Protect Your Assets With Tenancy by the Entirety

25% of Americans say they consider estate planning vital, especially due to rising inflation. However, 40% won’t even consider it until they face a life-threatening situation.

Without proper estate planning, a favorable resolution in probate court typically requires an average of $12,500. This eats into your inheritance. One way you can save this money is by opting for tenancy by the entirety if you are a married couple.

Tenancy by the entirety is a form of ownership that provides the right of survivorship. It also offers creditor protection to the surviving partner.

What Is Tenancy by the Entirety?

Tenancy by the entirety is a form of property ownership for married couples. If one spouse passes away, the property transfers to the survivor automatically. The property goes into probate after the death of the surviving partner.

This agreement also offers protection against creditors of individual partners. The creditor cannot claim a stake in the property if only one spouse owes money. This is true even if the couple declares bankruptcy.

How Does Tenancy by the Entirety Work?

In a tenancy by the entirety, both spouses own 100% of the property jointly. A common illusion is that the property is split 50/50, however, that’s not the case.

Requirements of Tenancy by Entirety

The tenancy by the entirety concept works on the principle of “unity”. It requires a couple to come together on the following key elements:

• Marriage: Lawful marriage is a requirement; certain states may also recognize them as domestic partners.
• Time: Both individuals must purchase the property together.
• Title: The property’s title must be obtained through the same deed for both spouses.
• Interest: The couple should share an equal interest in the property.
• Possession: Both spouses must jointly exercise control and ownership over the property.

Rights of Tenants by the Entirety

Tenants by the entirety have certain rights and protections:

• Right of Survivorship: On the death of a spouse, the survivor inherits the property without the need for a probate.
• Creditor Protection: Tenancy by the entirety protects from individual creditors of either spouse. Creditors generally cannot seize the property to meet the debts of only one spouse.
• 100% Ownership: Selling the property requires the consent of both spouses, and specific states prohibit placing a lien without both partner’s approval.

How Can Tenancy by Entirety Be Terminated?

Tenancy by the entirety can be terminated through the following methods:

1. Divorce or Annulment: If the couple divorces or annuls a marriage, the tenancy by the entirety is dissolved.
2. Mutual Agreement: Both spouses can agree to terminate the tenancy and amend the property agreement to a different form of ownership.
3. Sale of the Property: Selling the property terminates the entire tenancy, and the proceeds are divided between the spouses.
4. Bankruptcy: If the couple declares bankruptcy, the property may be subject to the claims of creditors, which could result in a forced sale and then termination.

Consult local legal experts to navigate the joint tenancy termination process, which varies by jurisdiction.

Pros and Cons of Tenancy by the Entirety

Here are the pros and cons of being tenants by the entireties:

✅ Pros

• Avoid Probate: Simplifies the transfer of assets upon the death of a spouse, avoiding probate proceedings.
• Offer Creditor Protection: Shields the property from individual debts of one spouse, protecting it from being seized by creditors.
• Preserve Familial Ownership: Ensures that the property remains within the family and benefits the surviving spouse.

❌ Cons

• Restricted to Married Couples: Exclusively available only to legally married couples in most states.
• Difficult to Terminate: These can only be terminated through divorce, mutual agreement, or death.
• Is a Shared Ownership: To prevent the division of the property into separate portions both spouses share complete ownership.

What Are Other Types of Tenancy?

Tenancy refers to the way people hold or possess property. Here are common types of ownership agreements other than tenancy by the entirety:

• Sole Tenancy: One person owns a property individually without a co-owner.
• Tenancy in Common: Multiple individuals own a single property in tenancy in common. There is no right of survivorship, i.e. each owner cannot directly pass their share to heirs.
• Joint Tenancy: Co-owners equally share a property with the right of survivorship. If one owner passes away, their share goes to other owners.
• Periodic Tenancy: With no set end date, it’s like a month-to-month rental agreement.
• Fixed-Term Tenancy: It has a specific duration without the option to extend the tenancy, and often accompanies a lease agreement.
• Estate for Years: It is a fixed-term tenancy for a specific period. It’s also called a tenancy for years or estate for term.
• Commercial Tenancy: It is available for businesses to rent properties for commercial purposes.
• Estate at Will: It does not have a set end date, but can be terminated by either co-owner.
• Estate at Sufferance: It’s a case when a tenant stays after their lease expires. It is also called holdover tenancy.
• Residential Tenancy: Homes rented to individuals or families have this type of tenancy.

Tenancy by Entirety vs. Joint Tenancy vs. Tenants in Common

There are three major types of tenancies: Tenancy by Entirety, Joint Tenancy, and Tenants in Common. The key differences between them are:

States That Recognize Tenancy by the Entirety

Tenancy in the entirety is valid in Washington D.C. and these 25 states:

The Bottom Line

Tenancy by the entirety is an inviting option as it eases the transfer of assets, offers creditor protection, and preserves family assets.

It is a unique layer of protection with added convenience for married couples who invest in real estate.

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