What is the Difference Between Owning Real Estate As Joint Tenants and Tenants by the Entirety?
Tenancy by the entirety is limited to a husband and wife and only while they are married. As a result, two unmarried person who wish to have the survivor own the parcel of property and avoid probate would have to own the parcel of real estate as joint tenants, not as tenants by the entirety.
There is a legal fiction associated with tenancy by the entirety–each party owns the entire parcel of property. As a result, neither co-owner can deal with the parcel of real estate independently of the other. When a parcel of real estate is owned as joint tenants, however, each owner is treated as owning an undivided one-half of interest in the parcel of real estate. As a result, each joint tenant may deal with his/her undivided one-half of the parcel of real estate without the consent of the other co-owner.
This critical difference of independent control by a joint tenant of his/her one-half interest in the parcel of real estate has both advantages and disadvantages, as follows:
Severability
Either joint tenant can “sever” the joint tenancy without the consent, or for that matter, the knowledge of the other joint tenant. This means that either joint tenant can transfer (sell or gift) or encumber (place a mortgage on) his/her one-half joint tenancy interest in the parcel of property without the consent of the other joint tenant. Although this feature of joint tenancy provides freedom and flexibility to each joint tenant, it also allows either joint tenant to take unilateral action with regard to their interest in the parcel of property without informing the other joint tenant. As a result, if a joint tenants sells his/her interest in the real estate to a purchaser, the remaining joint tenant owns the property as a tenant in common with the purchaser of the one-half interest in the real estate that was sold.
Partition
Since a joint tenant has the legal right to take unilateral action with regard to his/her joint tenancy interest, either joint tenant can file a lawsuit called a “partition action,” to have the property divided or sold at a partition sale. This is an absolute right of each joint tenant, so the other joint tenant cannot contest the right of the other joint tenant for such a court judgment ordering partition. Also, the judgment for partition severs the joint tenancy. But, when a parcel of property is owned as tenants by the entirety by a husband and wife, neither spouse can file a partition suit to have the parcel of property divided or sold.
Protection Against Liens
A judgment or other lien against one spouse who owns a parcel of real estate with the other spouse cannot be enforced against the parcel of real estate if it is owned as tenants by the entirety. As a result, if the spouse against whom the judgment has been entered dies first, the lien cannot be enforced against the parcel of real estate that the spouses own as tenants by the entirety. If, however, two spouses own a parcel of real estate as joint tenants, the judgment against one of the two spouses can be enforced against the parcel of real estate. Specifically, the judgment against one spouse can be enforced by a levy against the parcel of real estate, which will be sold at a judicial sale. The result is that the non-debtor spouse will then own the parcel of real estate as tenants in common with the purchaser of the one-half interest at the judicial sale. Obviously, then, it is preferable for two spouses to own property as tenants by the entirety, since it protects the parcel of property from the creditors of only one of the two spouses. It should be noted, however, that a judgment creditor or other lienor against the interest of a deceased spouse has no claim against a parcel of property owned in joint tenancy after the parcel of property has passed to the surviving spouse upon the death of the other spouse.
Bankruptcy
The difference between ownership of a parcel of property as tenants by the entirety and joint tenancy with respect to a creditor of only one spouse is true in bankruptcy also. A creditor in bankruptcy of only one spouse cannot levy upon, or reach, the parcel of property owned as tenants by the entirety. If, however, the parcel of property is owned as joint tenants, the bankruptcy trustee will take over the joint tenancy interest of the joint tenant filing bankruptcy. The result is that the joint tenancy is severed, and the non-debtor joint tenant then owns the parcel of property as tenants in common with the bankruptcy trustee.
Forfeiture Laws
If a parcel of property is owned as tenants by the entirety, the interest of a spouse found guilty under federal or state law is not reachable by the government as long as the parcel of real estate is owned as tenants by the entirety. If the property, however, is owned as joint tenants, the undivided one–half interest of a spouse found guilty under any of the federal or state laws that provide for property forfeiture is subject to being lost.
If you have questions about owning real estate as joint tenants or owning real estate as tenants by the entirety, please reach out to Charles W. Siragusa. He can answer all your questions about this and any real estate law inquiry in the Chicagoland area.