What Is Tenancy By Entirety? Definition And FAQs
UPDATED: Dec 28, 2022
Tenancy by entirety (TBE) is a legal way for married couples to hold property together, but it isn’t available in every state.
Let’s explore some examples, advantages and disadvantages of this type of property ownership. We’ll also look at some facts about tenancy by entirety that are important to know.
How Does Tenancy By Entirety Work?
Although the legal jargon sounds complicated, tenancy by entirety (sometimes called “tenancy by the entireties”) is a relatively simple concept: Both spouses own an equal and undivided interest in a property. Essentially, both own the entirety of the property. They’re both free to use the property and can’t sell their share without the consent of the other.
If one of the spouses passes away, the surviving spouse gets full ownership. Even if the deceased spouse puts their share of the property in a will for someone else, the tenancy by entirety takes precedence over that wish.
Who Qualifies?
Tenancy by entirety is only available to married couples in some states. In certain areas, you can also qualify if you’re part of a domestic partnership.
Typically, you can use this form of ownership vehicle for real estate properties. But some states will allow you to use TBE on assets other than real estate.
Common Elements Of Tenancy By Entirety Ownership
There are six elements that are commonly required for tenancy by entirety ownership. They are as follows:
- Unity of possession: The spouses must exercise joint control over the property.
- Unity of interest: Each spouse must have the same level of interest in the property.
- Unity of title: The spouses’ interests in the property has to be created in the same legal document.
- Unity of time: The spouses’ interest in the property must have occurred at the same time.
- Unity of marriage: The spouses must have been married at the time they acquired the property.
- Survivorship: If one spouse passes away, the surviving spouse will assume all interests in the property.
Although some variation by state is possible, you should expect these common features.
Example Of Tenancy By Entirety
Here’s an example of tenancy by entirety in practice.
Suppose that a married couple named Austin and Alberta buy a property. When they sign the mortgage papers together, they decide to be tenants by entirety. They assume control of the property together and enter into this agreement.
Once they sign the legal document, they won’t be able to make decisions about the property without the other’s consent. For example, Austin can’t decide to sell his interest in the property without Alberta’s consent. Likewise, Alberta can’t give away her interest in the property without Austin’s consent.
Essentially, one spouse can’t move forward with the sale of the property without the consent of the other spouse. This protects the ownership interests of both spouses.
Advantages Of Tenants By Entirety
The major benefit of tenants by entirety is limited asset protection. When you enter this legal arrangement, you’re essentially creating a third entity that will treat you and your spouse as a single party. With that, there’s the possibility of protecting your shared marital assets from creditors.
If a property is owned by tenancy by entirety, creditors will have a harder time pursuing this asset. For example, let’s say that Austin (of Austin and Alberta) is behind on his debt payments. Creditors can’t pursue the house that Austin and Alberta own as tenants by entirety because Alberta has an equal interest in the property. Since Alberta isn’t named on Austin’s loans, creditors can’t usually make claims against the property.
However, this form of asset protection has its limitations. For example, creditors can still potentially file claims, but a TBE might hamper their efforts. For instance, the creditor won’t be able to foreclose the property to pursue the repayments from an individual spouse. Of course, all bets are off if the spouses took out this past-due debt together.
Disadvantages Of Tenants By Entirety
The major drawback of this strategy is that you and your spouse must agree on everything about the property from a legal standpoint. For example, if Austin wants to sell the house to pay off some debts, he can’t do that without Alberta’s consent. Of course, it wouldn’t be ideal if spouses weren’t on the same page about the property. But, with a tenancy by entirety agreement, you can’t legally move forward with your plans without your partner’s consent.
Beyond that, the legal standing for tenants by entirety is somewhat perilous. It’s possible for a judge to determine that you’re simply using a TBE as a way to shirk your debts. That decision could wipe away the protections that TBE was supposed to provide.
Additionally, everyone passes away eventually. If your spouse died unexpectedly, the TBE would be absolved. At that point, you would no longer be able to protect your properties from circling creditors.
Tenants By Entirety Rights And Liabilities
Although there’s some precedent for a tenancy in entirety agreement to protect your marital property, this isn’t a guarantee. It’s possible for creditors to attack your TBE to satisfy the debts of one spouse.
