Creditor Protection: How Married Couples Should Own Assets?

Tenants by the Entirety (T by E) is a form of ownership taken from “Common Law” (i.e., the law based on the legal traditions of England). It creates a legal fiction whereby the Law considers the married couple as “one” entity and not two separate entities. As a result, both spouses must consent to the sale or conveyance of the property owned as T by E.

Only about half of the states in the United States recognize T by E ownership and of these states only about two-thirds allow T by E ownership for both real and personal property. Virginia allows T by E ownership of both real and personal property (Va. Code §55-20.2(A)).

To take ownership of property in Virginia as T by E it requires the use of the words “Tenants by the entirety” or “Tenants by the entirety with the right of survivorship” in the transfer/ownership document (i.e. Deed or Title).

Some of the advantages of married couples owning their assets as T by E are as follows: (i) during the marriage neither spouse can convey the assets without the consent of the other spouse; (ii) a creditor (see below) of just one spouse cannot attach or lien property held by both spouses as T by E; and (iii) when one spouse dies the surviving spouse owns the asset outright without going through probate of the deceased spouse.

While owning assets as T by E is not the panacea of asset protection it can be very beneficial. In fact, all married couples should consider owning as many assets as possible as T by E, including, but not limited to, all closely held stock, limited liability company membership interests and investments accounts. Since not all states allow T by E ownership many banks and brokerage houses do not offer married couples the option to title their investment account as T by E. However, some companies will accommodate your request if you ask. It may require your attorney sending a letter and a copy of the statute to the company’s legal department. As a strong proponent of T by E ownership of brokerage accounts, I recommend you evaluate your options when setting up or owning this type of account to protect those assets from creditors.

There are other options that should be evaluated when trying to protect assets from creditors, such as, liability insurance, umbrella policy, life insurance (Va. Code §38.2-3122); IRAs (Va. Code §34-34) and 401k/403(b) which are both protected from creditors under federal law. Since T by E asset protection is a state protection it will not protect your assets from claims of the federal government (IRS or Bankruptcy Court). The T by E protection will also be extinguished if the spouses get divorced or when one spouse dies.

Finally, many estate planning clients ask if they lose their T by E creditor protection when they establish a Revocable Living Trust and title their assets into the name of the Trust(s). If done correctly the answer is the T by E asset protection follows the asset when titled into the Trust(s). Virginia Code §55-20.2(C) states that any property that is held as T by E and conveyed to a joint revocable or irrevocable trust or separate revocable or irrevocable trusts or any proceeds from the sale or disposition of such property shall have the same immunity from the claims of their separate creditors as it would if it had remained a T by E in the names of the married couple.

While T by E ownership is not the only way to protect assets from creditors, it is a very simple and cost-effective way married people can protect their assets. I highly recommend that married people consider titling their investment account(s) as T by E. Be persistent with your financial advisor as they may not understand the benefits and the options under Virginia law. There are several national investment firms and banks that will allow this type of ownership but it may take some work on your part to get it done.

This article is not an exhaustive restatement of the law upon which you can strictly rely but it is intended as a broad summary so you can start the discussion with your trust and administration attorney and financial advisor. If you have questions or if we can assist you with your legal needs please call us at 757-687-8888.