The following article is based solely on individual research and should not be taken as legal advice. Tenancy by entirety is otherwise known as a special kind of property ownership that only married couples in a handful of states may use to their advantage. All that a married couple needs to do to file for tenancy by the entirety is to specify in the deed that the property is being conveyed to the couple “as tenants by the entirety”. Both spouses have the right to enjoy the entire property, and when one spouse dies, the surviving spouse gets a title to the property- more officially known as the right of survivorship. It is similar to joint tenancy, but is available in only about half the states.
The main difference between joint tenancy and tenancy by the entirety is that joint tenants may deal with the property as they wish. If an individual tenant decides to convey his interest in the property, that interest is conveyed and the joint tenancy dissolves. With tenancy by the entirety, each tenant owns the entire estate thereby preventing either tenant from acting individually. In return, the property is protected from judgment creditors trying to enforce their liens against the property. However, if both tenants file for bankruptcy, this advantage is nullified leaving the estate vulnerable to judgment creditors. Note that if the debtor spouse dies first then the lien cannot be enforced against the property. On the other hand, if a debtor spouse survives a non-debtor spouse, the lien may be enforced against the whole property, not merely the debtor spouse’s original half-interest.
Of course, there are some potential disadvantages to tenancy by the entirety as well. Property held in tenancy by the entirety cannot be severed by a partition action filed by one of the parties. If one spouse disappears or simply leaves, difficulties in transferring or encumbering the property rise exponentially. In essence, anything that involves the estate and both tenants’ participation becomes that much more of a chore should one spouse become incompetent. For example, transferring ownership to an adult child would be very difficult for a couple filed under tenancy by the entirety. This is an important area which should be discussed with all residential real estate buyers. Since there are certain disadvantages, it should not be used as the “default” tenancy for married individuals.
Again, since tenancy by the entirety is a creature of state law, in order to take advantage of it in a bankruptcy action, you would have to use your state’s exemptions as opposed to the federal exemptions. Even then, the exemption will be valuable only if both spouses do not file for bankruptcy together, and only if the filing spouse is solely liable for the debt resulting in the lien on the home.
States where full-fledged tenancy by the entirety is available: Alaska, Arkansas, Delaware, District of Columbia, Florida, Hawaii, Maryland, Massachusetts, Mississippi, Missouri, New Jersey, Oklahoma, Pennsylvania, Rhode Island, Tennessee, Vermont, and Virginia. States where tenancy by the entirety may be used for real estate: Illinois, Indiana, Kentucky, Michigan, New York, North Carolina, and Oregon.