Tenancy By The Entirety – Pros And Cons

By on June 19, 2017

Most average real estate investors and regular homeowner are probably familiar with joint tenancy and tenants in common ownership. Or they should have at least heard about these 2 forms of property ownership.

Another common type of ownership that is closely related to joint tenancy is Tenancy by the Entirety.

This is actually a form of joint tenancy specifically conceptualized for married couples.

As you might already know, a special feature of joint tenancy is the presence of four unities. Tenancy by the Entirety adds on a fifth unity on top of the 4.

Unity of person

The reasoning for this is that a husband and wife is one single legal entity. This basis can serve as a form of asset protection to either party in case one individual decides to pull a fast one over the other.

In this type of ownership, 2 key characteristics exist:

  1. A surviving spouse will become own a property outright upon the death of the other
  2. Neither spouse will be able to dispose their cut of the property during the lifetime of the other. This means that to sell a property, BOTH parties must be signatories to convey title to the property.

As you can see, point number 1 is also a standard in a regular joint tenancy ownership.

The difference here is point number 2.

In a typical joint tenancy, an owner will be able to dispose his or her interest in a property to a third party by only selling his or her portion of ownership.

This is not possible in Tenancy by the Entirety as both spouses have to endorse any sale.

To terminate such an ownership structure, there must be a joint action or an order from a court of law.

Advantages

The advantages are pretty obvious. In any case, here are the 3 main ones.

Protection from each other

It protects one party from mortgaging or selling without the expressed consent of the other party.

Protection from creditors

In certain states, court judgments can enforce a sale of a jointly held property due the debts of 1 party. Tenancy by the Entirety can offer some form of protection in dire situations like this.

Right of survivorship

Upon death of a spouse, the surviving party automatically becomes the sole owner.

Disadvantages

While the advantages are easy to spot, the disadvantages can easily escape the untrained eye.

Beneficiary

If you look at it closely, in effect, the surviving spouse is the sole beneficiary from such an agreement.

Taxes

It can bring up tax issues. Do check with a qualified accountant to identify any tax problems and how to resolve them.

Will

A legally binding will is still required in the proper disposal of a couple’s personal property.

What happens when divorce occurs?

Divorces are becoming all so common these days. So one might think about the implications should it occur.

In the undesirable event of a divorce, the 2 parties will automatically become tenants in common.

This is indisputable because the 2 parties are no longer a single legal unit.

Should the ex husband and wife refuse to share ownership, either party can sell his or her individual interest to a third party. And if willing buyer cannot be found, they can request a court action to partition the property.

In other words, it can be quite a mess.



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