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. Tenancy by the entirety 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.
While I provided a general overview of tenancy by the entirety in a previous post, 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.
As mentioned above, some states no longer recognize tenancy by the entirety. In those states, spouses generally hold property together as joint tenants. Nevertheless, those states often offer the same protections to spouses holding property together as those described in this post.