Tenancy by entirety, also known as joint tenancy with right of survivorship, is an arrangement between two individuals or couples who want to own real estate as a single legal entity. This means that any property held in tenancy by entirety will pass automatically to the surviving owner upon the death of one of the owners. While it may seem like an attractive option, you should think twice before going this route—and here’s why…
Tenancy By Entirety (TBE) Defined
Couples can hold a property title by tenants by entirety (TBE), a method used in some states. To modify one’s interest in a property, tenants by entirety require the consent of both spouses. Also, surviving spouses receive full ownership if one spouse passes away.
Essentially, tenants by entirety (TBE) is a way for married couples to own equal property rights along with survivorship rights, which prevents their property from going to probate. It’s not 50/50 ownership. When there is a TBE, each spouse owns a 100% share of the property.
The Inner Workings Of Tenancy By Entirety
When property is owned by both spouses, neither spouse can sell the property or make a loan against it without the other’s permission. If only one spouse is sued, the property can’t be taken by creditors.
If a spouse dies, the surviving spouse becomes the sole owner of the deceased spouse’s property.
A surviving spouse does not have to file for probate; the property automatically passes to her. The probate court does not have to be involved or involved if the second spouse is alive. It should be noted, however, that the second spouse is not required to go through probate if the first spouse dies. A probate will be required if the second spouse passes, or both when they die at the same time.
For example, a husband would need the consent of his wife if he were to sell his stake in a shared home.
Tenancy by entirety is allowed in half of the states; only a few states do it only for real estate. In addition to tenancies in common, couples may decide to hold titles in joint tenancy. Each title affects the rights of each owner to transfer the property or use it as collateral. A marriage’s ownership structure also determines how a property will be handled when one spouse dies and whether a property may be sold to satisfy debts or judgments.
Depending on what state the person lives in, there are variations in what TBE can be filed for, such as real estate and/or property taxes. The state of Tennessee also recognizes a form of TBE for domestic partnerships. Keep in mind that many state legislatures also use the term husband and wife, which may exclude same-sex couples. Same-sex couples may want to work with a real estate attorney to learn more about their legal options.
The Legal Perspective
A tenant who holds property in what is known as tenancy by the entirety is akin to owning property in joint tenancy. That is, rather than partitioning the property into fractions, as each would in a tenancy in common, the two people owning it share ownership of the whole. However, there is one key distinction when it comes to a creditor’s ability to collect a debt.
Tenants by entirety limit a creditor from collecting from either individual debtor. When a man and woman enter a Tenants by Entirety agreement, only in the case that both are co-signers to the debt will a creditor be able to seize the property. It’s not the case for a property with a different split of ownership and debt. If both spouses are legally liable for the debt, their community property can be attached. Furthermore, if a federal tax lien is against one spouse and he or she holds tenancy by entirety on property, that person may lose the property.
Generally, the right of tenants by entirety will supersede any provisions within a will or trust, which could give certain property to one of the descendants of the two living tenants after the death of one of them.
For example, a will or trust might specify that the surviving children inherit one of the parents’ possessions. If the decedent’s spouse is one of the co-owners of the property and falls under the principle of joint tenants with full rights of survivorship, then the terms of the will may be overlooked. The surviving spouse would maintain sole ownership of the property.
A tenancy by entirety can be revoked under these specific circumstances such as a divorce that divides the property, or an agreement mutually agreed upon by both parties to change the nature of ownership.
The Advantages and Drawbacks Of Tenancy By Entirety
As with any type of ownership, there are both advantages and disadvantages. Here are a few to consider with tenancy by entirety.
Advantages Of TBE
Limited asset protection is one of the advantages of a tenancy by entirety. In other words, creditors cannot use the property as collateral to satisfy a loan.
In addition, it prevents one spouse from placing a lien on the property or selling it to a third party. A surviving spouse is entitled to claim 100% of the property upon the death of the other. When one spouse dies, the other spouse will automatically inherit the house. If a spouse dies, an interest in the house does not transfer to the next of kin.
Drawbacks Of TBE
The fact that each spouse has an equal and full ownership of the home creates the need for unanimous decisions and negotiations, which may result in tensions.
In contrast to protection from creditors, the liability must only be to one spouse for it to apply to property in a community estate. If the couple is indebted together, the protection ceases to apply. If one spouse dies and the surviving spouse is left with any debt or unpaid court-mandated costs, then that person is liable for these and it may impact how their marital assets are distributed.
A possible downside of a TBE designation is that it’s not available in all states, and even when it is, there are limits. For example, it might only be accepted for residential or rural land. It’s still unrecognized by some only for married couples, and even more, limited for husbands and wives.
Final Words About Tenancy By Entirety
If you and your spouse are looking for a way to protect your assets, tenancy by entirety may be the right choice for you. This type of ownership offers many advantages, including the right of survivorship and protection from creditors. However, there are some drawbacks to consider as well, such as the fact that both spouses must agree to sell the property. Ultimately, it’s up to you and your spouse to decide whether tenancy by entirety is the right fit for your situation.