Written By: Brandy Miller | November 20, 2015 | No Comments

Understanding Tenants By the Entireties and Tenants in Common Is Crucial

Berks County Family Law Attorney Larry Miller, Jr.One form of ownership that I wish everyone was taught in high school is a Tenants By the Entireties. No matter if someone ever hires a lawyer during their lifetime, knowledge of Tenants By the Entireties can help you tremendously during your lifetime.

This article will explain Tenants By the Entireties and Tenants in Common. More importantly, the article will teach you when to utilize one or the other for your benefit during your lifetime.

Tenants in Common

The best way to explain Tenants in Common is to give an example. Bob and Steve are two unmarried friends. They co-own a piece of real estate (land) and both have their names on the deed. This is called owning something as Tenants in Common.  Assuming there is not some agreement where one of them owns more of the land than the other, the law states that

  • Bob owns half  (50%) of the property, and
  • Steve owns half (50%) of the property.

Simple enough.

An Example of What Can Happen When Property is Owned As Tenants in Common

However, now let’s assume

  • Steve
    • gets into a major automobile accident that was totally his fault, and
    • is eventually found liable for the damages resulting from that accident.
  • The
    • damage judgment is a sizable and Steve does not have the resources to pay.
    • opposing attorney does an asset search on Steve, he or she will find the piece of land Steve co-owns with Bob.
    • Judgment holders may file a Court action requiring that piece of real estate to be sold in order to help pay Steve’s judgment amount. If that occurs, the Court would require
      • half of the proceeds be given to Bob to compensate him for his ownership share in the land, and
      • the other half of the proceeds would go to Steve’s judgment creditors to help pay off the judgment.

The Legal Reasoning Behind Tenancy in Common

The idea here is that the law sees the forced sale of the real estate owned by Bob and Steve to be fair and equitable under the law.

  • Before the sale of the real estate, Bob owned fifty (50%) percent of the asset.
  • After the sale, Bob still owns fifty (50%) percent of the asset because he now has cash which is equal to the value of the asset he had before the sale.
  • Steve, on the other hand, loses his share of the real estate, but that is appropriate in order to attempt to compensate the victims from the car accident.

Tenants By the Entireties

Let’s start with a workable definition. Simply put, it’s how married people can own things when they own them together.

Now, let’s consider the scenario where two married individuals own the same piece of land.

  • Let’s assume that Betty and Joe, who are married, purchase a piece of real estate, and place the deed into both of their names. This is called owning something in a Tenants By the Entireties.
  • In this scenario, the law assumes each person owns all of the property together,
    • Betty, as the wife, owns one hundred (100%) percent of the real estate, while
    • Joe, as the husband, also owns one hundred (100%) percent of the property.

Key Differences Between Tenancy in Common and Tenants By the Entireties

The difference in being married and owning the property is that the law assumes each person owns all of the property together, whereas in the first scenario the law assumes that each person owns half of the ownership interest in the land.

The key distinction between the Tenants By the Entireties and the Tenants in Common is when Joe finds himself in the same car accident Steve was in our previous example.

Once the judgment holders obtain the judgment and come looking for assets to pay off the judgment, they will find the real estate owned by both Betty and Joe. But Joe’s judgment holders will not be able to sell the real estate co-owned with Betty in order to help satisfy the judgment.

The Legal Reasoning Behind Tenants By the Entireties

  • Judgment holders can’t sell property owned in Tenants By the Entireties. That’s because there is no part of the real estate the judgment holders can sell and keep that would not harm Joe’s co-owner, Betty.
  • If half of the proceeds are given to Joe’s creditors, Betty is harmed because she owned one hundred (100%) percent of the property before the sale. But Betty would only own fifty (50%) percent of the property after such sale had occurred.
  • The law will not support an innocent spouse losing her assets to pay for her spouse’s debts.

The Lesson to Be Learned About Tenants in Common and Tenants In the Entireties

So what’s the lesson to be learned here? If you are married

  • Put assets you want to protect in both spouses’ names.
    • Assets typically owned under Tenancies In the Entireties include
      • bank accounts; and
      • personal residences.
  • Keep assets that could potentially create liability in only one spouses’ name. That’s because
    • If
      • a liability creating asset is held in both of the spouses’ names, the asset held in a Tenants By the Entireties could potentially not be protected, and
      • both of the spouses are named in any lawsuit and found liable, the assets kept together in a Tenants By the Entireties will not be protected. That’s because there is no innocent spouse. The Court would have no problem having the entire asset sold because both spouses owe the Plaintiff on the same debt.
    • Assets kept in one spouses’ name typically include
      • automobiles;
      • businesses; and
      • rental properties.

Automobiles

A common example of this is the automobiles that a married couple own. Any automobile should be named only in the name of the person who will drive it the most. If a car is titled in both spouses names, it potentially could open the door to suing both spouses in a lawsuit where only one of the spouses was driving. This could put the assets that are owned in a Tenants By the Entireties at risk.

Businesses

If one spouse has a business, the business and all of its assets should be kept in only one of the spouses’ names. That’s because if the owners of the business get sued, the lawsuit would not have the potential of putting the assets held in a Tenants By the Entireties at risk.

If one has questions regarding how ownership of assets can reduce exposure to putting valued assets at risk, one should consult with our Family Law Attorney to determine the best method of owning an asset.

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