Understanding Tenancy by the Entirety Accounts: Protecting Your Joint Assets from Creditors
"Piggy Bank Awaits the Spring" by bradipo is licensed under CC BY 2.0.
In estate planning, protecting assets from creditors is often a top priority for married couples. One powerful tool available in some states, including Florida, is creating a Tenancy by the Entirety (TBE) account. This joint ownership arrangement allows spouses to hold property in a way that protects it from creditors if only one spouse owes debt. However, recent legal cases, like Loumpos v. Bank One (2024), demonstrate the importance of correctly setting up these accounts to ensure their protection.
What is Tenancy by the Entirety?
TBE is a special form of joint ownership available only to married couples. It treats the couple as a single legal entity for ownership purposes, meaning both spouses equally share the property. The key benefit of a TBE account is that it is shielded from creditors of just one spouse. For example, if one spouse has debt and a creditor tries to garnish funds from a TBE account, the creditor cannot do so unless both spouses owe the debt.
However, in order for an account to be classified as a TBE, specific legal criteria must be met, known as the "unities" of ownership. These include:
Unity of Possession: Both spouses have equal rights to use and control the entire property.
Unity of Interest: Both spouses have equal interest in the property.
Unity of Time: Both spouses must acquire their interest in the account at the same time.
Unity of Title: Both spouses must obtain their interest through the same legal document.
Unity of Marriage: The couple must be married at the time the account is created.
If all these unities are present, the account can be considered a TBE, and it is thus protected from creditors seeking to collect on a debt belonging to only one spouse.
The Importance of Setting Up TBE Accounts Correctly
The recent case of Loumpos v. Bank One highlights why it’s crucial to ensure that a TBE account is set up properly from the start. In the case, Linda Loumpos and her husband, Peter Maragoudakis, opened a joint bank account and designated it as a TBE account by checking the appropriate box on the signature card. Loumpos argued that the account should be exempt from garnishment because it was a TBE, and the debt in question was hers alone—not her husband's.
The issue arose when the creditor, Bank One, challenged this designation. The bank argued that the account was not truly a TBE because not all the legal unities were present, specifically the "unity of time" and "unity of title." Loumpos had been added to the account several months after it was originally opened by her husband, which meant they did not acquire their interest in the account at the same time or under the same legal document.
The Court's Decision: Common Law Unities Still Matter
The court ultimately sided with the creditor, ruling that simply designating an account as a TBE on the signature card is not enough to create legal protection from creditors. Even though Florida law, specifically the Beal Bank v. Almand & Associates (2001) decision, created a presumption in favor of TBE when spousal accounts are jointly held, that presumption does not override the common law requirement that all five unities must be present.
In this case, because the account was opened by one spouse first and then the other spouse was added later, the unities of time and title were missing. As a result, the account did not meet the legal requirements for a TBE, and the creditor was allowed to garnish the funds.
Key Takeaways: Protecting Your Accounts from Creditors
The Loumpos case serves as a crucial reminder to those engaging in estate planning or simply setting up joint bank accounts: ensure that you follow the correct legal steps if you want to protect your assets through a Tenancy by the Entirety arrangement. Here are a few important tips:
Open the Account Together: Both spouses must open the account simultaneously. If one spouse is added later, the unities of time and title will be missing, and the account may not qualify as a TBE.
Use the Right Designation: Clearly mark the account as a TBE on the bank's paperwork, but remember, this is only part of the process. The legal unities must still be met for the account to be protected.
Close and Reopen Accounts if Necessary: If you or your spouse already have an individual account and want to convert it to a TBE, it’s best to close the original account and open a new one in both spouses' names, or open a new account and transfer the desired assets into this new account. This ensures that the unities of time and title are established properly.
Consult an Attorney: Estate planning and creditor protection can be complex, and mistakes can be costly. It's always a good idea to consult with an attorney to make sure your accounts and assets are properly protected.
The Nexus of Banking and Estate Planning
The intersection of banking and estate planning is critical when it comes to protecting assets. TBE accounts can provide excellent protection from creditors, but only if they are set up correctly. The Loumpos case underscores the fact that estate planning isn’t just about drafting a will or trust; it also involves making sure your financial accounts are structured in a way that meets legal requirements and shields your family’s assets.
For couples looking to safeguard their joint property from individual creditors, TBE accounts can be an invaluable tool. However, the process for establishing them must be handled carefully to ensure all the necessary legal steps are taken. By doing so, you can protect your assets and give yourself peace of mind knowing that your family’s financial future is secure.
At the Passalacqua Law Firm, we specialize in estate planning and asset protection. If you’re considering setting up a Tenancy by the Entirety account or have questions about protecting your assets from creditors, our experienced attorneys can guide you through the process. Contact us today to ensure your financial future is properly safeguarded.
DISCLAIMER: This article is provided for informational purposes only and should not be construed as legal advice. If you require legal advice or assistance regarding divorce or any other legal matter, please contact our firm, or visit our website: passalacqualawfirm.com. Our experienced attorneys are here to provide you with personalized legal guidance and support tailored to your specific needs and circumstances.