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Tenancy by the Entirety Ownership of Real Estate Provides the Best Asset Protection Device for Married Debtors Against Their Individual Creditors 

To have a valid tenant by the entirety’s ownership, the couple must acquire the property at the same time and the title to the property must be granted by the same instrument. Additionally, both partners must share the same interest in the property and must hold equal rights to possession of the property. Property held under tenancy by the entirety cannot be sold, mortgaged, or used as collateral by one spouse without the consent of the other spouse.

There are six essential tenancy by the entirety elements in Michigan, as well as other states that recognize this type of ownership. For example, under Michigan law, to be able to qualify as TBE property, the subject property must have the following elements:

• The Essential Unities of the TBE Estate — Tenancy by entirety must have the following six characteristics:

1) Unity of Possession — Both spouses must have joint ownership and control.

2) Unity of Interest — Each spouse must have the same interest in the property.

3) Unity of Title — The interest must have originated in the same instrument.

4) Unity of Time — The interest must have commenced simultaneously in the same instrument.

5) Survivorship — On the death of one spouse, the other spouse becomes the sole owner of the entireties property.

6) Unity of Marriage — The parties must be married.

Joint tenants with rights of survivorship – offers less protection to married persons than TBE. Joint tenancy allows the rights of survivorship, two or more persons own the property creating a right of survivorship. However, joint tenancy can be between or among groups of people who are not married. The joint tenants share an equal ownership in the property. However, property held under a joint tenancy is fair game for any creditors of any joint tenant. Thus, a creditor of one co-owner can seize the assets from all co-owners.

Joint tenants with right of survivorship are devoid of any meaningful asset protection. Furthermore, this type of ownership requires all joint tenants to concur on the sale of the real estate. Many a parent has put their children on their deeds to avoid probate, to latter discover that they can not sell their real estate without their children’s permission. Also, the tax debts, creditor claims, and divorce settlements of any single co-owner interferes with the property rights of the other owners. It is a tragedy for parents to lose their home due to their children’s financial woes.

One of the main benefits of tenancy by the entirety is the protection of the marital home from the financial woes of only one spouse. Property owned under tenants by the entireties avoids claims by creditors against either spouse as an individual. It is, however, subject to claims owed by both spouses to the same creditor.

A judgment creditors can obtain a judgment lien against property held under tenants by the entireties against one spouse but cannot foreclose upon it. However, if the spouse who does not owe the debt dies, the creditor can execute on the property to satisfy the lien on the surviving spouse who owes the claim. This happens because death nullifies tenants by the entireties privilege and death of the non-debtor spouse converts the property held under tenants by the entireties to the sole property of the debtor spouse.

A surviving spouse will automatically own the property in its entirety upon the death of his or her spouse. Property held under this doctrine is wholly owned by both parties. Thus, it cannot legally be included in an individual spouse’s probate estate. The result is that property held in a tenancy by the entirety does not go into probate. So, it is not subject to the claims of the decedent’s heirs or beneficiaries.

Property held by a married couple as tenants by the entirety will convert to the solely owned property of the surviving spouse upon the death of the first spouse. It is important to note that once the property becomes the sole property of the surviving spouse, it is once again subject to the claims of the surviving spouse’s creditors. In order to avoid this consequence, some attorneys deed the tenancy by entirety property to a revocable trust that require both parties to revoke. Then, upon the death of the first spouse, the trust typically becomes irrevocable. Michigan currently does not recognize this type of trust. These trusts, known as tenants by the entireties trusts or qualified spousal trusts, are owned by the marriage, rather than the individual spouses. Therefore, the trusts maintain tenancy by entirety privileges following the death of the first spouse. To set up a TBE trust, the following conditions must be met:

  • The couple must be married before establishing the trust.
  • The couple must remain married.
  • The trust or trusts must be revocable by the respective settlor’s or by both settlor’s acting together in the case of a joint trust.
  • Both spouses must be permissible beneficiaries of the trust or trusts while they are alive.

The trust instrument or deed must reference the applicable statute allowing such a trust to retain TBE privilege after death of the first spouse as it appears in the jurisdiction where the trust is issued. There are many types of deeds that vary state to state, so be sure you use the proper instrument. The states that recognize these tenants by entireties trust or qualified spousal trusts are limited to Delaware, Florida, Hawaii, Illinois, Indiana, Maryland, Mississippi, Missouri, North Carolina, Tennessee, Virginia, and Wyoming.