Title to real estate is typically held in one of three ways: tenancy in common, joint tenancy and tenancy by the entirety.
The salient characteristic of tenancy in common is that each owner holds a ½ interest in the property and that upon an owner’s death, his/her share passes to his/her heir.
Joint tenancy’s hallmark is its survivorship feature: when a joint tenant dies, his/her share passes to the surviving joint tenant. The deceased’s interest will not pass to an heir.
With tenancy by entirety (“TBE”) ownership, sometimes described as “joint tenancy with marriage,” the property is immune from one spouse’s creditor’s judgment lien. This means the creditor of one spouse cannot foreclose on the TBE property. However, to qualify for TBE protection, the parties must be married and live in the property as a primary residence. If the property owners are married but do not use the home as the marital homestead, TBE won’t shield the property from creditor collection efforts.
In Flatrock River Lodge v. Stout, 130 N.E.2d 96 (Ind. Ct. App. 2019), an Indiana appeals court delved into the joint tenancy vs. TBE dichotomy and how the difference between the two realty title vehicles dramatically impacts a judgment lien’s enforceability. The trial court denied the creditor’s motion to foreclose a judgment lien because the subject real estate was held in joint tenancy. On appeal, the Court considered whether a judgment creditor could foreclose on joint tenancy property, force its sale, and apply the proceeds against the judgment.
The judgment debtor owned real estate in joint tenancy with his daughter. The debtor died during pendency of the lawsuit and by operation of law, the title to the property vested in the daughter. Before the debtor died, however, the plaintiff/creditor recorded its judgment lien against the property.
The creditor moved to foreclose its judgment lien against the property. The debtor’s daughter argued the property was exempt from execution by Indiana’s tenancy-by-entirety statute (the TBE statute). Indiana Code Section 34-55-10-2(c)(5). The trial court agreed with debtor’s daughter and denied the creditor’s motion.
Reversing, the Indiana appeals court first rejected the defendants’ argument that since the debtor died, the property escaped plaintiff’s lien. The court noted that the plaintiff’s judgment lien attached from the moment it recorded its judgment against the property – some two years before debtor’s death. As a result, the debtor’s daughter took the property subject to the plaintiff’s lien.
Next, the appeals court rejected the trial court’s finding that the property was immune from the plaintiff’s judgment lien.
In a joint tenancy, each tenant acquires an equal right to share in the enjoyment of the land during their lives. A joint tenant is severed where one joint tenant conveys his/her interest to another and destroys the right to survivorship in the other joint tenant(s). Once a joint tenancy conveys his/her share to another, he/she becomes a tenant in common with the other co-tenant.
Each joint tenant can sell or mortgage his/her interest in property to a third party and most importantly (for this case at least), each joint tenant is subject to a judgment creditor’s execution. [8]
TBE ownership only exists between spouses and is grounded in legal fiction that husband and wife a single unit. A TBE cannot be severed by the unilateral action of one tenant. An attempted transfer of a TBE ownership interest by only one spouse is a legal nullity. The key difference between joint tenancy and TBE is that with the latter, a creditor of only one spouse cannot execute on the jointly owned property
The Court noted that under Indiana Code 34-55-10-2(c)(5), property held in TBE is exempt from execution of a judgment lien. However, this statute applies uniquely to TBE ownership; not to joint tenancy. According to the court, “[h]ad the Indiana legislature intended to exempt from execution real estate owned as joint tenants, it would have done so.” [14]
Take-away:
This case shows in stark relief the perils of conflating joint tenancy and tenants-by-entirety ownership. If a property deed does not specifically state tenancy by the entirety, the property will not be exempt from attachment by only one spouse’s creditor.