How To Protect Your House From Creditors

With same-sex marriage now legal across the country, we’ve been hearing a lot lately about the “benefits of marriage.” For most of us, these benefits are personal. We know that we are part of a team, that someone will be there for us in a crisis, and that Sunday afternoons need never be spent alone.

But marriage also confers hundreds of legal benefits, and the Supreme Court’s decision in Obergefell v. Hodges ensures that they now apply to gay and straight couples alike. Couples who tie the knot can avoid testifying against each other in court, can roll over a retirement account when one spouse dies, and enjoy preferential treatment from Social Security, Immigration, and the military.

One benefit that often goes overlooked, however, is the right to protect the family home from certain types of creditors. Titling the house as “tenants by the entirety” will prevent someone who successfully sues either spouse from seizing the property to pay off the judgment. In addition, if either spouse files for bankruptcy, the property will be beyond the reach of creditors.

Only a married couple can title their house as tenants by the entirety, and this form of ownership can make a world of difference to those who take advantage of it. It offers an extra measure of protection in case a homeowner becomes the target of a lawsuit, defaults on a loan, or needs to declare bankruptcy. It can be especially important to doctors, lawyers, architects, and engineers—anyone in a profession that carries a high risk of personal liability.

A little background: Before marriage equality came to Maryland, couples who owned a house jointly usually titled the property as “joint tenants with right of survivorship.” Under this form of ownership, the house would transfer to the survivor if one partner should die, but there would be no protection from creditors.

Titling the house as tenants by the entirety offers an extra measure of protection in case a homeowner becomes the target of a lawsuit, defaults on a loan, or needs to declare bankruptcy.

When two people who are already married buy a house, the form of ownership is presumed to be tenants by the entirety unless the deed states otherwise. As a consequence, most married straight couples are already taking advantage of this legal benefit without even realizing it.

Because the right to same-sex marriage is still new, most gay and lesbian couples purchased their houses as joint tenants with right of survivorship. Upon exchanging wedding bands, they are not automatically upgraded to the higher form of ownership and must record a new deed to the property in order to receive full benefits.

Preparing a deed is a simple matter of calling a lawyer who practices in this area. The signed and notarized deed must be filed with the Land Records office for the county the couple lives in. It may also be necessary to obtain a lien certificate and pay any taxes or other outstanding obligations before the deed can be recorded. There should be no transfer or recordation taxes to pay, but there is a nominal recording fee.

Like a joint tenancy, a house titled as tenants by the entirety will pass to the survivor if one spouse dies. What it won’t do is protect the property from a joint creditor. For example, if the couple co-signed a loan to buy a boat and then defaulted, their house could be in jeopardy. And the IRS, not surprisingly, can put a lien on the property regardless of whether a delinquency is joint or separate.

One of the primary benefits of marriage is the sense of security that comes from being in a committed relationship. While it’s far from romantic, retitling the family home as tenants by the entirety can help a married couple feel even more secure.