Tenants by the Entirety: Am I Still Protected After Divorce?
If a divorcing couple owns real estate together, once the divorce is final and their title of Tenants by the Entirety is dissolved, the question then becomes – “Can creditors place liens or judgments against the home due to debts of the former spouse?” In short, the answer is yes.
What does the term Tenants by the Entirety mean?
Tenancy by the Entirety, often referenced as T/E or “T By E,” is a special status of title applicable to both real estate and personal property available only to married people. The law provides special protection to persons holding title as Tenants by the Entirety from the claims of creditors because the law recognizes the marital union as the legal owner of the property and not the individual spouses. T/E essentially serves as a shield, protecting married persons against the claims of individual creditors who are unable to lien or sell the T/E property to satisfy their claims.
Unfortunately, the reality is that legally, the instant the “marital union” is severed by a divorce judgment, that protective shield is dissolved; the title of Tenants by the Entirety is severed and the parties hold title to the property as “tenants in common” or “TIC” – a status of title that provides no protection from creditors. There are can be very serious (and often very surprising) implications for the parties involved when this occurs.
At that moment when the divorce judgment is entered and the shield comes down, the property is exposed to the claims of current and future creditors of both former spouses. Judgments and other liens previously entered against a former spouse, even years before divorce, can “spring forward” and attach to the now-separate interests of the former spouse in the property, potentially making those creditors a “partner” in the property.
What if my separation agreement states that my ex is responsible for the mortgage? Can I still be held responsible if they don’t pay?
Divorce and separation agreements can, and often do, deal with who gets what assets and who is responsible to pay the various liabilities of the parties. But those agreements, and that judgment, have no bearing on the rights of the creditors. So, if two people who were once married incurred debt jointly, no agreement that those two debtors make between themselves can legally impact or limit the rights of the creditor in a default situation.
Once tenancy by the entirety is dissolved, creditors of each owner can attach and enforce their judgment liens and force the sale of the debtor’s ownership interest in the property. From a practical standpoint, that compromises the “innocent” owner’s interest and security in the property.
The Bottom Line
While judgements and other liens against an “ex-spouse” do not attach to the ownership interest of the other former spouse, those judgments and liens must be released in order to sell or refinance the property. In effect, the “innocent” former spouse is held hostage until the liens are released, regardless of the terms of the separation agreement.
In a “perfect world,” it would be best for divorcing couples to sell or refinance their property BEFORE the divorce is final (while they still own the real estate as Tenants by the Entirety) in order to avoid the risks and consequences of unknown creditors and springing liens.
If you own real estate with your spouse and are considering a divorce, it is important to be proactive and seek legal counsel early in the process to fully understand your options. An experienced real estate and divorce attorney can help you NOW to avoid or minimize problems LATER. Don’t wait until it’s too late!
Experienced real estate and divorce lawyer Fred L. Coover, Esquire of Coover Law Firm, LLC has been practicing real estate and family law in Howard County, MD for over 30 years. If you are facing a divorce or have a difficult real estate situation that requires legal assistance, contact us today to schedule an initial consultation. We look forward to serving you!
Disclaimer: The information in this blog post is provided for general educational & informational purposes only. It is not intended to convey legal advice or serve as a substitute for legal counsel on any subject matter.