Creditors and Tenancy By The Entirety

In this post, I discuss tenancy by the entirety, a common way married couples own property together, and the asset protection benefits it may provide.

Tenancy by the entirety is a special form of real estate ownership available only to married couples. It existed at common law, but some states have ceased to recognize this special type of joint tenancy. Arkansas, however, continues to recognize it as the presumed means by which a married couple holds property.

In this post, I will discuss some of the protections against creditors this form of ownership offers.

Tenancy by the Entirety for Asset Protection

Tenancy by the entirety can serve as a good asset protection tool. If a creditor pursues a spouse that owns a residence as a tenant by the entirety, that creditor cannot take the house. The creditor may only place a lien on the house but cannot foreclose upon it until the non-indebted spouse dies. If the indebted spouse dies first, the non-indebted spouse will inherit a 100% ownership in the house, and the lien will disappear.

In a tenancy by the entirety, one tenant cannot be punished as a result of the other tenant’s debts. The home belongs to the non-indebted spouse as much as to the indebted spouse, and no creditor, regardless of how much the indebted spouse owes, can foreclose upon the house for as long as the non-indebted spouse holds an interest in the property. This is therefore an excellent method of protecting a home against creditors.

It should be noted, however, that the strength of this protection is not available where the debt in question is held by both spouses jointly. This level of protection exists where the debt belongs to only one spouse.

Other States

As mentioned above, some states no longer recognize tenancy by the entirety. In those states, spouses typically hold property either as joint tenants with right of survivorship or as tenants in common, depending on state-default rules and how the deed reads. Some of those states have substituted statutory protections that approximate (though do not always match) the creditor-protection described in this post.

Disclaimer: This post is general legal information about tenancy by the entirety and creditor protection, not legal advice. State law on entirety tenancies, severance, and creditor remedies varies substantially; consult a qualified attorney in your jurisdiction about your specific situation before relying on the doctrine for asset protection.

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