My state allows spouses to title their homes as tenants-by-the-entirety. How good is this protection?

Tenancy-by-the-entirety is a special type of joint tenancy reserved for husbands and wives – recognized in twenty-five eastern states. Some tenants-by-the-entirety laws provide no more creditor protection than joint tenancy – that is, little or none. However, property titled to both spouses as tenancy-by-the-entirety in other states enjoys relatively strong lawsuit protection. Generally, a creditor of only one spouse cannot claim that debtor-spouse's interest in the tenancy-by-the-entirety property. But a creditor of both spouses can claim tenancy-by-the-entirety property. For example, if the husband and wife both guaranteed a bank note, the bank could claim the couple's tenancy-by-the-entirety property. If only one spouse guaranteed the note, then titling the asset as tenancy-by-the-entirety would lawsuit-protect it against that creditor.

If your state's tenancy-by-the-entirety laws can protect you, then re-title the jointly-owned home to yourself and your spouse as tenancy-by-the-entirety. But, have your attorney decide whether a tenancy-by-the-entirety titled home in your state will adequately shield it. Also, bear in mind that when one spouse dies, the tenancy-by-the-entirety titled home will automatically pass to the surviving spouse and then become vulnerable to the surviving spouse's creditors. Nor can you bequeath tenancy-by-the-entirety assets to other beneficiaries. If this isn't your wish, then don't title the home – or any other asset – as tenancy-by-the-entirety.

Spouses in states with strong tenancy-by-the-entirety laws frequently rely on it to lawsuit protect their home and other assets. However, we have seen some erosion in tenants-by-the-entirety protection. Several bankruptcy courts have ruled that a bankruptcy trustee can, in some circumstances, claim the tenants-by-the-entirety interest owned by the bankrupt spouse. The IRS can also seize a tenants-by-the-entirety interest owned by a delinquent taxpayer, even if their spouse owes no taxes.

If your state's tenancy-by-the-entirety laws protect the home, the couple should only title their home or any other asset as tenancy-by-the-entirety when: 1) the couple intends survivorship rights to the asset; 2) the spouses have low liability exposure, and aren't likely to incur significant joint obligations; and 3) the couple is reasonably young and are less concerned that one spouse may unexpectedly die and leave the property exposed to the surviving spouse's judgment creditors.