What is Tenancy by the Entirety?

Tenants by the Entirety is based on the longstanding idea that when a man and woman marry, they create a new entity, a marital unit. Thus, husband can own property, wife can own property, and the marital unit can own property as tenants by the entirety.

Tenants by the entirety is separate and distinct from tenants-in-common or joint tenants. In tenants by the entirety, husband and wife don’t own 50% but rather the marital unit owns 100% of the property. As a result, neither spouse can sell tenants by the entirety property without the consent of the other spouse.

So why hold property as tenants by the entirety? The big (actually it is huge!) advantage is asset protection. In Missouri, tenants by the entirety property cannot be subject to an individual spouse’s debts.

For example, Husband and Wife own their house worth $250,000 as tenants by the entirety property. Husband goes through a mid-life crisis and buys a top-of-the-line Mercedes, a new Harley-Davidson motorcycle, and then takes a 30-day luxury vacation across the globe. All the while, wife continues her normal, responsible life. If (perhaps when…) Husband stops making payments on his new car, motorcycle, and vacation, his creditors will come after him for payment. They will likely end up suing him and receiving a court judgment against him. That judgment will allow his creditors to go after and collect from any of Husband’s separate property. But so long as Wife hasn’t co-signed on these debts, Husband’s creditors will not be able to collect against their marital assets, namely their home, since it is owned as tenants by the entirety.

Tenants by the Entirety is a very powerful tool. Especially for individuals in professions where there is a higher risk of being sued (doctors, pharmacists, lawyers, etc.) tenants by the entirety can help protect your assets. Consider how this could help provide asset protection to a doctor when faced with a medical malpractice lawsuit.

Further, in 2011 the Missouri Legislature created what is called a “Qualified Spousal Trust” (QST). A QST is able to hold tenants by the entirety property and preserve the asset protection features of tenancy by the entirety. This is especially important for clients who may have older estate plans, to consider updating their estate plan to take advantage of the new law.