Table of Contents
- What Are Netting Escrows & How Does It Work?: The Best Guide - January 2, 2024
- The Secret About Prescriptive Easement: Top Guide 1 Must Know - December 4, 2023
- About Home Equity Loans In Texas And How Can One Obtain It - November 27, 2023
Introduction
If you are a married couple looking to buy your dream home for the first time, you might want to know how the ownership can be held between married couples.
There are various ways that a married couple can hold ownership of a property. One of the most commonly used types is called tenancy by the entirety (TBE). In this post, we will understand what is tenants by the entirety in detail.
What Is Tenancy By Entirety?
Tenancy by the entirety, also known as tenants by the entirety is a system in which spouses or legal partners share an equal interest in real estate.
This means that both spouses own their home together, in like manner. It also provides for the right of survivorship, which means that if one spouse dies, full rights pass immediately to the other.
Unlike a 50/50 split ownership, both spouses own 100% of the home in a tenancy by the entirety. Under this type of ownership, both spouses have 100% undivided interest in the property.
This also includes creditor protection. If either party dies, the surviving spouse will inherit the property in full, and the property will be protected from the creditors of each party.
Therefore, if one spouse pays off the debt before he or she dies, the other spouse will not have to worry about losing his or her home if the creditors try to force repayment.
How Does Tenancy By Entirety Work?
Spouses are subject to full rights of residence, and they have the right of survivorship in a tenancy by the entirety. It is valid until the couple remains married.
A right of survivorship allows one of the homeowners to receive the entire property safely without the need for probate if the other spouse dies. Transfer of rights to third parties is not possible without consent.
The most common reasons a TBE contract can be voided are in case of death, divorce, or mutual understanding. In case of divorce, the ownership changes from tenancy by the entirety to tenancy in common.
However, TBE cannot be canceled in a sale, exchange, or other service performed on the property under tenancy by the entirety without the mutual consent of both parties and dividing the proceeds of the sale or service.
As the general rule in the United States, a tax lien on a property under tenancy by the entirety is applied only if it is due by both parties.
However, in the verdict of United States v. Craft, 535 US 274 (2002), the Supreme Court made it clear that the federal tax lien applies to TBE property even if the tax lien is owned by only one of the parties in the TBE.
However, the IRS requires a bankruptcy court order to recover in such cases.
What Are The Requirements To Get Into Tenancy by Entirety Ownership?
Though the requirements for TBE may depend on the state in which the property is located, below are common requirements to get into a TBE ownership:
- Based on the state requirements, the couple must be married or must be domestic partners.
- Both parties must have an equal interest in the property.
- Both parties must have equal housing rights and control.
- The ownership of the property should be taken by both parties at the same time and on the same deed.
What Are The Pros And Cons Of Tenancy By Entirety?
Pros
- Protection against unilateral decisions: This type of ownership can protect tenants against unilateral ownership decisions by their partners, such as selling or consolidating ownership rights with third parties.
- Home Protection from Creditors: Having this type of ownership protects the property from the creditor against the individual owners since the property is jointly owned by the couple. However, the property will no longer be protected if both tenants are legally responsible for the debt.
- No Probate: After one of the homeowner’s death, the entire ownership of the property will be transferred to the remaining homeowner without probate.
- No Suspension of Interest: The right of survivorship restricts the rights and interests of the owner of the property to pass to his heirs or estate after his or her death.
Cons
- Lack of consideration for mutual investment: Even if one of the tenants invests in buying the entire house, both tenants have equal rights and can claim equity in the house. So, for example, neither spouse can take a specific percentage of their investment in the property in case of a divorce.
- Temporary type of protection: If one of the spouses dies, this cancels the TBE and the protection of the asset. Hence the asset protection is only valid till both parties are together.
- Declaration of creditors: A lien on the property under the tenancy by the entirety can be applied by the creditors if both partners are responsible for the debt.
Conclusion
The Tenancy by entirety is a good option if you are married or in a domestic partnership (depending on the state), and are looking to own a property with full ownership with your partner.
There are twenty-five states that allow tenancy by the entirety ownership. Speak to your trusted real estate agent to make sure a joint tenant by entirety is available in your state.
