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 may try to convert them into protected entireties property by transferring them to a joint account.

When a creditor challenges that transfer as fraudulent under Florida’s Uniform Voidable Transactions Act, the non-debtor spouse becomes a defendant—even if the spouse had nothing to do with the debtor’s financial decisions.

How Transfers to Entireties Accounts Create Fraudulent Transfer Exposure

Florida’s fraudulent transfer statute allows creditors to challenge transfers that a debtor makes with intent to hinder, delay, or defraud creditors. The statute also allows challenges based on constructive fraud when a debtor transfers assets without receiving reasonably equivalent value while insolvent.

When a debtor spouse moves money from an individual account into a tenants by the entirety account, the asset changes character. 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” because the debtor has disposed of an interest in an asset.

Whether the transfer is challengeable depends on whether the assets were already exempt. 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 it to the non-debtor spouse individually, no fraudulent transfer has occurred. The money was already protected. The Third Circuit confirmed this in In re Blatstein, 192 F.3d 88 (3d Cir. 1999). Tenancy by the entirety protects jointly owned assets from creditors of either individual spouse across real estate, bank accounts, and brokerage accounts.

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

A creditor who establishes a fraudulent transfer to an entireties account names the non-debtor spouse as a defendant because the spouse received the transferred property. The creditor’s lawsuit may not even name the debtor as a defendant—the action targets the transferee who holds the property.

A Florida bankruptcy court addressed this 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, wrote no checks from the account, did not receive account statements, and played no role in managing it.

The court applied equitable principles under Florida Statutes Section 56.29 and concluded that imposing full liability on the spouse would be unfair given her complete lack of involvement.

Even when courts exercise equitable discretion in favor of the non-debtor spouse, the spouse still faces real consequences. The spouse is named as a defendant and must hire a separate attorney. The spouse is subject to depositions and document requests about family finances. The litigation creates stress and expense regardless of the outcome.

The transferee who receives fraudulently conveyed property can face exposure that the transferor does not. Courts can enter a money judgment against the transferee for the value received. The consequences of a fraudulent transfer can fall more heavily on the innocent spouse than on the debtor who initiated it.

The Remedy Is Limited to Value Received

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

For real property and tangible personal property, the non-debtor spouse can resolve the claim by executing a quitclaim deed returning the property to the debtor spouse. For cash transfers to a joint bank account, courts typically measure the non-debtor spouse’s liability as a half-interest in the entireties account balance traceable to the fraudulent transfer.

Some courts in other jurisdictions have excluded money that the non-debtor spouse spent on household necessities. The McCuan court suggested that equitable principles could support similar exclusions when the transferee spouse had no control over the account and derived no personal benefit.

Depositing Wages into an Entireties Account

A debtor spouse who deposits a paycheck into the family’s joint entireties bank account raises a question that 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 extends this protection to deposited wages for six months after payment. If the deposited wages are traceable and within the six-month window, the deposit is not a fraudulent transfer because the wages were already exempt.

The Third Circuit addressed a similar fact pattern in In re Titus, 916 F.3d 293 (3d Cir. 2019), under Pennsylvania law. Pennsylvania prohibits wage garnishment but does not have Florida’s six-month tracing provision. The debtor had deposited 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. He did not rearrange his finances in response to creditor pressure—he continued doing what he had always done. The court did find constructive fraud because the deposits were made without adequate consideration while the debtor was insolvent.

Under Florida law, the result would likely differ. Florida’s wage exemption statute protects deposited wages for six months, which removes those wages from the category of non-exempt assets subject to fraudulent transfer challenge.

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

The “Historical Practice” Defense

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 the husband did not fraudulently transfer his separate funds by opening it.

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 normal financial behavior.

Timing and Practical Considerations

Entireties accounts established during a period with no pending or foreseeable claims are far safer than conversions made after a creditor problem surfaces. Couples who open joint accounts and title assets as tenants by the entirety before any claim arises create a record of legitimate family financial management.

Couples who have historically owned assets jointly strengthen their position by maintaining that pattern. Continuing a long-standing practice of joint ownership supports the argument that any deposit was not made with intent to defraud. Couples who have historically maintained separate accounts face scrutiny if they suddenly shift to entireties ownership after a lawsuit.

Converting non-exempt individual assets to entireties ownership after a claim arises is the scenario most likely to produce a successful fraudulent transfer challenge and draw the non-debtor spouse into litigation.

Even if a fraudulent transfer is established, the non-debtor spouse’s exposure is capped at the value received. The spouse can typically resolve the claim by returning the transferred property or its value. The action cannot produce a judgment against the non-debtor spouse beyond the transferred amount.

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 in the same account makes tracing difficult and invites creditor challenges to the entire balance. A separate account for exempt earnings is the simplest way to preserve the wage exemption.