Pennsylvania recognizes several forms of property ownership. The main form of property ownership that creditors need to be concerned with in Pennsylvania, however, is Tenancy by the Entireties.
Tenancy by the Entireties: What is it?
Tenancy by the entireties is a form of concurrent ownership of property in which each owner holds an indivisible interest with a right of survivorship. Although that may sound complicated, the method by which it is formed is quite simple: marriage. When a husband and wife acquire real property together (ie. the property is in both of their names) the property is automatically deemed an entireties property and both husband and wife are tenants by the entirety. This means that each spouse technically owns the whole property, such that neither husband nor wife, acting alone, can convey an interest in the property to a third party. In the simplest of terms, the creditor of only one spouse cannot execute upon property held as tenants by the entireties.
To make matters worse for creditors, the tenancy by the entireties doctrine also applies to joint bank accounts, making both a levy on real estate and a garnishment of bank accounts extremely difficult, if not impossible, when a debtor is married. Pennsylvania Courts have held that even language in the title of a bank account stating that the husband and wife intended to hold the account as Joint Tenants With Right of Survivorship was not enough to show clear and convincing evidence that they intended to create an estate other than a tenancy by the entirety.i Pennsylvania Courts have also held that even when an account is held by a married couple and a third party, as long as the intention existed to hold the account as tenants by the entireties, the account is entireties property.ii
The point is that Pennsylvania Courts are loathe to find that a husband and wife hold property in any other form than as tenants by the entireties, no matter what evidence exists to the contrary. Creditors of only one spouse, therefore, have virtually no ability to access entirety property for the purposes of execution.
How can Tenancy by the Entireties be Destroyed?
For all intents and purposes, tenancy by the entireties is terminated only by the death of one spouse, divorce or by the joint action of both husband and wife to intentionally dissolve the property ownership. Additionally, if the debtor spouse dies the non-debtor spouse takes the property as the sole owner, due to the right of survivorship, thereby eliminating the interest that any creditors may have had in the property to begin with. If, however, the non-debtor spouse dies, the tenancy by the entirety is again destroyed, this time allowing the creditors to attach the property now owned solely by the debtor spouse. Since such an event is both unlikely and morbid, it is not in a creditor’s best interest to sit around hoping that the non-debtor spouse dies for purposes of execution. So how can we avoid this mess, you ask?
Becoming a Joint Creditor
By becoming a joint creditor you are able to essentially ignore all of the above. Only a joint creditor (a creditor of both husband and wife) is able to attach or levy entireties property. Both spouses can act jointly to alienate their entirety property by, for example, both signing a personal guaranty. By requiring the spouse of an individual signing a personal guaranty to co-sign the guaranty, you avoid the impenetrable barrier of entireties property should that individual default. Co-guarantors waive the tremendous protection afforded by tenancy by the entireties. (Requiring the spouse of an individual signing a personal guarantee to co-sign is not permitted in some states, therefore, it is best to consult an attorney before engaging in such a practice).
Will Tenancy by the Entireties Ever Cease to be an Issue for Creditors?
Ever since the United States Supreme Court held in 2002 that Federal tax liens could attach to entireties propertyiii there has been a myriad of scholarly speculations as to how much longer tenancy by the entireties would survive as a form of property ownership. If the IRS can levy on entireties property, how long before a non-governmental creditor successfully makes the same argument?
So Our Options Are…
- Wait for the non-debtor spouse to pass away.
- Hope that the debtor and his spouse hit a rough patch and divorce
- Hope that the Pennsylvania Supreme Court affords all creditors the same rights as the IRS for debt collecting purposes
- Protect your rights as a creditor by getting spouses to co-sign guarantees.
i – Constitution Bank v. Olsen, 423 Pa. Super. 134 (1993)
ii – Plastipak Packaging, Inc. v. Depasquale, 2007 Pa. Super 348 (2007)
iii – United States v. Craft, 535 U.S. 274 (2002).