Lesson. Since ownership of real estate by a husband and wife creates a presumption of a tenancy by the entirety, typically a creditor cannot collect the debt of one spouse from the marital real estate. However, the presumption is rebuttable by a contract that states otherwise or that implies otherwise – potentially opening the door to collecting the debt from the debtor spouse’s interest in the real estate.
Case cite. Fund Recovery Servs. LLC v. Wolfe 2022 U.S. Dist. LEXIS 28754 (N.D. Ind. Feb. 17 2022)
Legal issue. Whether a fraudulent transfer case against husband and wife should be dismissed because they held the subject real estate jointly.
Vital facts. Creditor alleged that Husband transferred his interest in real estate that he held jointly with Wife such that Wife become the sole owner. The transfer occurred after entities for which Husband was a personal guarantor filed bankruptcy. The Court’s opinion does not mention anything about the language in any of the deeds, nor is there any discussion of why Husband transferred title to Wife.
Procedural history. Creditor filed suit against Husband and Wife seeking to collect the debt Husband owed to Creditor. Specifically, Creditor claimed the conveyance should be set aside because the real estate transfer violated Indiana’s Uniform Fraudulent Transfer Act (IFTA). Defendants filed a motion to dismiss the Complaint for a failure to state a claim for relief.
Key rules.
Certain transfers made by a debtor are voidable as to a creditor if the transfer was made with intent to hinder, delay, or defraud the creditor. Ind. Code. 32-18-2-14(a)(1).
A transfer can also be voidable “if the transferor did not receive reasonable value for the transfer and the debtor was engaged in a business for which his remaining assets were unreasonably small in relation to that business, or the transferor incurred debts beyond his ability to pay.” Ind. Code § 32-18-2-14(a)(2).
The IFTA also provides that a transfer is voidable if the claim arose before the transfer, if the debtor made it without “receiving reasonably equivalent value,” and if the debtor was insolvent at the time or became insolvent as a result of the transfer. Ind. Code. § 32-18-2-15.
Tenants by the entirety is a form of ownership of real estate in Indiana that is reserved for husband and wife “based on the legal fiction that a husband and wife are a single entity.” The nature of the ownership protects real estate from being seized to satisfy the debts of only one of the spouses.
In Indiana, ownership of real property by a husband and wife creates a presumption of a tenancy by the entirety that is rebuttable by either a contract hat states otherwise or that implies otherwise. Ind. Code § 32-17-3-1(d).
Holding. The Court denied the motion to dismiss.
Policy/rationale. Husband and Wife argued that, because the couple was married, the real estate was held as tenants in entirety and, as such, the real estate would not have been available to satisfy the debt of Husband. Further, Husband and Wife asserted that the Complaint did not allege facts necessary to overcome the presumption of an estate by the entireties. Creditor argued that it may be able to rebut the presumption by virtue of a contract for the purchase of the subject real estate. (The Court did not elaborate on the details of the contract, but clearly something did not sit well with the Court, which allowed the claims to proceed to the next phase of the case.)
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I represent parties involved in real estate-related disputes. If you need assistance with a similar matter, please call me at 317-639-6151 or email me at [email protected]. Also, don’t forget that you can follow me on Twitter @JohnDWaller or on LinkedIn, or you can subscribe to posts via RSS or email as noted on my home page.