Even if TBE is allowed, the case and statutory law of a few states will not protect TBE property from creditors. Therefore, these laws and cases must be checked before relying on TBE ownership for asset protection. Another problem with tenancy by the entirety is the fact that TBE\u2019s asset protection has somewhat eroded over the years.<\/p>\n

For example, a 2002 U.S. Supreme Court case allowed an IRS tax lien to ignore the protection normally afforded TBE ownership. Consequently, it is now the standard operating procedure for the IRS to seize one-half of a TBE property\u2019s sale proceeds (up to the amount of the tax lien) if a tax lien has attached to either spouse.<\/p>\n

A state-specific example of TBE failing to protect an asset is found in a 1993 Massachusetts case, Coraccio v. Lowell Five Cents Savings Bank. In Corracio, the court ruled that under Massachusetts law, a husband had a right to unilaterally manage TBE property, which in this case was the debtor\u2019s primary residence. This right gave him the power to transfer or encumber the property without the wife\u2019s consent, whereas the wife only had a right of survivorship. The court ruled that, although the husband could not alienate her right…<\/p>\n

TBE Allowed for real property only<\/strong><\/p>\n

\n
• \n
  Illinois<\/ul>\n<\/li>\n<\/ul>\n
  \n
  • \n
    Indiana<\/ul>\n<\/li>\n<\/ul>\n
    \n
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      Kentucky<\/ul>\n<\/li>\n<\/ul>\n
      \n
      • \n
        Michigan<\/ul>\n<\/li>\n<\/ul>\n
        \n
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          New York<\/ul>\n<\/li>\n<\/ul>\n
          \n
          • \n
            North Carolina<\/ul>\n<\/li>\n<\/ul>\n
            \n
            • \n
              Oregon<\/ul>\n<\/li>\n<\/ul>\n

              TBE Not Allowed<\/strong>
              California
              Connecticut
              Washington
              Iowa
              Maine
              Minnesota
              Nevada
              New Hampshire
              New Mexico
              North\/South Dakota
              West Virginia
              Wisconsin<\/p>\n

              …survivorship, but he could alienate the property itself. Conversely, the wife did not have the right to alienate the property without her husband\u2019s consent. The special rights afforded the husband were due to ancient TBE laws that were not properly updated as women were given equal rights in our society. Subsequently, when the husband applied for a 2nd mortgage on their home and failed to make payments, the bank that held the mortgage was allowed to foreclose on the property. Although most states that specifically allow TBE ownership do not have adverse case law like the Corracio case, one law professor notes that \u201conly Massachusetts, Michigan, and North Carolina have brought into modern times the tenancy’s ancient husband-oriented form.\u201d<\/p>\n

              In contrast to the above, there are cases where TBE ownership has successfully shielded assets. Nonetheless, the foregoing leads us to conclude that TBE cannot be relied upon as an impenetrable creditor defense. On the upside, because it\u2019s very easy to title assets as tenants by the entirety between a husband and wife (in states that allow such), TBE is a great way to add an extra layer of protection.<\/p>\n

              For example, in a state that allows TBE, it may be a good idea to title ownership of business entities as TBE. In one Florida case, doing this protected the ownership interests from the husband\u2019s creditors. Yet merely saying an asset is held as TBE is not sufficient by itself. One must also meet the criteria described in this chapter\u2019s section on joint tenants with right of survivorship, in addition to both owners being husband and wife.<\/p>\n

              Community Property<\/h3>\n

              There are ten community property states: Alaska, Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington, and Wisconsin. A community property state is a state where all marital property (property of the \u201ccommunity\u201d) is automatically deemed to be owned 50\/50 by each spouse, even if it is only titled in one spouse\u2019s name. Marital property is defined as any property acquired during the marriage.<\/p>\n

              A boat one spouse acquired before marriage, for example, will not be considered community property, unless the boat is subsequently titled in both spouse\u2019s names. At the same time, it is easy for one spouse\u2019s pre-marital non-titled property, especially cash, to be commingled with the community and thus be considered community property. An inheritance acquired by one spouse during marriage may or may not be considered community property, depending on state law.<\/p>\n

              A married couple may separately own assets in a community property state via a transmutation agreement. A transmutation agreement is a type of post-nuptial agreement wherein each spouse agrees to keep their own property separate and outside the
              community estate.<\/p>\n

              A well-drafted transmutation agreement thus supersedes community property law. When drafting a transmutation agreement, each spouse should retain separate counsel and have full disclosure of the agreement\u2019s ramifications in order to prevent the agreement from later being challenged. If one spouse is particularly vulnerable to creditor threats, a transmutation agreement allows the less vulnerable spouse to separately hold assets, which may provide asset protection if done before the more vulnerable spouse has creditor problems.<\/p>\n