However, the judge involved will have the ability to protect your property under the tenancy by entirety agreement. It’ll depend on the particular situation and the judge involved.
How Tenants By Entirety Are Legally Viewed
Instead of two separate owners, the property is legally owned by this single TBE. Both spouses have 100% ownership of the property in this case, which means that one spouse can’t make decisions without the other’s consent.
If a couple got divorced, the tenants by entirety agreement would convert into a tenancy in common.
Tenants By Entirety Vs. Tenants In Common
Tenancy in common allows for the different ownership parties to have different levels of interest in a property. The people in this agreement don’t need to be married, and, as a part of this agreement, the parties may not have the same ownership shares. Although they may have a different share, the tenants can each use the entire property, however.
For example, if Sue and David entered a tenancy in common agreement, they could divide the shares into an arrangement that works for them – perhaps 70% for Sue and 30% for David. But, both Sue and David can use the entire property for their enjoyment.
In this agreement, there’s no right of survivorship. Additionally, both tenants are free to sell or transfer their share of the property to another party without consent.
Tenants By Entirety Vs. Joint Tenancy
Joint tenancy is a legal agreement that two or more people can enter that will create rights of survivorship. In this case, the people involved don’t have to be married. The joint tenants will each own an equal share of the property. For example, four joint owners would each hold a 25% interest.
The biggest difference between tenants by entirety and joint tenancy is that with joint tenancy, tenants are considered separate legal entities. The joint tenants won’t be protected from the creditors of another individual involved.
What States Observe Tenancy By Entirety?
Not all states observe tenancy by entirety, but about half do.
The following states allow for tenancy by entirety, but real estate is the only type of property that it can be used for:
- Alaska
- Indiana
- Kentucky
- New York
- North Carolina
- Rhode Island
You can use tenancy by entirety for all property types in these states:
- Arkansas
- Delaware
- Florida
- Hawaii
- Maryland
- Massachusetts
- Mississippi
- Missouri
- New Jersey
- Oklahoma
- Pennsylvania
- Tennessee
- Vermont
- Virginia
- Wyoming
The District of Columbia also allows for tenancy by entirety for all property types.
Additionally, Illinois will allow married couples to own their homestead property, but not an investment property, as tenants by entirety. In Michigan, a joint tenancy held by two people prior to them getting married will convert to tenancy by entirety when the marriage begins. Ohio will additionally allow for tenancy by entirety, but only if the property deed was issued before April 4, 1985.
As you explore this option, check your state’s laws. It’s possible that they’ve changed recently.
Tenancy By Entirety FAQs
Still have questions about tenancy by entirety? Check out the answers to these frequently asked questions.
What happens if a couple with tenancy by entirety gets divorced?
Typically, if a married couple holds property together with a tenancy by entirety, the two individuals would become tenants in common upon getting divorced. Assuming the couple doesn’t still want to own the home together, they have a few options:
- They can sell the property, dividing up the profits according to each person’s share of ownership.
- One individual can keep the property by buying out the other person’s share of ownership.
- If both people can’t agree on a solution, one person can file a partition action in court for a judge to order the sale of the home (and division of the proceeds).
How do I set up tenancy by entirety?
If you’re married and you and your spouse want to set up TBE of your property, you need to first obtain a copy of your current title. Then, prepare a quitclaim deed, which will allow you to change the title. Be sure to use tenancy by entirety language within the deed for the new title.
After you’ve finished the quitclaim deed, have it notarized and file it at your local county recorder’s office. For more details on the process, reach out to a real estate attorney. They can help complete the necessary paperwork.
Is tenancy by entirety available in my state?
Currently, about half of all U.S. states allow tenancy by entireties. Some states allow TBE only on real estate properties, while others allow it on any property type.The Bottom Line
Tenancy by entirety can be a useful tool for married couples who want to protect their assets. However, the asset protection that this legal entity offers is limited. Before deciding on whether to establish tenancy by entirety, it’s best to discuss your options with a legal professional.
Interested in buying a home with your spouse and setting up tenancy by entirety? Start the approval process today with Rocket Mortgage®.Hanna Kielar
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