Tenants by Entirety States
Twenty-five states and Washington, D.C. recognize tenancy by the entirety, a special form of property ownership that is exclusive to married couples and provides asset protection as well as automatic inheritance. The unique ownership enables both spouses to own 100% of the property as a single legal entity, which has incredible advantages over other forms of joint ownership.
Understanding Tenancy by the Entirety
Tenancy by the entirety is a type of co-ownership of property that exists in a majority of states, and it is reserved for married couples only. Unlike joint tenancy where each owns a separate 50% interest, tenancy by the entirety has the result of causing the married couple to become a single legal entity. Both spouses simultaneously own the entire property, not half of it.
The concept was taken from English common law, where married women had few property rights. A wife and husband were one person under the coverture legal principle. While the historical basis is outdated, the modern application of tenancy by the entirety provides valuable benefits for married couples seeking asset protection and estate planning.
This type of ownership requires four unities that are essential in order to exist. These unities distinguish tenancy by the entirety from other modes of property ownership and ensure the legal protection that is provided by it.
The Four Unities Required
Unity of Marriage
The two must be legally married. In certain states, they may also be domestic partners.
Unity of Title
The two must acquire the title under the same deed.
Unity of Interest
The two must have the same interest in the property.
Unity of Possession
The two must have the same control and ownership of the property.
The foremost requirement is marriage unity. Only legally married spouses can be tenants by the entirety. Some states have expanded this to domestic partners, but traditional marriage is the primary requirement.
Unity of title demands that both husbands and wives have to acquire their interest under the same instrument, generally the same deed or contract of sale. They cannot establish tenancy by the entirety if one spouse initially owned the property and later put the other spouse on the title.
Unity of interest requires that both spouses have the same interest in the property. Neither spouse can have a larger or smaller interest than the other. This equality of ownership is critical to the legal protections provided by tenancy by the entirety.
Unity of possession provides both spouses the same right to occupy and enjoy the entire property. One spouse cannot prevent the other from accessing any part of the property, and they both have full access to enjoy the advantages of the property.
Complete List of Tenants in Entirety States
The tenancy by the entirety of all property is permitted by the following states: Arkansas, Delaware, Florida, Hawaii, Maryland, Massachusetts, Mississippi, Missouri, New Jersey, Oklahoma, Pennsylvania, Tennessee, Vermont, Virginia, Wyoming. These states allow married couples to hold all categories of property as tenants by the entirety, including real property, bank accounts, investment accounts, and other personal property.
Indiana, Kentucky, New York, North Carolina, Rhode Island recognize tenancy by the entirety only for realty. Married couples in these states cannot use this type of ownership for bank accounts, investment portfolios, or other personal property.
The District of Columbia also recognizes tenancy by the entirety for all properties, giving married couples in Washington, D.C., the same broad protections that couples in full recognition states enjoy.
A number of states have special rules that establish particular situations for tenancy by the entirety ownership. It is essential for married couples looking at this form of ownership to comprehend these differences.
States with Special Rules
Illinois
The couple can only own their homestead as tenants by the entirety. Therefore, they are not able to buy and title investment real property under this form of property ownership.
Michigan
Any joint tenancy that was held by a husband and wife together before marriage is automatically converted to a tenancy by the entirety once they are married.
Ohio
Only permits tenancy by the entirety for deeds issued before April 4, 1985. Ohio basically ended new agreements of tenancy by the entirety after that date, but existing agreements remain in effect.
These special regulations point out the necessity of knowing your own state's regulations before attempting to establish tenancy by the entirety ownership. What can be done in one state is not always possible or operates differently in another.
Primary Advantages of Tenancy by the Entirety
The primary advantage of tenancy by the entirety is asset protection from individual creditors. The Tenancy by the entirety property of both spouses is not accessible to the creditor of one spouse. This is due to the fact that the law treats the married couple as a single entity rather than two people.
If the property is held in tenancy by entirety, creditors will have a harder time going after this asset. For example, if one spouse gets sued or has debts, creditors usually can't force the sale of real property held in tenancy by the entirety because the non-debtor spouse also has equal ownership rights.
Automatic inheritance is also a benefit. They also enjoy the right of survivorship to take automatic and full ownership of it – bypassing probate – when their spouse passes away. When one spouse dies, the surviving spouse automatically inherits the full ownership without probate court.
This transfer is a money, time, and privacy saver. Probate proceedings are public, can take years or months to resolve, and involve court costs and attorney fees. Tenancy by the entirety ownership prevents these problems for the remaining husband or wife.
The asset protection extends beyond individual creditors. Even if both spouses die simultaneously, the property's protection from individual creditors remains intact for their estate. This benefit can preserve more assets for the couple's beneficiaries.
How Tenancy by the Entirety Provides Asset Protection
The guidelines of TBE ownership, however, constitute a third, separate, individual. Thus, creditors with a judgment against just one spouse are prohibited from seizing the TBE property. This legal fiction creates a barrier of protection around the marital assets that individual creditors typically cannot penetrate.
The protection works well since neither spouse individually owns the property. Since the two own the property as one legal entity, a creditor attempting to collect from one spouse cannot take that spouse's individual share since there are no separate shares.
This protection is practically limited. Even if creditor A has a judgment against one spouse and creditor B has a judgment against the other spouse, the TBE assets are theoretically safe. However, if creditors have claims against both spouses jointly, tenancy by the entirety will not provide any protection.
