Tenancy by the entirety can’t hold if it’s a fraudulent transfer

Tenancy by the entirety can give married couples most of the same advantages and disadvantages of joint tenancy. When one spouse dies, the other spouse obtains full ownership without the property having to go through probate.

It also has one other aspect that makes it particularly attractive; property that’s held in a tenancy by the entirety is only subject to liens or seizure to pay off the spouses’ joint debts.

That can be a huge advantage if one spouse has racked up considerable individual debts somehow.

However, that doesn’t give debtors a free pass to simply convert property that’s not exempt from debt collection into property that is exempt by suddenly transferring property that was held by one spouse alone into a tenancy by the entirety and saying that it’s part of their estate planning.

Instead, that will open them up to a charge of making a fraudulent transfer just to avoid paying their debts.

For example, you can look at a case involving a man whose construction business and partnership with another soured. The man’s business partner eventually sued and won, to the tune of a judgment that was more than $175,000.

The business partner apparently thought that he could collect by forcing the sale of one or more of the three properties that he knew the defendant owned—only to find out that the defendant had quietly transferred those three properties, which had been in his name only, into a tenancy by the entirety with his wife.

The defendant probably had the foresight to realize that he was likely to end up owing his former partner quite a bit of debt and thought moving the property into the tenancy by the entirety was a smart move.

While there was a lot of legal wrangling, the debtor ultimately lost his fight against the charge of a fraudulent transfer for one reason: he did it at a time when it was proven that he was already stealing money from the business he had with his former partner, turning the partner into a creditor.

Had he had the foresight to make the transfer before he started siphoning money out of his business partner’s pocket, his defense would have succeeded.

Cases like this illustrate why it is so important that you discuss any possible debts that you have with your estate planner—otherwise, your best laid plans may still fail you.

Source: Forbes, “Fraudulent Transfer Law Trumps Tenancy By The Entireties In Knoll,” Jay Adkisson, Jan. 18, 2017