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. That protection does not extend to a creditor both spouses owe. 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 Fraudulent Transfer 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. Money the debtor’s individual creditors could reach 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. There can be no fraudulent conveyance of exempt property, because the creditor could never have reached it. Property the couple has owned as entireties from the beginning was never the debtor’s alone. The Third Circuit rejected a creditor’s fraudulent transfer claim on that ground in In re Blatstein, 192 F.3d 88 (3d Cir. 1999). The husband and wife there had held their corporate stock as entireties property since each company issued it.

Moving money out of an existing entireties account is generally not a fraudulent transfer. An entireties interest that one spouse’s creditor cannot reach is not an “asset” under Florida’s fraudulent transfer statute, Fla. Stat. § 726.102(2)(c). A creditor can still attack the earlier step that put the property into entireties form. The exclusion also does nothing against a creditor both spouses owe. Tenancy by the entirety protects jointly owned assets 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 opened investment accounts in his own name in 2001. Seven years later, with a bank loan maturing that he could not pay, he retitled them as tenants by the entireties with his wife. The court found he did it to hinder the bank. His wife gave no consideration, directed no disbursements, never saw a statement, and had no part in managing the accounts.

The general rule is that avoiding a transfer to a debtor’s spouse makes the spouse liable for the full value transferred. Section 56.29 makes proceedings supplementary subject to principles of equity. The court applied them here and entered judgment for the wife on both accounts, worth $2.76 million and $387,000 as of September 2008.

Equitable relief arrives only at the end of a case. A non-debtor spouse who eventually wins is still named as a defendant, hires separate counsel, sits for a deposition, and answers document requests about the family’s finances. Mrs. McCuan was exonerated after a trial held over four days between June and October 2018.

A transferee can face exposure the debtor does not. In McCuan the debtor was already in Chapter 7 when the trial ran, so the creditor’s collection effort was aimed at the people and entities holding the transferred property.

The Remedy Is Limited to Value Received

Under section 726.109(2) a money judgment against the transferee cannot exceed the value of the asset transferred or the amount needed to satisfy the creditor’s claim, whichever is less. The value is measured as of the transfer date and can be adjusted as the equities require. The creditor’s other route is to avoid the transfer, which undoes it only as far as the claim requires and leaves the asset open to execution.

For real property and tangible personal property, the non-debtor spouse can resolve the claim by quitclaiming the property back to the debtor spouse. A debtor who deeds his own land into entireties ownership inside the avoidance period puts the whole parcel at risk. The court in McCuan said a trustee could avoid that transfer and recover the entire property. Cash is harder because deposits commingle in the account. Courts have measured the spouse’s liability differently from one case to the next.

Courts applying Pennsylvania law have limited recovery from a law partner’s spouse to the wages that were not spent on household necessities. In McCuan the court went further. Because the transferred property was an account rather than land, and because the wife never took control of it even for necessities, the court entered no judgment against her at all.

Depositing Wages into an Entireties Account

Depositing a head-of-family paycheck into a couple’s joint entireties account is not a fraudulent transfer, because Florida keeps those wages exempt from garnishment for six months after they reach the bank, so long as they stay traceable.

Florida Statutes Section 222.11 exempts a head of family’s wages from garnishment, and the exemption survives deposit for six months if the money is still identifiable as earnings. Mixing earnings with other funds does not defeat that tracing by itself. Wages deposited inside the six-month window are not a fraudulent transfer, because the wages were already exempt.

The Third Circuit reached the opposite result under Pennsylvania law in In re Titus, 916 F.3d 293 (3d Cir. 2019). Pennsylvania exempts wages only while the employer still holds them. A Pittsburgh lawyer had his new firm deposit his pay straight into the account he owned with his wife. Because he controlled where it went, the money became his and each deposit was a transfer.

The court held that both spouses were fraudulent transferees. When an insolvent spouse’s wages are deposited into a couple’s entireties account, the deposit is presumed not to have been made for reasonably equivalent value, which makes it constructively fraudulent. The judgment ran against the wife personally, and the Third Circuit affirmed it.

In Florida, wages still exempt when they reach the joint account are not an asset the fraudulent transfer statute can operate on. A head of family who banks a paycheck there has transferred nothing the creditor could have reached. A debtor who is not the head of the family gets only the federal garnishment cap, and the same reasoning covers much less.

The exposure comes from money that was never exempt. A debtor who starts routing non-exempt funds into a joint account after a creditor problem surfaces is making the transfer a creditor can attack.

The “Historical Practice” Defense

A debtor who has always deposited income into a joint marital account undercuts any claim that he acted with intent to defraud. Florida’s badges of fraud look at how close the transfer sits to the debt or the lawsuit, and a habit that predates both is not a badge. None of that answers a constructive fraud claim, which does not depend on intent. That claim turns on whether the debtor received reasonably equivalent value for the deposit and whether he was insolvent when he made it.

The court in McCuan relied on the timing. The debtor kept the accounts in his own name for seven years and moved them into entireties form only once the bank loan came due. That put the transfer inside the one-year look-back that section 56.29 applies in proceedings supplementary. The court also found six badges of fraud.

In In re Wingate, 377 B.R. 687 (Bankr. M.D. Fla. 2006), a bankruptcy discharge case, the couple put the husband’s $200,000 settlement share into a joint investment account in 1999. The court found the couple’s joint accounts were entireties property even though the 1999 application had said joint tenants with rights of survivorship. It held that the 2003 withdrawals, which bought an annuity and paid off the home mortgage, were not fraudulent transfers under the discharge statute. The 1999 deposit was never challenged; that statute reaches back only one year from the bankruptcy filing.

A couple whose accounts were entireties property before the creditor ever existed has nothing for the creditor to unwind, because there was no later transfer.

Timing and Practical Considerations

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.

The court in McCuan entered judgment for the wife but still found the retitling was meant to hinder the bank. Money judgments ran against the family partnership, the trust, and two family companies that had received transfers from the debtor. Her exoneration was personal to her; the transfers themselves remained avoidable.

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.

A non-debtor spouse who is found liable can usually end the case by returning the property or paying its value. The judgment never runs past the smaller of that value and the creditor’s demand. Section 726.109 shields a good-faith transferee who gave reasonably equivalent value; a spouse whose name was simply added to an account gave nothing.

Head-of-family wages deposited into an entireties account stay protected under Florida Statutes Section 222.11 for six months, but only while they remain identifiable as earnings. Wages sitting in the same account as business income are harder to trace, and a creditor will attack the whole balance. Nothing in the statute requires a separate account, but keeping earnings in one is the simplest way to protect the wage exemption.