How to Use Tenancy by the Entireties to Protect Your Business
The protection of property owned by a husband and wife jointly is one of the most well known protections in the law. Ask many people about creditor or asset protection and a number will already know that creditors can’t take property that is owned jointly by a husband and wife.
That concept is better known in the law as tenants by the entireties. But unlike what many people may think, the protection does have its limits, and sometimes careful planning is needed to make sure that property that you think is protected by this exemption is, in fact, safe.
Creating a Tenants by the Entireties Interest
Property held by a husband and wife as tenants by the entireties (TBE) is not held by either one of them individually, but is actually held by a “legal fiction”—a new “entity” which is the husband and wife jointly, as a new, separate unit from each of them individually.
To obtain the TBE exemption, there must be requirements met, known as “unities”:
- Joint ownership and control
- The same interests in the property
- Both must have title to the property in the same instrument (i.e. title on a vehicle)
- The interests must have been created at the same time
- A right of survivorship;
- The owners must actually have been married when the property was titled or acquired
Business Owners Can Use the Exemption
One thing that is important for business owners to think about is that a business such as an LLC can also be TBE property. Businesses are by definition owned by people. If a couple is treated as a separate person or entity under TBE law, then an interest in the business that is owned by both husband and wife is actually owned by the TBE as the “person.”
That being the case, the interest in the business would receive the same creditor protection as any other property held under a TBE.
Documents Should be Clear
However, that may not always be entirely clear from the LLC’s governing documents, or from documents filed with the state. An LLC or a corporation doesn’t have to be held as TBE just because an owner is married, and in fact a married person can be a sole owner of a business without his or her spouse. So disputes can arise when the documents aren’t clear whether someone on the LLC’s governing documents intended to take ownership individually or with a spouse.
If your interest in the LLC is not TBE because it does not meet the requirements—say, you owned the business first, and then later got married—you may want to refile documents, or re-organize the LLC, so that it can be “re-created” when you are married in order to get the benefits of TBE.
Remember that TBE only protects the creditor of one spouse, from reaching assets held by the TBE. But if one does have creditors, and the couple owns a business, making sure that you get the benefits of TBE can be a valuable asset protection tool.
Additionally, holding a business as TBE can have federal and state income tax consequences. It may make sense for a married couple to hold only a portion of the business as TBE, with the remainder of the business held individually by one or both spouses. These decisions require careful analysis by a tax professional.
Are you protecting you and your business’ assets as fully as can be? Contact Tampa asset protection and business attorney David Toback to discuss how to make sure your interests are safe from creditors.