How Married People Should Own Their Assets
by Thomas A. Collins, II
Most Floridians come from other states and are not familiar
with Florida laws. As a result, they often fail to take advantage of favorable
Florida laws; and are sometimes tripped-up by laws they don’t fully understand.
An excellent example is Florida’s laws concerning “tenancy by the entireties.”
Many married persons choose to own their property jointly
with their spouse. Couples are generally familiar with the concept of owning
property as “joint tenants with rights of survivorship.” This is a common way for couples to own their
assets “up north.” However, if you are a Florida resident, titling your assets
in this manner will actually deprive you of significant asset protection
benefits. You should, instead, hold joint assets with your spouse as a “tenancy
by the entireties,” or “TBE.”
Just like property owned jointly with rights of
survivorship, TBE property goes to the surviving spouse automatically upon the
death of the first to die. In many states, the concept of TBE applies only to
real property; but in Florida, it applies not only to real property, but also
to both tangible and intangible personal property. Your accounts at financial
institutions can be held in TBE. TBE ownership is available only to married
persons.
There is a significant benefit to owning your property as
TBE, as opposed to as “joint tenants with rights of survivorship.” Assets
owned as TBE generally cannot be reached by a creditor of only one of the
owners.
There are, however, some exceptions. If a creditor has a
judgment against both owners (i.e., both husband and wife) they can execute
against a TBE asset, unless the asset is otherwise protected; such as when it
is also homestead. Also, if a creditor has a judgment against only one owner
(i.e., only husband, or only wife) and the spouse that has the judgment against
them out-lives the other spouse, the judgment creditor will be able to execute
against the formerly TBE asset in the hands of the surviving spouse, unless the
asset is otherwise protected.
From a practical standpoint, owning your property as TBE often
creates a significant obstacle to the creditor’s efforts to collect; and that gives
your attorney a powerful tool for negotiating a settlement. The creditor
understands that if the debtor spouse dies first it gets nothing. The creditor
will generally accept a negotiated settlement to avoid that risk.
Another exception is that a divorce between the spouses
immediately converts the TBE ownership into a tenancy in common between the
former spouses. In that case, the
interest of the debtor spouse in the assets would immediately be exposed to his
or her creditors.
Nevertheless, this ability to protect TBE property from the
creditors of only one spouse is, in many circumstances, very beneficial. There
are many instances where the creditor will only be able to obtain a judgment
against one of the owners. And if you
are careful in your dealings, you can increase the likelihood that a creditor
will not have a judgment against both you and your spouse.
Here is some practical advice. To the extent it makes sense
and tends to carry out your estate planning objectives; and assuming you have
the relationship with your spouse that will enable this; you should consider
owning most of your assets as TBE. TBE
protection is not going to be available for your retirement accounts, which are
held for you individually, by a custodian; but retirement assets generally have
other protection afforded to them under Florida or Federal law.
Prior to the recent, very significant, increase in the
federal estate tax exemption to $5,000,000 (indexed to increase with
inflation), per person, and the enactment of laws allowing for the
“portability” of a deceased spouses exemption to the surviving spouse, estate
planning attorneys often recommended that couples eliminate survivorship
titles; to enable them to take advantage of the deceased spouse’s available
estate tax exemption. With the higher federal estate tax exemption and
portability, it often makes sense now for all but the very wealthy to hold
assets as TBE, while both husband and wife are alive.
Assuming TBE ownership is consistent with your estate
planning goals, when you create an account at a financial institution, open it
as a TBE account and do not allow the officer or clerk to register your account
as joint tenants with rights of survivorship (or as tenants in common). Whether a married couple owns property as
unprotected joint tenants with rights of survivorship or as protected TBE
depends on their intent, as demonstrated by the available facts. Section 655.79 of the Florida Statutes
provides that any bank account made in the name of two persons who are husband
and wife shall be considered a TBE account unless “otherwise specified in
writing.” Although there is this
presumption under Florida law that an account held by husband and wife is held
as TBE, erroneously titling the account as “joint tenants with right of
survivorship” could amount to the account being “otherwise specified in
writing” as held as joint tenants with right of survivorship; and potentially
cause you to miss out on the protection of TBE ownership.
Do not expect the financial institution to be particularly
knowledgeable or helpful in this regard. Be sure that the account opening form
clearly states that the account is to be a TBE account. Do not check the
box that says “joint with rights of survivorship;” particularly if there is
also a selection for “tenancy by the entireties.” It is helpful that a Florida
court has ruled that, where there is no other choice, husband and wife checking
the “joint with rights of survivorship” option will be presumed to create a “tenancy
by the entireties.” But we recommend that you also make a notation on the account
application that “a tenancy by the entireties is intended.” If the financial institution cannot
accommodate you, we suggest you open your account somewhere else.
Save copies of the account opening documentation to
evidence your intent later, if necessary.
It is not unusual, despite your best efforts to open the account
correctly, for financial institutions to still show the account on their
internal, digital records as joint with rights of survivorship. Having the
account opening documentation, which will evidence your intent to open a TBE
account, could save the day.
People often have accounts with financial institutions that
are outside of the State of Florida. A common example is investments in mutual
funds that have their primary offices in other states. The good news is that even though these
institutions are located outside of Florida, because you are a Florida resident
you can still get TBE protection with respect to these accounts. You simply need to exercise care in opening
the accounts to be sure that they are opened as TBE accounts.
The following is very important. To enhance your likelihood
of getting TBE protection with respect to the assets you hold as TBE, you
should avoid, whenever possible, incurring joint obligations. That way, if a
creditor enforces the obligation or guarantee, it will end up with a judgment
only against you, and not your spouse; and your TBE assets should be protected.
For example, if you are asked to
guarantee an obligation, such as a business loan for your spouse’s business,
try to avoid doing so. Avoid, when possible, being jointly responsible.
Here is some more advice that can be extremely
valuable. Own your automobiles in your
individual names. This is contrary to the general advice of owning your assets
as TBE; but for very good reason. You should own the automobile you drive and
avoid driving the automobile you do not own (i.e., the one your spouse owns).
If you are in an accident, the injured party will typically sue both the driver
and the owner of the car. You want both to be you; and to keep your spouse out
of the lawsuit. You may be well insured, but if you cause someone’s death or
serious injury, the judgment could be very significant. You will be glad you
preserved the TBE protection.
Be careful how you conduct your activities. If you and your spouse are held jointly
negligent for some harm you cause, the damaged party may be able to get a
judgment against both of you. Think about this before you undertake any high
liability activities together.
Here is one more trap for the unwary. If you and your spouse owned any assets
jointly prior to your marriage, they do not automatically become TBE property
upon marriage. The property must be transferred to a TBE account or retiled to
you as husband and wife to be afforded TBE protection. Unfortunately, this is
often overlooked.
I hope you will find this information helpful. To the
extent having assets go outright to the surviving spouse is consistent with
your estate planning, TBE ownership can be an inexpensive, yet significant,
asset protection tool. If you currently have accounts held jointly with rights
of survivorship and have no need or plan to change from joint ownership, I can
think of nothing but advantages to moving those assets into TBE ownership.
TBE ownership is but one of Florida’s unique property laws.
If you have not updated your estate planning recently or since moving to
Florida, you should have your estate planning, including how you own your
assets, reviewed by a Florida estate planning attorney. Your overall estate planning and how you own
your assets must be considered together.
Do you have questions or topics you would like to discuss? Please email me at
treisercollinsblog@gmail.com. You can
also connect with Treiser Collins Law Firm by visiting us at www.swflalaw.com
or you can find copies of this article along with other articles and blog posts
at treisercollins.blogspot.com.
