A Common Mistake in Titling Assets
Married couples often make a crucial mistake when titling their assets. Many default to holding property as Joint Tenants with Right of Survivorship (JTWROS), unaware of the potential risks this decision carries. While JTWROS is a popular choice, it can expose the asset to creditors' claims against one spouse. In contrast, titling property as Tenants by the Entirety (TBE) offers better protection. Let's explore this common mistake and why TBE may be a better option for asset protection.
The Pitfalls of Joint Tenancy with Right of Survivorship
Joint Tenancy with Right of Survivorship (JTWROS) is a common way for married couples to title their assets. This form of ownership allows both spouses to have an equal share of the property, and upon the death of one spouse, the surviving spouse automatically inherits the deceased spouse's share. While this might seem convenient, it leaves the asset vulnerable to creditors.
In a JTWROS arrangement, if one spouse incurs debt or faces legal judgments, creditors can claim that spouse's share of the property to satisfy the debt. This exposure can put the entire asset at risk, jeopardizing the couple's financial stability.
The Protective Shield of Tenancy by the Entirety
Tenancy by the Entirety (TBE) offers a robust alternative that provides significant asset protection benefits for married couples. TBE treats the married couple as a single legal entity, meaning both spouses collectively own the entire property. This unity of ownership extends vital protections that JTWROS lacks.
Why TBE is Superior for Asset Protection
1. Creditor Protection: One of the most compelling reasons to choose TBE is its ability to shield the property from creditors. In many states, property held as TBE cannot be seized to satisfy the debts of just one spouse. This means that if one spouse is sued or incurs debt, creditors cannot lay claim to the property, providing a secure financial safeguard for the couple.
2. Indivisible Ownership: Under TBE, both spouses must consent to any decisions regarding the property, such as selling or mortgaging it. This indivisibility prevents one spouse from unilaterally exposing the asset to risk, ensuring that both parties are protected.
3. Survivorship Rights: Like JTWROS, TBE includes survivorship rights, meaning that when one spouse dies, the surviving spouse automatically becomes the sole owner of the property. However, TBE's structure as a marital asset often simplifies the transfer process and provides additional legal protections.
Avoiding the Common Mistake
To avoid the pitfalls of JTWROS and leverage the benefits of TBE, married couples should consider the following steps:
1. Review Existing Titles: Examine how your current assets are titled. If they are held as JTWROS, assess the potential risks and consider re-titling them as TBE.
2. Consult with Professionals: Engage with financial planners and legal experts to understand the implications of different titling options. Professionals can provide tailored advice based on your unique situation and the laws in your state.
3. Communicate: Ensure that both spouses are involved in the decision-making process and fully understand the benefits of TBE vs JTWROS.
Since state law generally dictates asset protection, not all states recognize Tenancy by the Entirety (TBE). It's essential to be aware of whether your state allows this form of ownership to ensure you can benefit from its protections. The states that do recognize TBE for real property include Alaska, Arkansas, Delaware, Florida, Hawaii, Kentucky, Maryland, Massachusetts, Mississippi, Missouri, New Jersey, Oklahoma, Pennsylvania, Rhode Island, Tennessee, Vermont, Virginia, and Wyoming. Additionally, the District of Columbia also recognizes TBE. For personal property, the list may differ, so it's important to consult local laws and professionals when considering TBE for asset protection.
While Tenancy by the Entirety (TBE) offers robust asset protection for married couples, it should not be relied upon as the sole line of defense. Instead, TBE should be viewed as one valuable tool in a comprehensive asset protection strategy. Diversifying your approach to asset protection is crucial, as it provides multiple layers of security against potential risks. This might include utilizing trusts, maintaining adequate insurance coverage, engaging in prudent estate planning, and seeking professional financial and legal advice. By incorporating TBE into a broader, multifaceted plan, you can enhance the protection of your assets and ensure greater financial security for you and your family.
At Incline Financial Planning, we're here to help you navigate these important decisions. Contact us to learn more about how to protect your assets and ensure a secure financial future for you and your spouse.
