DOES ‘TENANTS BY ENTIRETIES’ EQUAL ASSET PROTECTION? Physician Asset Advisor, June 2004 By Jay Schechter, CFP, JD & Marc Singer, MBA, CFP The issue arises frequently as to whether property owned as tenants by entireties (TE) is a protected asset. In Florida, TE is a special form of joint tenancy ownership that is available only to married persons under common law. Special protection exists if a creditor has rights against only one of the spousal owners of TE property. Unlike joint ownership with rights of survivorship, which affords no protection against creditors, TE ownership affords reasonable asset protection benefits. In Florida, all types of property can be held as TE including real property, and tangible and intangible personal property. It is im-portant to note that TE provides no protection if two married doctors are sued in the same malpractice case. Although each case is unique, the courts in Florida have usually protected TE property from the individual creditors of one of the spouses. These cases are hotly debated and the legal community is constantly monitoring court decisions around the country. In addition, lawmakers seem determined to make changes that will dislodge this protection. Trouble in Another State: In April 2004, a Bankruptcy Court in Michigan raised an interesting issue regarding TE property. The case involved four separate bankruptcies where the debtors were claiming that their property was protected because it was owned TE with their spouse. The court’s long opinion (37 pages) explained the history of TE. The court held that once the debtor files bankruptcy, the status of the asset actually changes to tenants in common, which would cause all TE protections to vanish. The court reasoned that upon a bankruptcy filing, whether voluntary or involuntary, a bankruptcy estate is created which is made up of all non-exempt assets of the bankrupt debtor. Since the property placed in the bankruptcy estate no longer belongs to the debtor, and is administered by the bankruptcy trustee, the court found that a husband and wife no longer own the property.Therefore, the TE must change to tenants in common. Prior to this Michigan case, TE property could lose its TE status only if (1) a couple divorced (2) a spouse died or (3) both husband and wife agreed to sell the property to a third party. The Michigan court added a fourth way; the filing of a bankruptcy. The Michigan judge goes into great detail about the rights of the non-debtor spouse and how this ruling might have adverse consequences on the spouse. Severance of the TE property would mean that the spouse’s interest would no longer be protected from his or her individual creditors. What about Florida? In Florida, TE is the quickest and simplest asset protection vehicle for a married couple with real estate. However, this form of ownership may not provide secure asset protection over the long term. In addition, TE ownership creates problems for estate planning and interferes with estate tax avoidance strategies.It is not recommended for highly liquid assets such as bank or brokerage accounts.For this reason, there are no cases that test whether a $1 million liquid TE brokerage account would actually be protected. It is important to note that most of the TE cases in Florida have been for relatively small assets. Although the courts in Florida have, to date, upheld TE ownership, it is clear that the trial attorneys will be keeping a watchful eye on any potential weakness in this protection. Bare physicians in high-risk specialties should probably avoid TE as their primary protection strategy. Singer Xenos is an established wealth management firm specializing in physicians with $500,000-plus in investments. We manage over $450 million in assets such as retirement plans, annuities and personal accounts, with an emphasis on wealth building and protection from malpractice claims. Both Worth Magazine and Medical Economics named Singer Xenos one of the Top Financial Advisors nationally for physicians. Singer Xenos does not provide legal advice. Please consult with your own legal counsel.