Finance Terms: Tenants by Entirety (TBE)

Two house keys

In the world of real estate and property ownership, Tenants by Entirety (TBE) is a term that refers to a specific form of joint ownership that is available to married couples in certain states. Under TBE, both spouses share equal ownership of the property and have the right of survivorship – meaning that if one spouse passes away, the other automatically inherits the entire property without the need for probate.

Understanding the concept of Tenants by Entirety (TBE)

So, what exactly is Tenants by Entirety and how does it differ from other forms of joint ownership? Essentially, under TBE the property is treated as if it is owned by one legal entity – the couple – rather than two individuals. This means that both spouses are considered to have a 100% interest in the property, and neither can sell or transfer their share without the other’s consent.

While TBE may sound similar to joint tenancy, there are some key differences. In joint tenancy, each owner has a separate and distinct interest in the property, and can sell or transfer their share without the other’s consent. Additionally, joint tenancy does not come with the right of survivorship – meaning that if one owner passes away, their share is transferred to their heirs rather than the other owner.

It is important to note that not all states recognize Tenants by Entirety as a form of joint ownership. Currently, only about half of the states in the US allow TBE ownership for married couples. It is also worth mentioning that TBE only applies to property that is acquired during the marriage, and does not extend to property that was owned by one spouse prior to the marriage.

How does Tenants by Entirety work?

Under TBE, both spouses have an equal right to use and occupy the property. They are also both responsible for the costs associated with maintaining the property, such as mortgage payments, property taxes, and upkeep.

In order for a property to be owned as Tenants by Entirety, both spouses must take ownership at the same time and be legally married at the time of purchase. If the couple divorces or one spouse passes away, the tenancy is automatically converted to a tenancy in common – meaning that each spouse owns a separate and distinct interest in the property.

One advantage of Tenants by Entirety is that it provides protection against creditors. If one spouse has a debt or legal judgment against them, the property cannot be seized to satisfy that debt unless both spouses are liable for the debt. This protection is not available in all states, so it is important to check the laws in your state.

Another important consideration is that Tenants by Entirety only applies to real property, such as a house or land. It does not apply to personal property, such as bank accounts or vehicles. In some states, however, spouses can hold personal property as Tenants by the Entirety if it is titled in both of their names.

Benefits of Tenants by Entirety for married couples

There are several benefits to owning property as Tenants by Entirety for married couples.

First and foremost, TBE comes with the right of survivorship – meaning that if one spouse passes away, the other automatically inherits the entire property without the need for probate. This can save a great deal of time and money, as probate can be a lengthy and expensive process.

Additionally, because both spouses have an equal right to use and occupy the property, there is less chance for disputes to arise over how the property is used or maintained. This can be especially important for couples who purchase real estate as an investment or who plan to use the property for rental income.

Another benefit of Tenants by Entirety is that it provides protection against creditors. If one spouse has debts or legal judgments against them, the property owned as TBE cannot be seized to satisfy those debts or judgments. This can be particularly important for couples who own a business together or who have high-risk professions.

Differences between Tenants by Entirety and Joint tenancy

While TBE and joint tenancy may have some similarities, there are several key differences between the two forms of ownership.

Firstly, joint tenancy does not come with the right of survivorship – meaning that if one owner passes away, their share of the property is transferred to their heirs rather than the other owner. Additionally, each joint tenant has a separate and distinct interest in the property, meaning that they can sell or transfer their share without the other owner’s consent.

On the other hand, TBE is only available to married couples and comes with the right of survivorship. Additionally, both spouses have an equal interest in the property and cannot sell or transfer their share without the other’s consent.

Another key difference between TBE and joint tenancy is the level of protection offered to the property. In TBE, the property is protected from the individual debts of each spouse. This means that if one spouse incurs a debt, the creditor cannot go after the property owned by both spouses. However, in joint tenancy, each owner’s share of the property can be used to satisfy their individual debts.

