When a married couple decides to purchase real estate together, the way they choose to hold the title can have significant legal and financial implications. One popular form of joint property ownership available in some states is called tenancy by the entirety.” This unique form of ownership offers certain protections and benefits that distinguish it from other types of joint ownership, such as joint tenancy or tenancy in common. Understanding tenancy by the entirety is crucial for anyone considering shared property ownership within a marriage, as it can affect issues like creditors’ claims, survivorship rights, and property transfers.
What Is Tenancy by the Entirety?
Tenancy by the entirety is a legal arrangement where a married couple jointly owns a piece of property as a single legal entity. This means that both spouses are considered to own the whole property together, not just a divided share. This type of ownership is available only to married couples (or in some jurisdictions, to couples in a civil union or domestic partnership).
The hallmark of tenancy by the entirety is the legal fiction that the couple is one person in the eyes of the law. Because of this unity, neither spouse can unilaterally transfer, sell, or encumber the property without the consent of the other. In addition, tenancy by the entirety comes with a right of survivorship when one spouse dies, the surviving spouse automatically becomes the sole owner of the property, regardless of any will or estate plan.
Key Features of Tenancy by the Entirety
- Unity of ownershipBoth spouses are deemed to own 100% of the property together.
- Right of survivorshipWhen one spouse dies, ownership passes directly to the surviving spouse without going through probate.
- Protection from creditorsIn many states, creditors of only one spouse cannot seize or force the sale of the property held in tenancy by the entirety.
- Mutual consent requirementNeither spouse can transfer or encumber the property without the other’s approval.
Where Tenancy by the Entirety Is Recognized
Not all states in the United States recognize tenancy by the entirety. As of now, it is allowed in approximately half the states, and the laws vary regarding which types of property are eligible. Some states permit tenancy by the entirety only for real estate, while others extend it to personal property, such as bank accounts. It is essential to check your state’s specific statutes or consult with a legal expert if you are unsure.
Tenancy by the Entirety vs. Other Forms of Joint Ownership
Joint Tenancy
Joint tenancy is another popular form of co-ownership that includes the right of survivorship. However, unlike tenancy by the entirety, joint tenants can be anyone not just married couples. Also, joint tenants each own an equal share of the property and may sell or transfer their interest without the permission of the other owners. Doing so breaks the joint tenancy and converts it to a tenancy in common.
Tenancy in Common
Tenancy in common does not include a right of survivorship. Each co-owner holds a distinct, possibly unequal share of the property, and each person’s share can be sold, gifted, or passed on through a will. This form is more flexible but lacks the protections that tenancy by the entirety provides to married couples.
Legal Protections Against Creditors
One of the most notable benefits of tenancy by the entirety is protection from creditors. In many states, if only one spouse is the subject of a lawsuit or owes a debt, creditors cannot place a lien on or force the sale of property held in tenancy by the entirety. This protection stems from the idea that the debtor does not individually own the property it is owned by the marital unit.
However, if both spouses owe a joint debt or are co-defendants in a lawsuit, creditors may be able to claim against the property. Similarly, if a couple divorces, the tenancy by the entirety is automatically dissolved, and the property may become subject to creditor claims or be divided during the divorce proceedings.
Termination of Tenancy by the Entirety
There are several ways in which a tenancy by the entirety can be terminated
- DivorceDissolving the marriage ends the tenancy by the entirety and usually converts the ownership into a tenancy in common.
- Mutual agreementBoth spouses can agree to sell or transfer the property, thereby ending the joint ownership.
- Death of a spouseThe surviving spouse receives full ownership of the property, ending the tenancy.
- Partition actionIn some jurisdictions, a court may order a partition of the property under special circumstances.
Tax Considerations
Holding property as tenants by the entirety can have implications for estate and property taxes. For example, when one spouse dies, the surviving spouse may not need to pay estate taxes on the inherited portion, depending on the total estate value and applicable exemptions. Additionally, the entire property may receive a step-up in basis for capital gains purposes, although this can vary by state and federal laws.
Property Transfers and Refinancing
Refinancing a mortgage or transferring the property title requires both spouses’ signatures when the property is held as tenancy by the entirety. This added layer of consent can prevent one spouse from making financial decisions without the other’s knowledge, helping to protect marital assets.
Should You Choose Tenancy by the Entirety?
Whether tenancy by the entirety is the right option depends on your personal and financial circumstances. It may be especially beneficial for couples seeking strong creditor protections and a seamless transfer of property upon death. On the other hand, it may not be ideal in situations where either spouse wants more autonomy over their share of the property or where there are complex estate planning needs.
Here are some factors to consider
- Are you married and living in a state that recognizes tenancy by the entirety?
- Do you want the surviving spouse to automatically inherit the property?
- Are you concerned about individual creditors seizing marital assets?
- Are both partners equally invested in maintaining and managing the property?
How to Create a Tenancy by the Entirety
To establish tenancy by the entirety, the property deed must clearly state the intention to create this type of ownership. It is not automatically assumed in most cases. The language in the deed must include both names and specify that the property is being held as tenants by the entirety. It’s wise to work with a real estate attorney or a title company familiar with your state’s laws to ensure proper documentation.
Tenancy by the entirety offers married couples a powerful way to jointly own property while enjoying the benefits of survivorship rights and creditor protection. Though not available in every state, it is a valuable option where permitted. By understanding the legal features, advantages, and limitations of tenancy by the entirety, couples can make informed decisions about property ownership that support long-term financial security and peace of mind.