When many people picture the benefits of marriage they often envision companionship, financial security, and a partner with which you can share your life experiences. While all of those are certainly true, there is one benefit that is often overlooked – creditor protection.
Tenancy by the entireties is a form of ownership unique to married couples. Essentially, the ownership arises when spouses have simultaneous, joint control of the entirety of an object. Examples of property held as tenants by the entirety include a jointly titled car, a jointly titled bank account, or even furniture that is purchased during the marriage using joint funds.
When a married couple holds property as a tenancy by the entireties each spouse is considered to own an indivisible part. Thus, property held by a husband and wife as tenants by the entireties belongs to neither spouse individually, but each spouse is in control of the whole. When one spouse dies the entirety of the property automatically transfers to the other.
Because of this distinction between each spouse owning the whole versus each owning a share, if property is held outside tenants in common a creditor of one of the tenants may attach the other tenant's portion of the property to recover that joint tenant's individual debt. However, when property is held as a tenancy by the entireties, only the creditors of both the husband and wife, jointly, may attach the tenancy by the entireties property; the property is not divisible on behalf of one spouse alone, and therefore it cannot be reached to satisfy the obligation of only one spouse.
When seeking to file a lawsuit, it is always important to consider whether you have a cause of action against both spouses based on the tenants by the entirety exception. If you do not have a valid claim against both you may wish to reconsider unless one spouse is independently wealthy. For those out there who have creditors in the picture, do keep in mind that you cannot transfer or retitle assets simply to avoid a creditor. Such an action is considered a fraudulent transfer and can be set aside. Similarly, it is a good idea to speak with an attorney before gifting your spouse property, even temporarily, as it can have a significant impact on your ownership in the event of a divorce.