Tenants by the Entirety as a form of Ownership– More Nuanced Than Simply being Married.

Property ownership comes in all shapes and sizes. An interesting and seldom discussed form of ownership is the idea of “tenancy by the entirety.” In the 1940s, many states abolished tenancy by the entirety, viewing it as unequal in terms of women’s rights. In England, tenancy by the entirety was outlawed by the Married Women’s Property Act of 1882 because “the English judges held that the statute abolished this estate in conveyances executed subsequent to its effective date.” An article by George Walter Klorfein in 1963 argued that “there need not necessarily be a conflict between this form of tenancy and the acquisition of equal property rights by married women [since] New York considers that the chief characteristic distinguishing this form of ownership from other classes of concurrent ownership, namely, the impossibility of either spouse defeating the right of survivorship of the other, is worth preservation.” In New York State, tenancy by the entirety is very common form of home ownership.

To determine whether two people own the home as “Tenants by the Entirety,” it is first necessary to know whether the owners are legally married.  Sometimes this is plain from the language of the deed that refers to the owners as Mr. and Mrs. John Doe, husband and wife, or something indicating legal marriage.   If the owners are legally married, then Tenancy by the Entirety is presumed; and, if the spouses want a different arrangement, it must be specified to say tenancy with right of survivorship (when one co-owner dies his share of property goes to his spouse) or tenants in common (when one or more people live on a property they each get a share of the property and this share is transferred to the estate after the death).

Under the customary arrangement of tenancy of the entirety, each spouse possesses one hundred percent of the property and, upon the death of the spouse, the other owns the property completely. Tenancy by the entirety implies that if one spouse tries to sell his share of the property, the owner cannot force the other spouse to sell or “partition” the property, and has no right to separate the property.   Spouses are prohibited from disinheriting the other by gifting it to a beneficiary in their wills, so a will that leaves a husband’s share to his son is invalid if the wife is still alive.

With the basic definition explained, it is interesting to consider what other “ramifications” owning property as tenants by the entirety might have.   Given the “undivided” nature of the ownership relationship, a question about whether a creditor might be able to somehow “levy” against one spouses “share” of the real property might arise.   Generally, most commentators suggest that the undivided nature of the interest makes one spouse’s interest in the property indivisible, meaning that the creditor cannot force the partition of the tenancy by the entirety without the debt being against both tenants, or spouses.  Stated simply, that the creditor cannot reach that interest to recover money.

An interesting twist to this, however, is how does one value the interest in real property within the context of a bankruptcy petition.   In Bradigan v. US Bankruptcy Court, the Court held  “Chapter 7…[and] how to value that interest for purposes of estate administration and in determining the reach of the debtor’s claim to a homestead exemption.” In New York State Debtor & Creditor Law, homeowners can claim homestead exemptions in tenancy by the entirety. The court ruled that “Bradigan has asserted a 50% interest in his homestead… [and the judge finds] this allocation as presumptively reasonable… and the trustee’s exemption is overruled.”   In essence, despite how the real property law views the tenancy by the entirety, the Bankruptcy Court defined the spouses interest as only one half of the real estate value, under the terms of tenancy by the entirety.

Similarly, in Vido vs. US Bankruptcy Court, the issue was whether the spouse could seek the relative “protection” of the tenancy by the entirety by transferring the real property back into the name of the spouses two days before declaring bankruptcy.   The court was not amused, holding that “the doctrine of continuous concealment to be applicable to this case as the Defendant [Vidro] is a sophisticated businessman who is represented by knowledgeable bankruptcy and commercial litigation counsel.”

The bottom line for the Court was that it did not want property owners to transfer property to tenancy by the entirety during court proceedings to avoid creditors if the home was not already in such an arrangement.

The law is a nuanced place, you cannot simply read an internet article and think you know all of the answers because, often, there are reasons that the law might not apply unless you tweak the interpretation.    The Bottom line for our clients is that we carefully analyze all of the facts and apply them to your situation as we Pull for You.   Klose & Associates is the place to come for seasoned legal advice.

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