Is real estate that spouses own jointly subject to execution to satisfy a judgment entered against only one of the spouses? Not in Indiana.
Definition. Black’s Law Dictionary’s definition of “tenancy by the entireties” is:
A tenancy which is created between a husband and wife and by which together they hold title to the whole with right of survivorship . . .. It is essentially a “joint tenancy,” modified by the common-law theory that husband and wife are one person, and survivorship is the predominant and distinguishing feature of each.
Indiana’s rules. As a matter of law, real estate owned by a husband and wife is held under a form of ownership known as “tenancy by the entireties.” There are only two requirements for a tenancy by the entireties to exist: (1) that spouses be legally married at the time of the conveyance; and (2) that the deed include both spouse’s names. No “magic language” is required on the deed. If, for example, the deed states that the grantor conveys the real estate “to Eddie Doe and Betty Doe, husband and wife,” then under Indiana law the couple owns the real estate as tenants by the entireties.
Exempt. In Indiana, a creditor of one spouse cannot execute upon real estate owned as tenants by entireties. See Ind. Code § 34-55-10-2(C)(5); see also Diss v. Agri Bus. Int’l, 670 N.E.2d 97, 99 (Ind. Ct. App. 1996) (“A tenancy by the entirety is immune from seizure in satisfaction of the individual debts of either of the co-tenant spouses.”). Thus, any real estate owned jointly as spouses is exempt from collection by any creditor that obtains a judgment against one spouse individually.
Sale proceeds/rents. As a general rule, proceeds arising from the sale of entireties property also are exempt from collection by the creditors of one spouse. Thus, where entireties property is sold, the sale proceeds do not lose their exemption protection so long as no action is taken contrary to treatment as entireties property (i.e., the proceeds are not split, divided or otherwise designated to either spouse’s individual creditors) and/or there is a particular statement by the couple that they intend the proceeds to be, and are, held as entireties property. Whitlock v. Public Service Company of Indiana, Inc., 159 N.E.2d 280 (Ind. 1959). On the other hand, rents are not immune.
Co-borrowers/guarantors. These laws protect an innocent spouse or, in other words, a spouse that was not a defendant in the lawsuit or a party to the underlying transaction. The entireties exemption explains why, on the front-end of a deal, a lender might insist upon spouses co-signing a note or require guaranties from both spouses, even though only one of the spouses is in the business. If both spouses are judgment debtors, co-borrowers or co-guarantors, then their real estate held as tenancy by the entireties is not shielded from post-judgment collection.
Thanks to my colleague Matt Millis for his input into this post. He took the lead with the legal research this week and, as always, is an effective post-draft editor for me.