Professional liability is one scenario in which tenancy by the entirety provides valuable protection. When a physician, lawyer, or business owner is sued for malpractice, his or her personal assets that are owned in tenancy by the entirety with his or her spouse are typically immune from judgment creditors.
The protection extends to tax liens and other government claims against the spouses individually, though federal tax liens may have special rights that enable them to supersede these protections under some circumstances.
Limitations and Risks
While tenancy by the entirety is extremely beneficial, it has important limitations. Because both spouses are complete owners of the property as TBE, neither spouse can sell their interest in the property, or, in some states, encumber the property with a lien, without the agreement of the other.
This restriction can create problems for mortgage lending. Banks typically want to be in a position to foreclose on property in case of default on the part of borrowers. The problem this creates is that no bank would make a mortgage loan on property that could not be accepted as collateral.
Most states have solved this problem by allowing both spouses to sign mortgage documents that give rights against the property to lenders. However, this approach requires the agreement of both spouses for any refinancing or additional borrowing on the property.
Divorce automatically ends tenancy by entirety. This usually means that if a husband and wife own property together as tenants by entirety, the two spouses would become tenants in common if they got divorced. The divorcing spouses would then have to make a decision as to whether to sell the property, to have one spouse buy out the other, or to retain it as tenants in common.
Marriage is required in order to maintain tenancy by the entirety. When the pair divorces but remains legally married, the tenancy by the entirety continues. Legal separation or annulment may affect the type of ownership under state law.
Tenancy by the Entirety Compared to Other Forms of Ownership
The most crucial difference between tenants by entirety and joint tenancy is that, in contrast to tenants by entirety, joint tenants are separate legal entities. The joint tenants will not be protected from the other party's creditors. Joint tenancy gives the right of survivorship but lacks any asset protection benefits.
Tenancy in common is one other type of alternative ownership. Tenancy in common does not typically include rights of survivorship, which is different from tenancy by the entirety. When one of the tenants in common dies, that person's percentage of ownership will go through their will or under state inheritance laws rather than automatically to the other owner.
Community property is another system that is followed in some western states. Community property states view most property acquired during marriage as being owned equally by both spouses, but the system lacks the same asset protection benefits as tenancy by the entirety.
The decision between these forms of ownership is based on the couple's individual situation, state of residence, and estate planning objectives. Each form has varying advantages and restrictions that couples should thoroughly deliberate.
How to Create Tenancy by the Entirety
Each state may have its own specific laws as to how the tenancy by the entirety is created. Some states automatically assume property is held this way when it is titled jointly by husband and wife; others require specific language in the deed or account applications.
The procedure typically begins by obtaining proper legal documentation. In the case of real estate, this usually involves a deed that clearly states the property is held as tenants by the entirety. The deed should include both spouses’ names and specify the tenancy type.
For bank or investment accounts, the couple will need to open joint accounts and request tenancy by the entirety status if allowed in their state. Some financial institutions may require special forms or legal documentation to establish this type of ownership.
Consulting a real estate attorney or estate planning professional is strongly advised. They can ensure the proper language is included in the documents and help verify that the couple meets the criteria under state law.
Estate Planning Implications
Tenancy by the entirety plays a major role in estate planning. One of its greatest advantages is that it avoids probate and allows for the seamless transfer of property to the surviving spouse. This results in faster access to property and reduced legal complications during a difficult time.
The property is not controlled by a will or subject to probate court when held this way. The survivorship feature ensures that the property immediately becomes the sole possession of the surviving spouse.
However, if the couple has broader estate planning goals, such as passing property to children or other heirs, additional tools like wills or trusts may be required. Since tenancy by the entirety passes property automatically to the surviving spouse, it does not provide a mechanism for transferring property to anyone else without that spouse’s death.
Also, in blended families or second marriages, relying solely on tenancy by the entirety could complicate inheritance intentions. A spouse could inherit all property and disinherit children from a previous marriage unless specific provisions are made elsewhere in the estate plan.
Common Misconceptions
Many people believe that any jointly owned property is protected from creditors or automatically goes to the surviving spouse. However, only tenancy by the entirety offers both benefits when properly established.
Joint tenancy does provide survivorship but lacks asset protection. Tenancy in common provides neither survivorship nor protection. Therefore, assuming that joint ownership is enough can result in loss of assets or unexpected legal outcomes.
Another misconception is that all states recognize tenancy by the entirety for all property types. In fact, many states either limit this form of ownership or do not recognize it at all. Each state's laws vary, and couples must ensure they are acting in accordance with their local regulations.
Some also think that tenancy by the entirety can replace an estate plan. While it is a powerful tool, it should be used in combination with a full estate plan, especially when the goal is to pass property to someone other than the surviving spouse or protect against future legal claims.
Conclusion
Tenancy by the entirety is a unique and powerful form of property ownership for married couples. It provides automatic inheritance and significant asset protection from individual creditors. This dual benefit makes it an ideal choice for couples seeking to preserve wealth and avoid probate.
However, tenancy by the entirety is not without its limitations. It requires specific conditions to be met, varies by state, and may not be suitable for every situation. It should be used thoughtfully and in conjunction with broader estate planning strategies.
Understanding your state’s laws, consulting professionals, and carefully titling your property can help you and your spouse make the most of this valuable legal tool.
