Tenancy by the Entirety in Florida – How it Works, Benefits and Caveats

Tenancy by the entirety in Florida is a form of joint property ownership, existing only between spouses. The two other forms of joint property ownership are joint tenancy with rights of survivorship and tenancy in common.

Tenancy by the entirety vs. joint tenancy vs. tenancy in common in Florida

The different kinds of joint ownership are tenancy by the entirety, joint tenancy with rights of survivorship, and tenancy in common.

Tenancy by the entirety exists only when the property is owned by spouses. In Florida, there is a presumption that jointly acquired property by spouses is held as tenants by the entirety rather than tenants in common. This presumption arises for as long as the six unities are present in the acquisition of the asset: (a) unity of possession, which is joint ownership and control; (b) unity of interest, which refers to identical interests in the property; (c) unity of time, where parties should have acquired the interest in the asset at the same time; (d) unity of marriage, where parties should be spouses at the time they acquired the property; (e) unity of survivorship, where property will transfer to the surviving spouse upon death of the other spouse; and (f) unity of title, where spouses must have acquired title to the asset from the same instrument.

Previously, in Florida, this presumption of tenancy by the entirety only existed in real property acquired jointly by spouses. However, in Beal Bank, SB v. Almand and Associates, et. al., 780 So.2d 45 (Fla. 2001), the Florida Supreme Court extended this presumption to personal property, such as bank accounts. Florida Statutes 655.79 was thereafter amended to confirm the presumption that a deposit or account made in the name of two persons who are husband and wife shall be considered a tenancy by the entirety unless otherwise specified in writing.

Many Florida lawyers advocate the use of tenancy by the entirety as an estate planning tool, despite its relevant risks, because of its ease of creation and the fact that assets under tenancy by entirety avoid probate and enjoy creditor protection from the individual debts of one spouse and spousal protection, where the other spouse cannot alienate or encumber the property without the consent of the other.

Joint tenancy with rights of survivorship, on the other hand, is created when language in the deed provides for such joint property ownership. Joint tenancy with rights of survivorship is similar to tenancy by the entirety, in that property is co-owned by two people, and upon one co-owner’s death, such property passes to the other co-owner. Only five unities, with the exception of marriage, are needed to establish joint tenancy with rights of survivorship: unities of possession, interest, time, survivorship, and title.

While joint tenancy with rights of survivorship is similar to tenancy by the entirety, two major differences mark the two types of property ownership. Although joint tenancy avoids probate, there is no creditor and spousal protection.

Tenancy-in-common exists when two persons jointly own property without rights of survivorship. Their ownership is divisible and can be alienated. When spouses divorce or one spouse dies, the property covered by tenancy by entirety is immediately and automatically converted to tenancy-in-common. In this form of joint ownership, the property does not avoid probate nor does it enjoy creditor and spousal protection.

Debts that can still attach to property held as tenancy by the entirety

Out of all the forms of joint property ownership, only tenancy by the entirety enjoys creditor protection. However, this protection does not extend to federal tax liens, pre-existing liens that have already attached to the debtor’s interest prior to the creation of the tenancy by the entirety, and debts jointly obtained by both spouses in favor of a particular creditor.

In US v. Craft, 535 U.S. 274 (2002), the Supreme Court allowed a federal tax lien based on the husband’s debt to attach to property covered by a tenancy by the entirety. The Court held that, “[t]he broad statutory language authorizing the tax lien reveals that Congress meant to reach every property interest that a taxpayer might have.” Because of this, the Internal Revenue Service issued Notice 2003-60, where it clarified that the IRS would not assert its federal tax lien rights over properties under a tenancy by the entirety acquired prior to the Craft ruling. Only properties under a tenancy by the entirety acquired after the Craft ruling would be subject to the application of the federal tax lien.

Similarly, the transfer of a property to a tenancy by the entirety cannot be used to defraud creditors. If there has been a pre-existing judgment and/or lien that has attached to the debtor’s properties, his subsequent transfer of his property to his wife and him under a tenancy by the entirety joint property ownership will not defeat the pre-existing lien, because such transfer was made in fraud of creditors. (Whetstone v. Coslick, 157 So. 666, 668 (Fla. 1934).)

The property under a tenancy by the entirety is also not exempt from debts jointly obtained by the spouses in favor of one creditor. In this case, it requires a joint judgment against the spouses in favor of the creditor. Separate judgments based on different causes of action against both spouses in favor of one creditor is not considered a joint judgment.

Recent decisions of judges, however, have been trying to defeat the creditor protections provided by the tenancy by the entirety. In re Planas, 199 B.R. 211 (Bankr. S.D. Fla. 1996), the judge allowed the liquidation of the properties under the tenancy of the entirety in favor of all the creditors due to the presence of a joint creditor. Although this decision was later overruled, it is considered proper planning to ensure that all joint creditors are paid before filing a bankruptcy petition.

Comparing Florida and other states

Half of the states recognize tenancy by the entirety. Florida, Arkansas, Delaware, Hawaii, Maryland, Massachusetts, Mississippi, Missouri, New Jersey, Oklahoma, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia, and Wyoming recognize tenancy by the entirety for both real and personal property. Alaska, Illinois, Indiana, Kentucky, Michigan, New York, North Carolina, and Oregon recognize tenancy by the entirety for real property only. The rest of the states do not recognize tenancy by the entirety.

Out-of-state property of Florida residents

Property located in a state outside of Florida are subject to the exemption laws of that state. For example, if a married couple who are residents of Florida purchase New York real estate, this property will be considered tenancy by the entirety because New York recognizes tenancy by the entirety for real property. On the other hand, if the same married couple purchases real property in Colorado, a state that does not recognize tenancy by the entirety, such property will not be considered tenancy by the entirety. In order to convert the real property into tenancy by the entirety, the ownership must be converted into personal property which can be transferred to Florida. This can be done by transferring the property into a land trust, partnership, corporation or limited liability company, where the interests are considered personal property and can be held as tenants by the entirety. A skilled Florida lawyer can help in planning one’s estate in this regard.

Tenancy by the entirety is not for everyone

Some lawyers do not find tenancy by the entirety to be a good estate planning tool because of the risks involved in losing such property status. A divorce or death can immediately convert property from tenancy by the entirety to tenancy in common. In addition, tenancy by the entirety is not advisable for couples with children from prior relationships. The spouse might not want the property to go to his current spouse when he has other children who are not descendants of his current spouse.

In these cases, a skilled Florida lawyer would be able to help one plan his estate to ensure adequate creditor protection and prompt disposition of property upon death.

Proper estate planning would entail a knowledge of the different asset protection documents recognized by Florida law, and applying these different tools to the different properties, depending on the goals of the client. If the client’s main goal would be asset protection due to voluminous creditors, a flexible irrevocable trust with a trust protector might be a more appropriate plan. If one doesn’t worry about creditors but merely wants control over the timing and manner of property disposition upon death, a revocable living trust could be a better option. Out-of-state property can be placed in a land trust in order for the interest to be movable and subjected to Florida’s liberal asset protection rules. Lady bird deeds have been known to be used more often for homestead property. A good Florida lawyer will be able to advise the client on the proper estate planning documents to be executed depending on the client’s goals.

Should you need advice on planning your estate, we at the Law Offices of Albert Goodwin, are here for you. You can call us at 1-800-600-8267 or send us an email at [email protected].