Understanding the Function of Tenancy by the Entirety (TBE)

Tenancy by the Entirety (which is abbreviated T by E or TBE) is a holding title in which a married couple each own 100% of the interest in a property. It is distinct from joint ownership insofar as it can only be used by married couples, and the agreement must be broken by both spouses as opposed to only one. In addition, a creditor going after one spouse could not lien or force the sale of the residence because of a debt owed by only one spouse. The only caveat is that a TBE can only be used for their primary residence.

Tenancy by the Entirety and Asset Protection

Property titled under TBE is considered legally separate from individually-owned property. The TBE agreement is itself considered a person, in the same way that corporations can be considered persons. Two persons, who are married to one another, establish a TBE agreement for legal purposes. The TBE itself is considered a third person. In this way, a home can be insulated against judgments against one or the other spouse.

In addition, if two creditors have judgments against one spouse, or two creditors have judgments each spouse, the home would be safe from the creditors. It is only when one creditor has a judgment against both spouses that the house itself would be vulnerable.

Tenancy by the Entirety and Land Trusts

TBE agreements and land trusts each come with their own set of benefits. These benefits can be used in conjunction with one another when the beneficiary is established as the TBE (the legal third person created by the agreement) as opposed to one or the other spouse.

Those who set up a land trust in this manner can insulate their assets from creditors while essentially hiding their identity as the legal owner of the property. In addition, they can establish a beneficiary without needing to file paperwork with public records. Furthermore, they can retain tax advantages should they qualify for any.

There are a handful of states that allow TBE for married couples, but not every state does. In addition, using a TBE as the primary way to protect an asset from creditors can backfire. Anything can happen before a judge, and if a creditor’s lawyer can convince the judge that the TBE was only created for the purpose of defrauding creditors, a judge might throw out the TBE.
For those that are looking to establish a TBE, it’s best to do this when the home is purchased.

One other consideration: if one or the other spouse files for a divorce, the TBE is immediately nullified. While a TBE can be a good way to protect your residence from creditors, it’s important to realize that under some circumstances it cannot be relied upon.