impose on the transferee any liability greater than the value of assets actually received. This means the non-debtor spouse’s maximum exposure is the amount of money or value that the debtor transferred into the joint account.

For real property and tangible personal property, the remedy is straightforward. The non-debtor spouse can resolve the claim by executing a quitclaim deed or other instrument returning the property to the debtor spouse. For cash transfers to a joint bank account, the general rule is that the non-debtor spouse is liable for the amount of money received, which courts typically calculate as a half-interest in the entireties account balance attributable to the fraudulent transfer.

Some courts in other jurisdictions have excluded money that the non-debtor spouse spent on household necessities from the calculation of liability. The 2019 Florida bankruptcy case suggested that equitable principles could support similar exclusions when the transferee spouse had no control over the account and derived no personal benefit from the transferred funds.

Depositing Wages into an Entireties Account

A common scenario involves a debtor spouse who deposits their paycheck into the family’s joint entireties bank account. Is the deposit itself a fraudulent transfer?

The answer depends on whether the wages retain their exempt character after deposit. Florida Statutes Section 222.11 exempts head-of-household wages from creditor garnishment, and the statute extends this protection to wages deposited into a bank account for up to six months after payment. If the deposited wages are still within the six-month window and are traceable to the debtor’s earnings, the deposit into an entireties account is not a fraudulent transfer because the wages were already exempt.

A Pennsylvania bankruptcy case addressed a similar fact pattern under Pennsylvania law, which prohibits wage garnishment but does not have Florida’s six-month tracing provision. The debtor had deposited his paychecks into an entireties account throughout most of his working life. The trustee argued that each deposit was a fraudulent transfer. The court found no intentional fraud because the debtor had not changed his long-standing practice of depositing wages into a joint account. The debtor did not rearrange his finances in response to creditor pressure. He simply continued doing what he had always done.

However, the court did find “constructive fraud” under Pennsylvania law because the deposits were made without adequate consideration and while the debtor was insolvent. The distinction mattered because constructive fraud does not require proof of intent to defraud. Under Florida law, the result would likely differ because Florida’s wage exemption statute expressly protects deposited wages for six months, which removes the wages from the universe of transferable non-exempt assets subject to fraudulent transfer challenge.

The practical takeaway for Florida debtors is that depositing exempt wages into an entireties account generally does not create fraudulent transfer liability, provided the wages are traceable and the debtor has maintained a consistent pattern of depositing wages into that account. Changing the deposit pattern after learning of a creditor problem is exactly the kind of conduct that courts scrutinize.

The “Historical Practice” Defense

Courts consistently distinguish between maintaining long-standing financial practices and changing behavior in response to creditor pressure. A debtor who has always deposited income into a joint marital account and continues to do so after a lawsuit is filed has a strong argument that the deposits are not fraudulent transfers. A debtor who has always maintained a separate individual account and suddenly redirects deposits to an entireties account after being sued faces a much harder defense.

A Florida bankruptcy court applied this reasoning in a case where a debtor opened a joint financial account with $200,000 from a business venture several years before being sued. The non-debtor wife had no involvement in the business and no independent claim to the money. The court held that the account was a valid entireties account and that the husband did not fraudulently transfer his separate funds by opening it. The court considered that the couple had been married for thirty years and had jointly owned most of their assets throughout the marriage. The long-standing practice of joint ownership supported the debtor’s argument that the deposit was consistent with his normal financial behavior rather than a response to creditor concerns.

Practical Guidance for Married Couples

Several principles emerge from the case law for married couples implementing tenancy by the entirety as part of their asset protection planning.

Establish entireties accounts early. Opening joint accounts and titling assets as tenants by the entirety during a period with no pending or foreseeable claims is far safer than making changes after a creditor problem surfaces. The How to Open a Tenancy by the Entirety Account article explains the mechanics of opening these accounts properly.

Maintain consistent financial practices. If a couple has historically owned assets jointly, continuing that pattern strengthens the argument that any particular deposit or transfer was not made with intent to defraud. If a couple has historically maintained separate accounts, suddenly shifting to entireties ownership after a lawsuit invites scrutiny.

Do not transfer non-exempt individual assets to entireties ownership after a claim arises. This is the scenario most likely to result in a successful fraudulent transfer challenge and the one most likely to draw the non-debtor spouse into litigation as a defendant.

Understand the limits of the non-debtor spouse’s exposure. Even if a fraudulent transfer is established, the non-debtor spouse’s liability is capped at the value of the assets received. The spouse can typically resolve the claim by returning the transferred property or its value. The fraudulent transfer action cannot result in a general money judgment against the non-debtor spouse beyond the transferred amount.

Keep exempt funds separate and traceable. Head-of-household wages deposited into an entireties account remain protected under Florida Statutes Section 222.11 for six months, but only if the wages are identifiable. Commingling exempt wages with non-exempt business income or investment proceeds in the same account makes tracing difficult and invites creditor challenges to the entire account balance.