              There are some potential downsides to this solution, however, which we discuss in the next section. The community property law of some states actually increases one\u2019s likelihood of losing marital assets to creditors. As we discussed in the McIntyre v. USA10 case in Chapter 6, some states (such as California in the McIntyre case) allow a creditor to reach all community assets for the debts of either spouse. In contrast, a few states\u2019 community property laws actually provide limited asset protection.<\/p>\n

              For example, Arizona allows a debt acquired by either spouse prior to marriage to be satisfied from community property, but only to the extent of the value of that spouse’s contribution to the community that would have been such spouse’s separate property if he or she were single. In contrast, an unsecured debt acquired during the marriage may not be satisfied from community property. Nevada allows a spouse\u2019s separate debt to be satisfied from community property, but only if the wife acquires debt because the husband didn\u2019t provide for her necessities.<\/p>\n

              Such a debt can then be satisfied from any community property, or from the husband\u2019s separate property. In Texas, only tort debts (but not contract debts) may be satisfied from community property, but if the debt arises from a tort, then it may be satisfied from any and all community property. The same can be said for tort debts in Washington, except they may only be satisfied with the debtor\u2019s half of community property.<\/p>\n

              On the other hand, California, Louisiana, Idaho, New Mexico, and Wisconsin allow a separate debt acquired by either spouse during marriage to be satisfied out of any community property.<\/p>\n

              Titling Assets in the Name of a Less-Vulnerable Spouse<\/h3>\n

              If one spouse\u2019s activities expose him or her to a high risk of lawsuits or other creditor threats, titling assets into the other spouse\u2019s name may be a good idea. However, there are exceptions to this rule. For example:<\/p>\n

              \n
              • As we discussed earlier in this chapter, titling assets into the other spouse\u2019s name, without a transmutation agreement, isn\u2019t effective in community property states.<\/li>\n<\/ul>\n

                \u2022 In non-community property states, or in a community property state with a transmutation agreement, titling the bulk of marital assets in a single spouse\u2019s name can cause obvious problems in the event of divorce. Why should the spouse with most of the assets give those assets back to the spouse who willingly gave up those assets in the first place? It\u2019s not wise to leave it up to a divorce court to answer this question!<\/strong><\/p>\n

                \u2022 Transferring assets to a spouse is almost always done as a gift, and as this book\u2019s chapter on fraudulent transfers explains, gifts are very susceptible to fraudulent transfer rulings. An apparent workaround for this dilemma would be for one spouse to actually sell assets to the other instead of making gifts. However, doing this would probably not avoid a fraudulent transfer ruling for several reasons. First, such a transfer is to an insider. Second, it will be difficult to justify why one spouse sold something to another spouse for any reason other than asset protection. If a court determines the sale was done to protect assets, they may determine such as prima facie evidence of intent to defraud creditors, even if creditor threat was not imminent when the transfer was made.17<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t

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                How Much Should One Rely on Co-Ownership Laws for Asset Protection?<\/h4>\n

                Co-ownership planning has its pitfalls and thus should never be the exclusive line of defense against creditors. First, the statutory protection afforded co-ownerships has been steadily eroded by the courts. We can expect parts of this protection, at least, to continue to erode in the future. Furthermore, a client may move from a state that protects assets through co-ownership to one that does not. For example, a client can move from a state that allows TBE ownership to a state that forbids it, or to a state that allows it but does not allow TBE ownership to protect assets.<\/div>\n<\/div>\n<\/div>\n

                <\/p>\n

                Third, like with exemption planning there are always caveats to when a certain type of co-ownership will protect assets. Because such broad, \u201cblanket\u201d protection is unavailable through co-ownership planning, assets should, when possible, always be protected by additional measures, such as equity stripping<\/a>, placing assets offshore, or placing assets in a limited partnership or LLC.<\/p>\n