Finally, TBE is only available in certain states, while joint tenancy is recognized in all states. It is important to consult with a legal professional to determine which form of ownership is best suited for your specific situation.

Tax implications of Tenants by Entirety

From a tax perspective, TBE can be beneficial for married couples. Because the property is treated as if it is owned by one legal entity – the couple – each spouse’s interest in the property is included in their estate for estate tax purposes. However, because the estate tax exemption is currently so high ($11.58 million for 2020), many couples won’t have to worry about paying estate taxes on their property.

Additionally, if the property is sold while both spouses are still alive, the profits are generally split evenly between the spouses for tax purposes. This can be beneficial if one spouse has a significantly higher income than the other, as they may be able to take advantage of the lower tax bracket of their spouse.

It is important to note that Tenants by Entirety is not recognized in all states. In some states, such as California, married couples cannot hold property as Tenants by Entirety and must instead choose another form of ownership, such as Joint Tenancy or Community Property. It is important to consult with a local attorney or real estate professional to determine the best form of ownership for your specific situation.

Another potential benefit of Tenants by Entirety is protection from creditors. In some states, such as Florida, property held as Tenants by Entirety is protected from the individual debts of one spouse. This means that if one spouse has a judgment against them, the creditor cannot go after the property held as Tenants by Entirety to satisfy the debt.

When is Tenants by Entirety legal?

Not all states allow for Tenants by Entirety ownership. In fact, only about half of the states in the US recognize TBE as a valid form of ownership. These states include:

  • Arkansas
  • Delaware
  • Florida
  • Hawaii
  • Illinois
  • Indiana
  • Kentucky
  • Maryland
  • Massachusetts
  • Michigan
  • Mississippi
  • Missouri
  • New Jersey
  • New York
  • North Carolina
  • Ohio
  • Oklahoma
  • Oregon
  • Pennsylvania
  • Rhode Island
  • Tennessee
  • Texas
  • Vermont
  • Virginia
  • Wyoming

It is important to note that even in states where Tenants by Entirety ownership is recognized, there may be limitations or restrictions on its use. For example, some states only allow married couples to use TBE, while others may allow business partners or family members to use this form of ownership.

Additionally, Tenants by Entirety ownership may not be the best option for everyone. It is important to consult with a legal professional to determine if TBE is the right choice for your specific situation and needs.

How to create a Tenancy by Entirety agreement

If you are a married couple looking to own property as Tenants by Entirety, it is important to consult with a real estate attorney to ensure that you are meeting all of the legal requirements in your state.

In general, however, creating a Tenancy by Entirety agreement involves taking the following steps:

  1. The property must be purchased at the same time by both spouses.
  2. The deed must clearly state that the property is being owned as Tenants by Entirety.
  3. Both spouses must sign the deed.
  4. If the couple is taking out a mortgage to purchase the property, both spouses must sign the mortgage agreement.

It is important to note that Tenancy by Entirety agreements are only available to married couples. If you are not married, you may want to consider other forms of joint ownership, such as Joint Tenancy or Tenancy in Common.

Additionally, it is important to keep in mind that Tenancy by Entirety agreements offer certain legal protections to married couples. For example, if one spouse incurs a debt, the creditor cannot go after the property owned as Tenants by Entirety to satisfy the debt, unless both spouses are responsible for the debt.

Limitations and restrictions of Tenants by Entirety

While TBE can be a beneficial form of ownership for married couples, it does come with some limitations and restrictions.

Firstly, as we mentioned earlier, TBE is only available to married couples. If you are not married but still wish to jointly own property with another person, you may need to consider other forms of ownership such as joint tenancy or tenancy in common.

Additionally, if one spouse incurs a debt that is unrelated to the property – such as credit card debt or medical bills – the creditor may try to seize the couple’s home to satisfy the debt. However, some states have laws that protect TBE property from certain types of debt collection.

Another limitation of TBE is that both spouses must agree to any decisions regarding the property. This means that if one spouse wants to sell or refinance the property, but the other does not, the sale or refinance cannot proceed without the consent of both parties.

