For most people, our homes are our safe space; our refuge; our abode of comfort, peace, and love. It is where we get away from the world. Our most asked question on our hotline is: “how do I protect my personal residence?” This week we will look at some Common Protection Methods.
Again, solutions are almost always caused by the case, or in another’s words, “it depends.” Since each solution can bring some problems or challenges, always consider your endgame.
Common Protection Methods
- Homestead Protection
- Tenancy by the Entireties
- Equity Stripping
- Revocable Living Trusts
This week we will cover the first two and follow up next week with the others.
These laws vary widely by state and protect personal homes from creditors, (small amounts of personal property can be exempt from lawsuits and bankruptcy courts, and some state laws will also protect the tools used in a trade or business). These laws are state-specific, often adjusted for inflation or indexed with housing markets. They originated to prevent homeowners from losing their homes because of other debts or obligations, and have since been expanded into the bankruptcy courts to protect homes (up to certain stated values) from being attachable in bankruptcy actions.
Some states offer virtually zero protection or only protect a minimum amount of equity in the home and other assets while others, (such as Florida, Texas, Iowa) can provide almost unlimited protection, even for values extending into the millions of dollars. So, always check your state’s homestead laws first.
As a result of these laws, if the amount of equity in your personal residence is protected under the homestead laws of your state, no further planning may be necessary. The home could be titled into the revocable living trust for estate planning reasons, but the equity is protected from judgment creditors. Further legal options are only considered if you have equity that exceeds the amount protected by state laws.
Tenancy by the Entireties:
Tenancy by the Entireties is a form of joint ownership, used in 23 states. It can provide protection to your home if you live in one of the states in which this form of ownership is recognized. This form of ownership permits spouses to own property jointly as a single legal entity and can exist only between spouses who are married at the time they receive the title. These states basically provide some asset protection to their residents that are not available in other states
Protection of Assets:
Under this form of ownership, the husband and wife each own an indivisible interest in the entire property. This constitutes an unbreakable unit that neither spouse can sell or transfer, and which creditors cannot attach without the consent of the other spouse.
The general rule is that, in a Tenancy by the Entireties state, if the creditor of one
spouse gets a judgment against one spouse, then that creditor may not attach assets held in Tenancy by the Entireties. The creditor is often forced to try somehow, to bring the other spouse into the action so that the judgment is against both spouses, making the property thereby subject to attachment and seizure.
The creditor may also wait for the spouse who does not have the judgment against him or her to die, at which time the property may be attached. Tenancy by the Entireties can work well if you are in a state with a good homestead act (of at least $50,000 – 100,000) and can tie them to work together.
Some positives with Tenancy by the Entireties are:
- Husband and wife each own an indivisible interest
- Cannot be attached without a judgment on both
Some concerns regarding Tenancy by the Entireties are
- Parties MUST be married at the time they receive the title,
- If BOTH parties are sued,
- If one spouse dies and,
- It is not available in all states.
If any of these conditions exist, the general rule is that the property is then subject to attachment and seizure.
The process of claiming Tenancy by the Entireties is how you own the property. If on the deed of the property, you can file a quitclaim or warranty deed with your county recorder or registrar of deeds, you would change the title to say your names as tenants by the entireties.
Don’t forget our upcoming, exciting 3-day Asset Protection & Wealth Creation Summit. Register for it at: www.protectwealth.com.