Judgment Proof Yourself with a Tenancy by the Entirety?
Judgment Proof Questions
I get a lot of questions from Texas judgment debtors on the issue of how to be judgment proof. Most of the questions are about how to rearrange ownership of real estate so as to avoid the foreclosure of a judgment lien against the property. Recently, several questions have been raised about using a tenancy by the entirety to make a judgment "go away."
Let me start by explaining the "tenancy by entirety." A tenancy by entirety is a concurrent interest in real property that is limited to a husband and wife. Each co-tenant has the right to possess the whole estate. And, the tenancy cannot be severed or partitioned by the sole actions of one co-tenant or the creditors of one co-tenant. It is this inability of creditors of one co-tenant to partition the tenancy that makes a tenancy by entirety appealing to judgment debtors.
But using a tenancy by entirety as a way to avoid paying a judgment doesn't actually work.
Rather than give you a lengthy explanation myself, the following article by Thomas Moens, an attorney in Illinois and Iowa, does a superb job of laying out why a tenancy by entirety does not allow you to judgment proof yourself as well as the average person thinks it does.
Judgment Proof Problems and the Tenancy by Entirety
Tenancy by Entirety
by Thomas Moens
There seems to be a misconception that holding title to real estate as tenants by the entirety is a magic bullet that makes judgments go away. Not the case. All it accomplishes is to protect you from creditors foreclosing judgments against your real estate, while you live there, and while you are still married.
The example that comes up frequently is this. Married couple own their residence as tenants by the entirety. A judgment is entered against the husband only, and a memorandum of judgment is recorded. If they, for example, owned the property as tenants in common, that judgment creditor would be able to foreclose the judgment lien. But since they own the property as tenants by the entirety, this cannot happen. When the couple decides to sell the house, they will need to take care of the lien. Many people are under the mistaken impression that tenancy by the entirety makes the lien disappear. The lien is still there, it just cannot be enforced against the real estate. So when they sell the house, it will no longer be their residence, and the tenancy by the entirety protection will cease to exist. And boom, as soon as the deed to the buyers is recorded, the lien is now enforceable, and it is ahead of any mortgage lien the buyers might have.
Read more here:
I do understand that, as a judgment debtor, you want to find ways to avoid paying the judgment against you. But, for those who have written so many questions about using a tenancy by entirety, I do hope you now understand why it is not the ultimate solution in your quest to judgment proof yourself.
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