Co-Ownership Planning: When You Shouldn’t Co-Title Your Assets

One form of protective co-ownership is tenancy-by-the-entirety (TBE). Twenty-five states, at least to some extent, protect assets owned by spouses as TBE against the creditors of only one spouse. Some TBE states limit their protection only to the family residence and other states extend their protection to other real estate, and still other states extend their protection to any assets, including stocks, bonds, personal property, and so forth that are titled as tenants-by-the-entirety.

Co-ownership planning is the concurrent ownership of property by 2 or more people. The most common co-ownerships involve assets owned between a husband and wife. When we refer to co-ownerships, we do not usually mean the co-ownership of business entities by multiple individuals (unless an undivided interest is held jointly or as tenants-by-the-entirety), nor do we refer to multiple beneficial interests in a trust.

There are 4 types of co-ownerships:

1. Tenancy-in-common (TIC)

2. Joint tenants with right of survivorship (JTWROS); JTWROS is often referred to simply as ‘joint tenants’ ownership

3. Tenants-by-the-entirety (TBE)

4. Community property.

It’s important to understand the distinguishing features of each. Many folks don’t understand the consequences of co-owning assets with others.

Lets focus on Tenancy by the Entireties, the best form of co-ownership for asset protection purposes. Tenancy-by-the-entirety “TBE” is a special type of co-ownership only available to a husband and wife. Tenancy-by-the-entirety ownership must also meet the requirements of joint tenancy in order to be valid. And if a couple divorces, then ownership will be held as tenants-in-common or as joint tenants rather than as tenants-by-the-entirety.

Tenancy-by-the-entirety offers right of survivorship benefits (as does joint tenancy), but it may also protect the asset in certain states, provided only one spouse comes under creditor attack. This is because, in most states, tenancy-by-the-entirety property may not be transferred or otherwise alienated without the other spouse’s consent. Furthermore, neither spouse owns a fractional share in the property. Rather, each spouse claims an entire ownership interest in the property, but such ownership rights are subject to the other spouse maintaining their property rights as well.

Because their respective ownership interests are not divisible and may not be transferred without the other spouse’s consent, most Tenancy-by-the-entirety states do not allow a creditor of only one spouse to attach tenancy-by-the-entirety property without the consent of both spouses.

Unfortunately, tenancy-by-the-entirety ownership is not available in all states. In those states where it is available, it may not be allowed for all assets. Some states prohibit tenancy-by-the-entirety ownership either by case or statutory law, and in other states it is unclear whether tenancy-by-the-entirety ownership is allowed.

One should still consult the statutory and case law of his or her particular state, as there are further differences in tenancy-by-the-entirety laws. For example, a few states restrict tenancy-by-the-entirety ownership only to primary residences. Alaska, Hawaii, Tennessee and Vermont specifically allow rental real estate to be held in tenancy-by-the-entirety, yet other states may allow it by case law.

There are many cases where tenancy-by-the-entirety ownership has successfully shielded assets. Nonetheless, we usually conclude that this form of ownership cannot be relied upon as an impenetrable creditor defense. On the upside, it’s very easy to title assets as tenants-by-the-entirety between a husband and wife in those states that allow it, and in those states, it is a great way to add an extra layer of protection.

For example, in a state that recognizes tenancy-by-the-entirety ownership, it may be a good idea to so title the ownership of business entities as tenancy-by-the-entirety. Nonetheless, merely saying an asset is held in the tenancy-by-the-entirety is not sufficient. The title documents to the asset should expressly state that the asset is held as tenants-by-the-entirety.

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