Tenancy by the Entirety

Tenancy by the entirety (TBE) is a unique type of property ownership that allows spouses to have equal rights to a property. Spouses represent a single indivisible unit holding the ownership of the property. The right of survivorship, right to use the property and right to a share of the revenue from the property are all important properties of TBE.

• Tenancy by the entirety is a legal ownership concept that determines how spouses co-own properties as a single legal unit and enjoys complete ownership.
• Generally, TBE provides asset protection and insulation against unilateral decisions of a spouse.
• In the United States, TBE is valid in 24 states and the District of Columbia.
• The main difference between TBE and joint tenancy is that TBE is only available to married couples, but Joint Tenancy is open to two or more related or unrelated partners.

The tenancy by the entirety form of legal ownership is for married couples, and they hold the right of survivorship. It is valid until the couple stays in the marriage. The right of survivorship enables one tenant to receive the whole property seamlessly without needing probate if a partner dies. The transfer of property to a third party is not possible in the absence of mutual consent.

Divorce, death, and mutual agreement termination are the most common situations that lead to the cancellation of a TBE agreement. In case of divorce, the TBE converts to tenants in common. However, the TBE is not vulnerable to cancellation when a sale, exchange, or other disposals of the TBE property occurs with mutual consent and without dividing the proceeds from sale or disposals.

In the United States, as per general rule, a tax lien due to tax default only responsible by both tenants applies to the TBE property. However, in the United States v. Craft, 535 U.S. 274 (2002) verdict, the Supreme Court clarified that a federal tax lien applies to the TBE property even if the tax liability is only due to one tenant. However, the IRS requires an order from a bankruptcy court to recover in such cases.

Advantages

• Asset protection: Having a TBE form of ownership protects the property from creditors claim against individual tenants since the property is tied to a married couple. However, if both tenants are legally responsible for the debt, there will be no asset protection.
• No dilution of interest: Right of survivorship prevents the possibility of a tenant's ownership right flowing to his or her heir or estate after his or her death.
• No probate: After the death of one tenant, the complete property ownership will shift to the remaining tenant without going through probate.
• Protection from unilateral decisions: TBE ownership can safeguard tenants from partner's unilateral property decisions, such as selling or pooling property rights with a third party.

Disadvantages

• No consideration for individual investment: Even if only one tenant invests money in the tenancy by the entirety property, both tenants have equal power and can demand an equal share of the property. Thus, for example, no one tenant can take the comparable percentage of their investment in the property in the event of a divorce.
• Temporary nature of protection: If one of the spouses dies, it will nullify the TBE and its asset protection feature. This explains the temporary nature of protection.
• Creditors claim: Creditors can attach a lien to the TBE property if both partners are responsible for the debt.

TBE is not available in the entire United States, and the standards set for TBE ownership varies between states. For instance, property held under TBE is mandatorily a real property in certain states. However, some states allow both real and personal property to classify under TBE.

The places in which the TBE form of ownership is available are the following:

It includes 24 states and the District of Columbia.

The rules and regulations associated with TBE may vary between these states. For instance, in New York, North Carolina, Illinois, Indiana, Kentucky, Michigan and Oregon, only real estate can form TBE property. In contrast, personal property and real estate can form TBE in Alaska, Arkansas, Delaware, District of Columbia, Florida, Hawaii, Maryland, Massachusetts, Mississippi, Missouri, New Jersey, Oklahoma, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia and Wyoming.

In general, TBE statutes mandate married couples to engage in an agreement through a single deed simultaneously. Domestic partners are allowed to own TBE property in some states. After marriage, certain states have a provision that will enable spouses to convert property to TBE property. In Illinois, TBE is available to only married couples, and the property must be a homestead property. In Ohio, TBE deed creation is not permissible from April 4, 1985, and the law only accepts TBE deeds created before that date.

Joe and Stacy are a married couple. They bought a house together under TBE status and took a 30-year loan to pay off the property. The laws surrounding TBE state that Jon and Stacy are equal in owning and enjoying the property and have the same responsibilities in paying off the mortgage. Hence the property is not protected from any future creditors claim associated with the 30-year loan.

TBE and Joint Tenancy are examples of co-owning properties. However, they are not the same and manifest inherent differences.

• The prime distinction explains the relationship of those who participate in the ownership program. The partners in a TBE are married couples, whereas under a joint tenancy, unrelated individuals or siblings, relatives etc., might create a partnership.
• Mutual consent is necessary to sell or transfer the interest in the TBE property unlike for joint tenancy property. Each tenant in joint tenancy has the right to sell their shares without other tenants consent and if any tenant sells his or her shares then the joint tenancy ownership converts to tenants in common.
• Under TBE, couples are single entity from legal perspective whereas tenants in the joint tenancy system does not form a single entity.

This has been a guide to What is Tenancy by the Entirety (TBE) & its Definition. Here we discuss the advantages & disadvantages of tenancy by the entirety and how it works, along with examples. You may also have a look at the following articles to learn more –

• Assignor vs Assignee
• Passive Income
• Rent Control