A Brief Overview of the Pros and Cons of jointly owned real property with your husband or wife
If you were to take a trip down to your county’s Register of Deeds and take a look at the books, you’d find quite a bit of real property owned by married couples. Most folks who get married and buy a home, have that home titled in both their names for no real rhyme or (legal) reason. It’s just what people tend to do. But what are the legal consequences of this decision? Are there advantages to owning real property as husband and wife? Are there disadvantages? In this post, we will briefly outline some of the pros and cons of having your home titled in both your and your spouse’s name.
When real property is transferred to a married couple, a “Tenancy by the Entirety” is created. Tenancies by the Entirety have their roots in English common law, but they are very much alive in the state of North Carolina. So what are the advantages of Tenancy by the Entirety?
Spouses who own real property as Tenants by the Entirety enjoy two special rights: the right of survivorship and sometimes, creditor asset protection. Right of survivorship is when a tenant (owner) automatically takes full title/ownership to the real property upon the death of the other tenant, even if the deceased didn’t have a Will. This means that if a husband and wife own land as Tenants by the Entirety and the husband dies, the wife automatically gets all the rights to the real property that the husband had.
Now, what about asset protection? One of the ways that creditors can collect on their debts is through the foreclosure process. For example, if a person owes a large debt to a business, and that person owns a home or land, that business may be able to collect on its debt by foreclosing upon the debtor’s property and receiving a portion of the proceeds to pay off the person’s debt. It’s a great maneuver for a creditor, but a frustrating one for the property owner. Property owned in a Tenancy by the Entirety (TBE) is considered to be owned by the married couple, NOT the individual husband and wife. So, if a husband has a debt, his creditor would unlikely be able to foreclose upon a TBE property to collect that debt. Likewise, if a wife has a debt, her creditor would unlikely be able to foreclose upon a TBE property to collect that debt. However, if a husband and wife jointly share in a debt, then the creditor CAN foreclose upon the TBE property. Of note, TBE property only exists with respect to real property (land), and not personal property.
So what’s the takeaway? If all your debts are individual, and your real property marital (TBE), then creditors are going to have a hard time collecting from you through foreclosure. As long as the marriage remains harmonious, TBEs don’t present many issues. However, because with a TBE, both spouses own the property, both spouses need to be in agreement before they can sell or take out a mortgage on the property. If only one spouse wants to sell, the other spouse is out of luck.
What if your marriage doesn’t last until “death do us part” and you made a large down payment to acquire your TBE marital home? Do you get that money back in divorce? Most likely not. When real property is deeded to a lawfully married couple as husband and wife, that property becomes jointly owned 50/50, even if one spouse spent a lot more money than the other to get the property. In a divorce, such transfer will likely be deemed a gift to the marriage and subject to “equitable distribution.”
Equitable distribution is the process of dividing up all the property owned by a husband and wife before a divorce. During Equitable Distribution, property is either classified as marital, separate, or divisible. In North Carolina, a court presumes that equally dividing the marital property is equitable (i.e. fair). This means that if a marital home is sold during a divorce, each spouse would most likely be entitled to half of the proceeds from the sale. So, if a marital home is sold during equitable distribution for $200,000, each spouse gets $100,000. This likely holds true even if one spouse made a down payment of $175,000 to buy the home. Upon divorce, that spouse likely only gets half back.
So is there a way around this marital gift presumption? Can a person get their down payment back during divorce and also get the benefits of creditor protection of a TBE during marriage? Most likely yes, if that person talked to a qualified attorney before getting married and/or buying the home. If you want to protect your assets both from creditors during the marriage or from a jilted spouse in a divorce, set up a consultation with the attorneys at Tran Law Firm today!
