Some Happenings

Law Office of Jonathan Ackerman, LLC Newsletter - Volume 6.1 (2019)

By Jonathan Ackerman, Esquire

Asset Protection for a Married Couple —
Investment / Stock Brokerage Accounts

A married couple can take title to property in a number of different ways. For instance, a married couple can own assets as ‘tenants in common', as ‘joint tenants', and as ‘tenants by the entireties', and these three titling designations have different legal implications. However, a broad discussion of these differences is beyond the scope of this article.

What if one spouse takes title to property in his or her sole name? Such property, either real (like, a personal residence) or personal (like, a bank or brokerage account), will be subject to the claims of the creditors of that spouse. In addition, when that spouse dies, that property will pass pursuant to the terms of that spouse's Last Will & Testament, or the laws of intestacy if that spouse does not have a Will, and correspondingly will become a part of that spouse's probate estate. See Firm Newsletter, 2019, Volume 6.2 (to be issued Dec 2019) for a description of the general differences between the probate estate and the gross estate.

Tenants by the Entireties v Joint Tenancy

So, let's take a step back and generally discuss what it means for a married couple to own property as tenants by the entireties – (i) the surviving spouse takes the whole property upon the death of the deceased spouse, (ii) one spouse cannot alienate (i.e., sell, mortgage) the property without the consent of the other spouse, and (iii) the tenancy by the entireties status may not be severed by one spouse alone or by the judgment creditor of one spouse during their joint lives. In addition, a married couple may own both real and personal property as tenants by the entireties. Lastly, property held as tenants by the entireties will not become a part of the deceased spouse's probate estate (as briefly described above), and upon the death of one spouse, the surviving spouse will, by operation of law, become the owner of such property immediately upon the passing of the deceased spouse.

In addition, there is a presumption in the law that property owned by spouses jointly with a right of survivorship are held as "tenants by the entireties" absent language indicating some other form of tenancy. To clarify, it should be noted that while two unmarried individuals can own property as joint tenants with a right of survivorship, they cannot own property as tenants by the entireties, and generally, while a joint tenancy is not favored in the law, a tenancy by the entireties (between a married couple) is favored in the law.

However, when two or more unmarried individuals own an asset as joint tenants, that asset may be severed and seized by the creditor of only one of the joint tenants. As an example, let's assume that a parent and a child are named as joint tenants on either real or personal property and the child ends up with a judgment debt for any reason (contractual, tortious (like, an accident, or as a consequence of a higher risk profession (like, medicine)), the judgment creditor may be able to sever and seize that joint tenant's share of the property in order to settle that judgment upon obtaining and executing on that judgment.

Asset Protection & Tenants by the Entireties

For purposes of asset protection, this ownership designation is very strong. Maryland law has recognized the tenancy by the entireties form of ownership as, "watertight as to claims against one spouse", or "a marital unit, not subject to the claims of individual creditors of either spouse". Thus, a creditor of one spouse may not sever and seize the property which is held as tenants by the entireties by a married couple to satisfy a personal liability of one of the spouses. However, it is important to note that a tenancy by the entireties ownership may fail for asset protection purposes where a tax lien is involved, a fraudulent conveyance occurs, bankruptcy claims are involved, where both spouses are subject to the same debt, or upon divorce, among others.

Asset protection is especially important where one spouse may have certain significant contractual obligations, is engaged in a high risk profession, or is involved in a serious accident. In the last regard, it is always a good time to review all personal casualty insurances, such as car, home, and umbrella policies, to assure that individuals are properly protected from any applicable personal liabilities.

As one might think, there are other important factors that should be considered in determining how to title the assets of a married couple in structuring their estate plan – such as tax issues, the dispositive desires of the married couple, special needs of any beneficiary of their estate, etc. In addition, there may be other methods that can be used to provide asset protection for a married couple. And lastly, as an aside, it is always a good time to also double check the beneficiary designations of any life insurance or retirement plan assets or the transfer on death (TOD) designations for any bank or investment account to assure that they are consistent with the married couple's dispositive desires, their current situation and estate plan generally.

Investment & Brokerage Accounts

With all of this as background, let's take a look at titling an investment or brokerage account.

It is possible to title an investment account between a married couple as joint tenants with a right of survivorship, and one might rely on the legal presumption that such a designation will constitute a tenancy by the entireties (as mentioned above) in order to achieve the corresponding asset protection benefit.

However, Section 11-603(a) of the Courts & Judicial Proceedings Article of the Annotated Code of Maryland provides as follows:

(a) Spousal property –

(1) Except as provided in paragraph (2) of this subsection, a garnishment against property held jointly by husband and wife, in a bank, trust company, credit union, savings bank, or savings and loan association nor any of the affiliates or subsidiaries is not valid unless both owners of the property are judgment debtors.
(2) Paragraph (1) of this subsection does not apply unless the property is held in an account that was established as a joint account prior to the date of entry of judgment giving rise to the garnishment.

Thus, assets that are held in these types of accounts by spouses are not subject to garnishment, meaning a third party debtor of one of the spouse's cannot sever and seize any of the assets of that account. This legal protection is very meaningful in that it protects joint accounts between a married couple; however, the list of protected accounts (in a bank, trust company, credit union, saving bank, or savings and loan association) does not specifically include an investment or brokerage account.

So, in Maryland, where asset protection is important, desirable, or the account is already in the spouses' names as joint tenants with a right of survivorship, it seems prudent to consider specifically and formally titling the investment or brokerage account as "tenants by the entireties" and cause such account to be subject to the order of both, so long as such titling is otherwise consistent with all of the issues associated with the married couple's entire estate plan.

Estate planning (and determining how to title assets) presents sophisticated and multi-faceted issues, and professional counsel should be consulted to fully analyze these issues in the context of a particular set of circumstances.

Please visit www.ackermanlaw.net to learn more about Jonathan's practice.