Tenants by the Entireties: A Viable Asset Protection Strategy?

In Florida, the answer is “YES.” Tenancy by the entirety is alive and well in Florida asset protection law.

Some other states recognize the common law asset protection doctrine of tenancy by the entirety too. Tenancy by the entirety is a form of ownership that, as a matter of law, can only exist between a husband and wife when they opt for it. The other attributes of this form of ownership are the concepts of common time (i.e. it can only exist during the marriage), right of survivorship, and undivided interest.

These attributes basically mean that married couples own their property “together,” in every sense of the word.  And if one spouse dies, the other spouse automatically takes sole ownership of the property, but that ownership is as an individual. The tenancy and all of its benefits disappear when when one spouse passes on.

Tenants by the Entireties: The  Asset Protection Benefits

With respect to asset protection planning, a tenancy by the entirety provides a lot of protection while the tenancy is in place. Neither spouse acting alone can transfer property out of a tenancy by the entirety. Rather, the consent of both spouses is required. That feature provides “built-in” asset protection. If one spouse is sued or incurs a liability of (almost) any kind, assets held in a tenancy by the entirety are exempt. They can’t be accessed to satisfy a claim that exists just one spouse.

Using Tenancy by the Entirety for Asset Protection

In families where both spouses work, a tenancy by the entirety can be used to protect those cash. That can be done by having separate incomes deposited into a bank account that’s owned by the married couple as tenants by the entirety. This method is especially effective in households where one spouse is a physician, dentist, or lawyer in a state where profits can only be shared with other licensed professionals (e.g. Florida attorneys). Income from the professional practice can be protected against potential malpractice suits by having it deposited into a tenancy by the entirety account. But there is a catch: You have to be consistent. It simply won’t be effective if you wait until a lawsuit or other claim is asserted before you begin, or a judge might just decide to “undo” your efforts. For regular paychecks and profit distributions, it makes sense to consider having income direct deposited into a tenants by the entirety bank account. That makes the protection automatic.

Where It Doesn’t Work To Protect Assets

Tenancy by the entirety is a weak form of asset protection in some scenarios. One obvious weakness is that property held in this form of ownership is accessible by a married couple’s joint creditors. So if you both “signed on the dotted line” for that loan that’s now going bad, T by E probably isn’t going to offer very much protection. Property also loses the protections if a couple divorces and/or upon the death of a non-debtor spouse (i.e. the death of the spouse who is “free and clear”). Also, in order to take advantage of a tenancy by the entirety in bankruptcy, a couple would have to to opt for state exemptions rather than the federal exemptions, because the doctrine of tenancy by the entirety simply isn’t recognized by the federal bankruptcy code. To overcome these weaknesses, it’s a good idea to use a limited liability company, in addition to tenancy by the entirety. That way your bases are really covered.

You can find of list of states that recognize the doctrine of tenancy by the entirety here (though I can’t vouch for its accuracy or when it was last updated).

If you have questions about tenancy by the entirety and want to know if it’s available in your state, please call us today. We’d be happy to spend some time discussing it and your other asset protection questions. If you want to learn more about the legal doctrine tenancy by the entirety in general, check out this very helpful paper written by a bankruptcy judge: Tenancy by the Entirety in Bankruptcy or click here to download the paper.