There are three basic ways in which two people can take co-ownership of property in New Jersey: joint tenancy, tenancy in common, and tenancy by the entirety. Of those three, only tenancy by the entirety provides any sort of asset protection at all. Tenancy by the entirety is a very special type of ownership available in less than half of states. In this post, I will discuss what tenancy by the entirety is, and the protection it provides in New Jersey.
Tenancy by the entirety ("TBE") is a form of joint ownership only available to husbands and wives, and in New Jersey, civil union partners. When spouses hold property as TBE, they each hold an undivided one-half interest in the property, along with a right of survivorship. This means that upon the death of one spouse his interest in the property passes automatically, despite what his will might say, to his spouse. Also, neither spouse may sell his or her interest in the property without consent of the other spouse. N.J.S.A. 46:3-17.4.
The default rule, and the absolute rule in most states that recognize TBE, is that TBE property cannot be levied by a creditor unless the creditor has a judgment against both spouses. If a creditor has a judgment against only one spouse, he has a lien against the property but cannot foreclose upon that lien. The creditor of only one spouse is basically entitled to three things:
1. Satisfaction of the debt if the property is sold. Because the debtor has a lien against the property, if the property is ever sold, the sales proceeds must be used to satisfy the creditor's judgment.
2. The debtor's right to survivorship. If the non-debtor spouse dies before the debtor spouse, the creditor can step into the shoes of the debtor spouse and take the entire property.
3. The debtor's right to occupy the property. The creditor technically takes the debtor's right to occupy the property in question. In real life, the creditor rarely wants to actually occupy the property. However, a right to occupy legally entitles the creditor to more than just physical occupancy. Due to the right to occupy, if the property is not the non-debtor spouse's residence whatever income the property generates must be split between the non-debtor spouse and the creditor. Also, if the non-debtor spouse uses the property as a residence, the creditor is entitled to some level of payment from the non-debtor spouse for her ability to occupy without the creditor. See, e.g., S.E.C. v. Antar, 120 F. Supp. 2d 431, 449-51 (D.N.J. 2000) aff'd, 44 F. App'x. 548 (3d Cir. 2002).
The main selling point of TBE is that despite the creditor obtaining the above rights, he doesn't get the right he really wants: the right to foreclose. However, in New Jersey, in certain circumstances a judge may ignore the traditional protections of TBE and order foreclosure of the property anyway: