Tenancy by Entireties Strengthened in Bankruptcy

In what it described as a case of first impression, the U.S. Court of Appeals for the Eleventh Circuit (the Federal appeals court covering all of Florida and other states) upheld tenancy by entireties protection in bankruptcy cases. This case was important in light of a 2002 decision by the United States Supreme Court (U.S v. Craft) holding that the IRS had the authority to invade tenants by entireties property to satisfy the tax obligation of either spouse individually. The Federal Appeals court refused to extend the Craft decision to the bankruptcy context finding that creditors in bankruptcy do not enjoy the same authority the IRS has to divide tenants by the entireties property.

.

The circuit court pointed out first that the nature of a bankruptcy debtors interest in property is determined by state law. Next, the Court pointed to the Florida Supreme Court’s decision in Beal Bank v. Almand where it held that in Florida tenancy by entireties property cannot be seized or divided to satisfy the creditors of just one spouse. The court said that Florida law on the subject is clear and there is no basis in the Craft decisions or otherwise to make tenancy by entireties property subject to creditors of a bankruptcy debtor. Tenancy by entireties remains a strong form of asset protection planning for people in stable marriages.

My thanks to Mr. Tye Klooster, Esq. of Holland and Knight in St. Petersburg for bringing this case to my attention