Tenancy by the entirety, commonly abbreviated as TBE, is an ownership structure for real estate that's used when the owners are a married couple. Under a TBE arrangement, each spouse owns an equal interest in the property, and the property will transfer seamlessly to the surviving spouse in the event of one spouse's death.
However, choosing an ownership structure for real estate is a major decision, so it's important to know exactly what you're getting into, as well as what your alternatives are. In this discussion, we'll look at the important details, advantages, and drawbacks of TBE, as well as some of the alternative ownership structures you might be able to choose from.
How does tenancy by the entirety work?
To be perfectly clear, to use a tenancy by the entirety ownership structure, the owners must be a married couple. They cannot simply be two people in a relationship or two otherwise unmarried individuals, and the owners can't be a married couple that co-owns the property with someone else. The only owners of the property must be both spouses of a legally married couple.
Under a TBE ownership arrangement, both spouses have an equal ownership interest in the entire property, regardless of how much of the purchase price actually came from each joint owner. Both spouses also have equal rights when it comes to actions involving the property, such as the decision to sell the property. In other words, one couldn't choose to hire a real estate agent to sell the property without the agreement of the other spouse.
If one of the spouses or owners dies while the property is owned under a tenancy by the entirety structure, the surviving spouse automatically becomes the sole owner of the home. This is true even if one spouse's will leaves the property to someone else -- in this case, the will is overruled by the rights of tenancy by the entirety.
In the case of divorce, a tenancy by the entirety arrangement can be cancelled. If the divorced spouses continue to own the property, the arrangement would change to tenants in common, which would then allow each owner to sell or transfer their interest in the property to whomever they want. A property's ownership structure could also be changed from tenancy by the entirety to something else if both spouses agree on the change.
Advantages and disadvantages of tenancy by the entirety
Tenancy by the entirety has two big advantages for married couples:
Asset protection - Tenancy by the entirety helps shield the property from debts incurred by one spouse. Creditors can't pursue a lien on a house owned as tenancy by the entirety, unless the debt is in the names of both spouses. It effectively makes the owner of the house a separate legal entity from either spouse.
Estate planning - Tenancy by the entirety avoids a costly and lengthy probate process. Title transfers automatically to the surviving spouse upon one spouse's death.
There are a few potential drawbacks to the tenancy by the entirety ownership structure:
For one thing, it isn't available in all states, so be sure to check if it's even an option before you consider it. And some owners don't necessarily like that each spouse owns a 50% share, even if one spouse paid the entire cost of acquiring the home.
However, despite these possible downsides, a tenancy by the entire arrangement is generally a beneficial one for married couples to use, if it's available.
Where is tenancy by the entirety used?
In general, property ownership structures are governed by the states. Therefore, tenancy by the entirety is only used in certain parts of the United States. Specifically, these are the states that allow tenancy by the entirety ownership arrangements for real property:
- Washington D.C.
- Illinois (for some types of homestead property).
- New Jersey.
- New York.
- North Carolina.
- Rhode Island.
It's worth noting that some of these states allow tenancy by the entirety for a wide range of types of property, while others allow TBE arrangements for real estate only.
Other property ownership structures
There are several ways to own property, and aside from TBE, here are some of the most commonly used methods for properties purchased for more than one adult tenant to live in:
Tenants in common – This is an ownership structure somewhat similar to tenancy by the entirety, but it applies to nonmarried couples. For example, my wife and I bought our first home together before we were married, and we had to use a tenants in common arrangement. Just like tenancy by the entirety, tenants in common share an equal ownership interest in the property. However, upon the death of one owner, their share of the property passes to their heirs, not to the surviving owner. Generally, with an asset owned equally by two or more people, tenants in common is the default ownership structure unless another form of ownership is specifically chosen.
Joint tenants with rights of survivorship (JTWROS) – In this arrangement, the legal structure is similar to tenancy by the entirety but isn't exactly the same. Just like tenancy by the entirety, JTWROS-held properties also pass to the survivor in the event of one spouse's death. However, JTWROS isn't necessarily limited to married couples, and there can be two or more owners. Each owner has an equal interest in the property, but unlike TBE property, each owner has the right to sell or transfer their ownership interest to someone else. Another big difference is that JTWROS owners are not considered to be a separate and single legal entity, and each owner's creditors can go after the property, even for debts that are owned by a single debtor spouse.
Sole ownership – This is exactly what it sounds like. In a sole ownership structure, one person holds title to a property. All of the other ownership structures discussed here are forms of joint ownership. This is obviously used often when a single individual buys a home but can also potentially be used if a married couple buys a home but only one spouse will legally own it. The advantage of sole ownership is simplicity, as the owner is free to make decisions about the property on their own. However, transfer of ownership upon a sole owner's death can be far more complicated than any of the other ownership structures discussed earlier.
Joint tenancy – This is generally what happens when two people are listed on a deed, and there's no other ownership structure that has been put in place. Under a joint tenancy arrangement, both owners have equal ownership rights to a property, and in the event of a deceased spouse or owner, the property passes to the surviving joint tenant. However, unlike TBE, joint tenancy doesn't protect the property from creditor claims of one of the owners.
The bottom line on tenancy by the entirety
Tenancy by the entirety has several key benefits for married couples in states where it's allowed. The seamless transfer of property to a surviving spouse and shelter from each other's creditors are major advantages of this ownership structure. However, it's important to know there are other ways for couples to own properties, so be sure to weigh the pros and cons of each before deciding.