Daily Development for Wednesday, August 8,
by: Patrick A. Randolph, Jr.
Elmer F. Pierson Professor of Law
UMKC School of Law
Of Counsel: Blackwell Sanders Peper Martin
Kansas City, Missouri
MARITAL PROPERTY; TENANCY BY ENTIRETIES; FRAUDULENT CONVEYANCE: A debtor spouses interest in a property held as a tenancy by the entirety has value to that debtor spouses creditors for the purpose of claiming a fraudulent conveyance, although such creditors rights are wholly defeasible should the nondebtor spouse survive the debtor spouse. Almas Mary Innis v. George E. Robertson, 854 N.E.2d 105 (Mass. Ct. App. 2006).
Robertson and Innis each owned a one-half interest in a real estate development company, Hopedale Development. Robertson acquired Innis interest for a promissory note of $900,000. After Innis death in 1989, Innis wife (Plaintiff) sued Robertson for both nonpayment of the note and fraud in the acquisition of Innis interest in Hopedale. During the pendency of that case, Robertson and his wife engaged in a series of real estate transactions in which they conveyed four properties owned by them as tenants in the entirety to either Robertsons wife individually or a family realty trust created for that transfer. The consideration recited in each deed was less than one hundred dollars. In December, 1991 Plaintiff prevailed in the 1989 suit, and after the transfers pursuant to the settlement agreement did not produce proceeds sufficient to satisfy the judgment debt, Plaintiff commenced this action in 1997 to set aside the above-mentioned conveyances.
The trial court concluded that the conveyances were indeed fraudulent and that Plaintiff was authorized to reach and apply the assets in question to satisfy the judgment debt. The Appeals Court of Massachusetts affirmed.
The defendants argued that there was no fraud on creditors as a result of the transfers because, even prior to the transfers, property held by tenancy by the entireties was immune from the reach of the plaintiffs potential judgment. But the court noted that, in Massachusetts, that fact that real property is owned by the entirety does not mean that a debtor spouses interest has no value to his or her creditors.
Acknowledging the evolution of the tenancy by the entirety in the modern age, the court noted that while either spouse may convey or encumber his or her interest in property held as tenants by the entirety the right of survivorship of the nondebtor spouse is indestructible. But where the property is not the principal residence of the nondebtor spouse, a judgment creditor still is free to seize the debtor spouses interest, subject to dispossession should the nondebtor spouse survive the debtor. If it is the principal residence at stake, as was the case for one of Robertsons four conveyances, such a creditor is precluded from seizing the property but still has a right to the debtor spouses interest, which will ripen into ownership should the debtor survive the nondebtor spouse.
Under these circumstances, the conveyance of these assets had the effect of potentially moving these assets out of reach of the plaintiff. Under the relevant statute, this made such conveyance fraudulent.
Comment 1: Note that different states view tenancies by the entireties differently. In the majority of the states, a tenancy by the entireties is completely slippery - a creditor of an individual spouse has no ability to attach or execute upon any interest in the property, as the law envisions the property as belonging to the marital entirety. Even the survivorship expectation of the debtor spouse cannot be attached, because until the death of the other spouse, such debtor spouse has no interest that can be attached. The judgment creditor is left simply with the right to record its judgment lien and hope that, at some future time, the debtor will pass into sole title of an interest in the property due to death of the other spouse or divorce.
In these jurisdictions, one would assume that the spouses themselves could encumber the property or transfer the property and such activities would prime any judgment. Of course, the proceeds of any transactions in the property might be within the reach of the creditor to the extent that they constitute the sole property of the debtor spouse.
Other jurisdictions recognize that there is a potential interest in a tenancy by the entireties available to creditors or others, but they differ as to the details. No one approach has any substantial number of adherents.
Comment 2: Note that in a slippery theory jurisdiction, a transfer by a spouse of property in which the spouse does have an interest into an entireties estate, at a time when the spouse is insolvent, or with the intent to avoid creditors, might be a fraudulent conveyance.
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