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Kevin O'Flaherty

If you’re worried about that a creditor will take property that is jointly owned, it’s essential to understand the legal protections and risks involved. Joint ownership doesn’t always mean full protection from creditors, especially when only one owner owes a debt. The answer to this concern, varies with factors like the type of joint ownership, state laws, and specific circumstances of the debt. In this article, we’ll explore how creditors may affect jointly owned property and what it could mean for you.

Can a creditor go after joint tenancy assets?

Joint tenancy (with rights of survivorship) is extremely common between spouses and in nearly all cases creditors very little to no rights against property held in joint tenancy between the deceased person and the joint tenant. Upon death, the decedent’s interests transfer directly to the surviving tenant, escaping probate and the legal reach of the creditors. This may sound like joint tenancy is a done deal with little to worry about upon death, however, it is not full proof.

Generally, joint tenancy protects the interest of a non-debtor joint tenant. This means a creditor cannot seize their share of the property if another owner has debt. However, creditors may negotiate to settle liens or, in some cases, force the sale of the jointly-owned property to recover debts from a joint tenant.

Tenancy by the Entireties: A Special Case for Married Couples

Tenancy by the entirety is another form of joint ownership, exclusive to married couples. It’s a unique arrangement where a husband and wife hold jointly held property as an indivisible unit, with each having an undivided interest and rights of survivorship. This form of ownership offers certain protections against creditors. Specifically, the property is exempt from being used to satisfy the debts of only one spouse, which means both spouses would need to consent to any transfer or obligation against the property. Moreover, unlike joint tenancy, neither spouse can affect the other’s interest in the property unilaterally. This ensures full occupancy rights and the right of survivorship for both spouses.

Community Property Considerations

When it comes to married couples, another form of property ownership comes into play: community property. In community property states, almost all real property jointly owned and debts acquired during the marriage are considered jointly owned, regardless of who made the financial contributions to acquire them. This concept is characterized by equal ownership of assets, but it also has significant implications for creditor claims.

In these states, a creditor may have the right to pursue the entirety of community-owned property to satisfy a debt incurred by either spouse. However, some community property states have laws that prevent creditors from filing liens against joint property for the debt of one spouse. This highlights the importance of understanding the laws of your specific state when it comes to community property.

Creditor Reach: How Far Can It Extend?

Photo of a legal document with creditor's rights text

Having explored the different forms of joint ownership, we can now focus on the role of creditors. How far can a creditor’s reach extend when it comes to jointly owned property? The extent to which a creditor can place liens on jointly owned property varies widely by state laws and the type of property ownership.

A creditor’s reach can be quite extensive in community property states. Here, a creditor with a judgment against one spouse can potentially file a lien against all property acquired during the marriage. This can even extend to property solely titled in the other spouse’s name. Certain community property states have exceptions that prevent a creditor from filing a lien on joint property if only one spouse is a judgment debtor. This provision can provide protection for the non-debtor spouse’s interest in the property.

Judgment Liens on Joint Tenancy Property

A judgment lien is a claim made by a judgment creditor to secure a debt. In the context of joint tenancy, these liens can affect the debtor’s interest in the property. However, the impact of these liens can be limited by the nature of joint tenancy. Creditors are entitled to execute against only the divisible interest of a debtor in property jointly owned, not against the entire property. This means that a non-debtor joint tenant is somewhat protected, as a creditor cannot seize their share of the property.

However, creditors may still attempt to negotiate to settle liens or, in some cases, force the sale of jointly-owned property to recover debts from a joint tenant. This is a complex area of law, and one where the specific details can have a significant impact on the outcomes for both debtors and creditors.

Impact on Tenancy by the Entireties

As we’ve discussed, tenancy by the entirety offers some protection against creditors. Specifically, a creditor’s judgment lien does not attach to jointly-owned property unless both spouses are debtors. This means that if only one spouse is in debt, the property held as tenancy by the entirety is generally safe from creditors.

However, this protection does not extend to federal tax liens against one spouse. Additionally, upon the death of a spouse, the surviving spouse takes the property unburdened by such a federal tax lien. As with everything in this area, the specifics can be very important, and different jurisdictions may have different rules.

Surviving Joint Tenants and the Right of Survivorship

The right of survivorship is a key principle in joint tenancy. This means that upon the death of one owner, the surviving joint owner(s) automatically acquire the deceased owner’s interest in the property. In cases of tenancy by the entirety, specifically between spouses, the property is transferred directly to the surviving spouse without undergoing the process of probate.

This transfer of ownership supersedes any conflicting directions in the deceased’s last will. However, this can also result in unintended consequences, as the surviving owners may not be the individuals that the deceased would have chosen to inherit their property. Therefore, it’s important for joint tenants to consider these implications when setting up their estate plans.

Settling Debts After Death: Estate Plan Considerations

When a joint tenant dies, the process of settling their debts can be complex. Estate planning, including the use of joint tenancy arrangements, is critical for managing future incapacity issues, avoiding probate, and assisting in asset management. Tenants in common should have a will to direct their property shares to desired recipients since these do not automatically transfer to the surviving co-owners.

In addition, debts of a deceased spouse in community property states may be settled from the community estate prior to inheritance distribution, potentially impacting property with liens. Heirs receiving property with an outstanding mortgage need to either pay off the mortgage or risk foreclosure if no specific plans are made for mortgage satisfaction. Therefore, it’s important for joint tenants to consider all possible scenarios and make appropriate plans.

Do not assume that the law applicable to joint real estate property and joint bank accounts are the same. Generally, rules surrounding joint bank accounts and what happens after death are determined by the contract between the bank and the depositor. This means that if in the agreement between the bank and one of the account holders (think one of the joint asset holders), the account holder can unilaterally pledge the interests of all the other depositors resulting in that decision holding weight passed the original joint tenant-account holder’s death.

Generally, joint tenancy is a safe and common way to avoid probate and real property upon the death of one of the joint tenants. It is important to note that if any of the joint tenants owes a debt of any kind, credit card, liens on property, etc, they’re assets, while living, are still subject to claim by creditors in order to resolve the debt when alive. The specifics of a will and/or trust will determine what kind of access the creditors have after the death of one, or all, of the joint tenants. Hence the importance of having an ironclad trust in place. You can learn more about joint tenancy assets, property, and the probate process by checking out the article, Illinois Probate: Does All Property Need to Go Through Probate?

Disclaimer: The information provided on this blog is intended for general informational purposes only and should not be construed as legal advice on any subject matter. This information is not intended to create, and receipt or viewing does not constitute an attorney-client relationship. Each individual's legal needs are unique, and these materials may not be applicable to your legal situation. Always seek the advice of a competent attorney with any questions you may have regarding a legal issue. Do not disregard professional legal advice or delay in seeking it because of something you have read on this blog.


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