                i Alaska Stat. \u00a734-15-40; Ha. Rev. Stat. \u00a7509-2; Tenn. Code Ann. \u00a766-1-109; Ver. Stat. Ann. Title 15 \u00a767.
                \nii Janet D. Ritsko, Lien Times in Massachusetts: Tenancy by the Entirety After Coraccio v. Lowell Five Cents Savings Bank, New England Law Review, vol. 30, no. 1, Fall 1995, fn 16.
                \niii Ibid.
                \niv See United States v. Sandra L. Craft, 535 U.S. 274 (2002).
                \nv Notice 2003-60, I.R.B. 2003-39, 9\/11\/03.
                \nvi Coraccio v. Lowell Five Cents Savings Bank, 415 Mass. 145, 612 N.E.2d 650 (1993) (No. 92-P-0175).
                \nvii Janet D. Ritsko, Lien Times in Massachusetts: Tenancy by the Entirety After Coraccio v. Lowell Five Cents Savings Bank, New England Law Review, vol. 30, no. 1, Fall 1995.
                \nviii Berlin v. Pecora, So.2d, 2007 WL 2710764 (Fla. 4th DCA Sep 19, 2007); Beal Bank SSB v. Almand & Assoc., 780 So.2d 245 (Fla. 2001).
                \nix Berlin v. Pecora, So.2d, 2007 WL 2710764 (Fla. 4th DCA Sep 19, 2007).
                \nx McIntyre v. USA (9th Cir. App. case No. 98-17192 (2000)).
                \nxi Ariz. rev. stat. \u00a725-215.
                xii State ex rel Industrial Commission of Arizona v. Wright, 2002.AZ.0000047 (Ariz.App.Div.1 04\/02\/2002); Schilling v. Embree, 118 Ariz. 236, 239, 575 P.2d 1262, 1265 (App. 1977).
                \nxiii Nev. rev. stat. \u00a7123.090.
                \nxiv Tex. Fam. Code. Ann. \u00a73.202(b), \u00a73.202(d).
                \nxv DeElche v. Jacobson, 95 Wn.2d 237, 245, 622 P.2d 835 (1980); 104 Wash. 2d 78, 701 P.2d 1114 (1985).
                \nxvi Calif. Fam. Code \u00a7910(a); Id. Code \u00a732-912; La. Civ. Code. Ann. Art. 2364; N.M. Stat. Ann. \u00a740-3-10; Wis. Stat. Ann. \u00a7766.55(2)(b).
                \nxvii U.S. v. Bryce W. Townley, No. CS-02-0384-RHW (USDC E. Wash., Jul. 29, 2004). Note the following excerpt from this case: \u201c\u2026a transfer of property made with actual intent to delay, hinder, or defraud a creditor is prohibited\u2026<\/p>\n

                Mr. Townley stated in his deposition that he was concerned about potential \u201elawsuits from the exposure we had from liability from troubled boys in the State of Washingtion.\u201f (Ct. Rec. 58, Ex. 1). Additionally, Mr. Townley stated that it was his goal to protect his assets from anyone who might get a judgment against him\u2026 Plaintiff asserts that Mr. Townley\u2019s statements that he intended to protect his assets from anyone who might get a judgment against him is conclusive, direct evidence of intent to hinder, delay, or defraud. The Court agrees.\u201d [emphasis is mine]<\/p>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t

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                See Also:<\/strong><\/p>

                • Asset Protection Trusts are Not a Substitute for Insurance<\/a><\/li>
                • 8 Big 401K Mistakes and How to Avoid them<\/a><\/li>
                • Get Asset out of Asset Protection Trust during Settlor’s Life<\/a><\/li>
                • Never Trust Anyone<\/a><\/li>
                • Joint tenants with rights of Survivorship Creditor Protection<\/a><\/li>
                • Cuba Clause<\/a><\/li><\/ul>\t\t\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t
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                  \n\t\t\t\n\t\t\t\t\t\t\n\t\t\t\t\t\tPlease Take A Moment To Complete Our Survey <\/span>\n\t\t<\/span>\n\t\t\t\t\t<\/a>\n\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t<\/div>\n\t\t\t\t\t<\/div>\n\t\t<\/div>\n\t\t\t\t\t\t\t<\/div>\n\t\t<\/section>\n\t\t\t\t\t\t\t<\/div>\n\t\t","protected":false},"excerpt":{"rendered":"

                  Joint Tenants with rights of Survivor-ship Creditor Protection There are four types of co-ownership planning, namely: Tenancy in common (TIC). Joint tenants with right of survivorship (JTWROS); JTWROS is often referred to simply as \u201cjoint tenants\u201d ownership. Tenants by the entirety (TBE). Community property. Of the above, only TBE ownership provides any meaningful asset protection. […]<\/p>\n","protected":false},"author":49,"featured_media":0,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"footnotes":""},"categories":[14],"tags":[50,51,52,53,54,55,56,57],"_links":{"self":[{"href":"https:\/\/www.assetprotectiontraining.com\/wp-json\/wp\/v2\/posts\/443"}],"collection":[{"href":"https:\/\/www.assetprotectiontraining.com\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/www.assetprotectiontraining.com\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/www.assetprotectiontraining.com\/wp-json\/wp\/v2\/users\/49"}],"replies":[{"embeddable":true,"href":"https:\/\/www.assetprotectiontraining.com\/wp-json\/wp\/v2\/comments?post=443"}],"version-history":[{"count":0,"href":"https:\/\/www.assetprotectiontraining.com\/wp-json\/wp\/v2\/posts\/443\/revisions"}],"wp:attachment":[{"href":"https:\/\/www.assetprotectiontraining.com\/wp-json\/wp\/v2\/media?parent=443"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/www.assetprotectiontraining.com\/wp-json\/wp\/v2\/categories?post=443"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/www.assetprotectiontraining.com\/wp-json\/wp\/v2\/tags?post=443"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}