Furthermore, in the event of divorce, TBE property can become a point of contention. If the couple cannot agree on how to divide the property, a court may have to intervene and make a decision for them. It is important for couples to have a clear understanding of their rights and responsibilities when it comes to TBE property, and to have a plan in place in case of divorce or other unforeseen circumstances.

Common misconceptions about Tenants by Entirety

There are several misconceptions about TBE that are worth dispelling.

Firstly, TBE is not a bulletproof asset protection strategy. While it can provide some protection from creditors, it is not an impenetrable shield. Additionally, it does not protect against lawsuits or judgments arising from actions taken by either spouse that are unrelated to the property.

Secondly, TBE does not provide any protection against disagreements or disputes between spouses. While both spouses have an equal right to use and occupy the property, they still need to work together to ensure that the property is being maintained and used in a way that is agreeable to both parties.

Thirdly, it is important to note that TBE is not recognized in all states. Some states do not allow TBE ownership, while others have different rules and requirements for establishing TBE ownership. It is important to consult with a legal professional in your state to determine if TBE is a viable option for your asset protection strategy.

Alternatives to Tenants by Entirety

If TBE is not available in your state or you do not wish to take advantage of it, there are several other forms of joint ownership available to you.

Joint tenancy, as we’ve mentioned, is a popular alternative to TBE. It allows multiple owners to share the costs of ownership and, in some cases, comes with the right of survivorship.

Another option is tenancy in common, which allows multiple owners to have different ownership interests in the property. This can be beneficial in situations where one owner wants to sell their share or transfer it to a family member.

Community property is another form of joint ownership that is recognized in some states. In community property states, any property acquired during the marriage is considered equally owned by both spouses. This means that if one spouse were to pass away, their share of the property would automatically transfer to the surviving spouse.

Cases where Tenancy by the Entireties can be terminated

There are several situations where a Tenancy by the Entireties agreement can be terminated, including:

  • Divorce or annulment
  • The death of one spouse
  • If one spouse transfers their share of the property without the other’s consent
  • If the couple sells the property

It is important to note that in some states, a Tenancy by the Entireties agreement can also be terminated if one spouse files for bankruptcy. In this case, the property may be subject to seizure by creditors and sold to pay off debts. It is important for couples to understand the laws in their state and to consult with a legal professional before entering into a Tenancy by the Entireties agreement.

Frequently asked questions about Tenancy by the Entireties

Here are some of the most common questions that arise when discussing TBE:

Q: Can TBE protect my home from creditors?

A: It depends on the situation. While TBE can provide some protection from creditors, it is not an impenetrable shield. Additionally, some states have laws that protect TBE property from certain types of debt collection.

Q: Can both spouses sell or transfer the property without the other’s consent under TBE?

A: No. Under TBE, both spouses have an equal interest in the property and cannot sell or transfer their share without the other’s consent.

Q: Is TBE available in all states?

A: No. Only about half of the states in the US recognize TBE as a valid form of ownership.

Q: What happens to TBE property in the event of divorce?

A: In the event of divorce, TBE property is typically divided equally between the spouses. However, the specifics of how the property is divided can vary depending on the state and the circumstances of the divorce. It is important to consult with a lawyer to understand your rights and options in a divorce involving TBE property.

Conclusion: Is a Tenancy By the Entireties right for you?

If you are a married couple looking to purchase property, Tenancy by the Entireties may be a beneficial form of joint ownership for you. With the right of survivorship and a shared interest in the property, TBE can provide some financial security and peace of mind.

However, it is important to carefully consider all of your options and consult with a real estate attorney to ensure that you are meeting all of the legal requirements in your state. Additionally, you may want to consider other forms of joint ownership such as joint tenancy or tenancy in common.

At the end of the day, the right form of ownership for you will depend on your specific circumstances and goals. By understanding the benefits and limitations of Tenancy by the Entireties, you can make an informed decision that is best for you and your spouse.

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