Sunday, July 19, 2009


By David McCarthy

Who said real estate owned in tenancy by the entireties is beyond the reach of creditors of one of the tenants? The United States Supreme Court has just held otherwise, at least insofar as the creditor is the United States itself. United States v. Craft (No. 001831, April 17, 2002) held that a husband's interest in Michigan real estate, which was owned in tenancy by the entireties, was subject to a federal tax lien.

Tenancy by the entireties only seemed to be the hot new thing in residential real estate in the 1990s. In fact it originated in the ancient common law under the theory that a wife had no legal existence apart from her husband, and it basically disappeared in the 19th Century with the passage of the Married Women's Acts. Illinois abolished this form of ownership in 1861 and resurrected it in 1990 by amendment to the Joint Tenancy Act.

In Illinois it is available only to married couples and only for their homestead. It was said to possess two virtues which plain old joint tenancy did not: (1) tenancy by the entireties cannot be severed except by the consent of both tenants and (2) the property so held is beyond reach of creditiors of only one of the tenants. The second point is proving to be an overstatement.

The first Illinois decision on the subject held that the protections of tenancy by the entirety were absolute -- a creditior of only one tenant could not reach entireties property under any circumstance. A later decision held that a creditor of only one tenant could reach entireties property by invoking the Fraudeulent Transfer Act and demonstrating that the tenancy had been created with intent to defraud creditors. Still later the Illinois General Assembly and the Illinois Supreme Court entered the conversation.

First, the Joint Tenancy Act was so amended as to subject entireties property to the claims of the creditors of only one tenant if the tenancy was created with the "sole intent" of defauding creditors.

Next, the Illinois Supreme Court held that the "sole intent" standard was more exacting than the "actual intent" standard of the Fraudulent Transfer Act. Now the U. S. Supreme Court has effectively eliminated any obligation to prove fraud at all to the extent that the creditor is the U.S. itself.

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