Tenancy by the Entireties

 Estate planning intersects with several other legal practice areas, including real estate. This article will address how a marital couple can benefit from holding real property (land and the things attached to it) by way of tenancy by the entireties to benefit them in estate planning and asset protection.

Please be aware that co-owned interests in real property can be rather confusing. For purposes of easier explanation and space concerns, concepts here are simplified. Before making any real estate or estate planning decisions, you should consult with an attorney or other professional to make sure that those decisions will be in your best interests. 

What is tenancy by the entireties?

 If an estate is held in tenancy by the entireties, this means that a married couple owns the real property together with unity of time, title, interest, possession, and marriage. A tenancy by the entireties can only be held by a married couple; unmarried individuals can jointly own a property, but not by way of tenancy by the entireties.

Tenancy by the entireties is a state of possession of real property that can only be acquired during the marriage of the spousal owners. Tenancy by the entireties provides a right of survivorship to both spouses. Upon the death of one spouse, the survivor possesses the entire interest in the property; this should avoid the probate process for the transfer of the full interest in the real property to the surviving spouse. The survivor does not take on the decedent’s interest. You could loosely say that the decedent’s interest is removed, so that any individual debts of the decedent should not be applied to the survivor’s now-one-hundred-percent ownership of the property.

Where a real estate deed to a husband and wife contains no qualifying words, the married couple takes the estate as tenants by the entirety in Indiana. Ramer v. Smith, 896 N.E.2d 563, 567 (Ind. App. 2008) (citing Richards v. Richards, 110 N.E. 103, 104 (1915) and Hulett v. Inlow, 57 Ind. 412, 414 (1877)).

How is tenancy by the entireties beneficial?

A marital couple that possesses real estate under a tenancy by the entireties has greater protection from creditors. If one spouse takes on a debt, the creditor should typically be restricted from collecting the house as property to satisfy the debt. A debtor’s interest in real estate is explicitly exempted from the sale and execution of real estate by creditors in Indiana, under IC 34-55-10-2.

A surviving spouse also takes the property that was held by the marital couple in tenancy by the entireties free and clear of the individual indebtedness of the other spouse. Whitlock v. Public Service Co. of Ind. Inc., 239 Ind. 680, 688 (Ind. 1959). Proceeds from the sale of such property should also be similarly protected, unless and until the proceeds are divided between the spouses. Id. at 691-692.

An important distinction to note, however, is that debts for which both spouses are jointly liable do not have the same protections as a debt against a single spouse, and most debts in a marriage are likely against the marital couple rather than just one spouse (e.g., loans co-signed by both spouses). Also note that tenancy by the entireties would be broken by an act such as divorce that ends the marriage.

What makes tenancy by the entireties different from other forms of shared ownership of real property? 

Joint tenancy is where two or more co-owners of real property take identical interests simultaneously by the same legal instrument and with the same right of possession. Each joint tenant has a right of survivorship to the other’s share. In other words, when one of the owners dies, the other owners take an equal share of the decedent’s interest in the property.

Joint tenancy must be created in one conveyance for all joint tenants, and it can only be created by way of purchase. Richardson v. Richardson, 121 Ind. App. 523, 528 (1951). Unless the conveyance explicitly creates a joint tenancy, by saying that the parties “shall hold the same in joint tenancy and to the survivor of them,” or by clearly intending to create a joint tenancy estate, then the law presumes that a tenancy in common has been created. Id. at 525.

Under a joint tenancy, a creditor could place a lien on the property and potentially force a sale of the property to pay for the debt of one of the owners. This obviously does not provide the sort of asset protection for co-owners that a tenancy by the entireties provides.

Tenancy in common is where co-owners each possess a single estate, but they each possess separate and distinct titles. Under joint tenancy (and tenancy by the entireties), everyone must have an equal share, but different owners can have different ownership percentages of the property in a tenancy in common. Also, while each person has an equal right to possess the whole property, there is no right of survivorship. The other owners do not get to automatically take equal shares of the decedent’s ownership amount upon death; instead, inheritance or succession planning by the decedent will decide the distribution of the decedent’s share.

Much like with a joint tenancy, a tenancy in common creates the risk that the debt of a co-owner could result in the forced sale of the property.

Therefore, tenancy by the entireties best protects the spousal co-owner of real estate. In most cases, the individual debts of one of the spouses will not allow the creditor to force a sale of the house to satisfy the debt.