Joint Tenancy Not Great For Asset Protection

Posted on July 27, 2009 by Ken Laino

Holding property as joint tenants has numerous advantages.  It can be convenient, and it can generally avoid probate of the jointly held assets.  It is a big misconception, however, that joint tenancy provides very much asset protection.

A recent Ohio Court of Appeals Decision, White v. Parks is a perfect illustration of the drawbacks of joint tenancy from an asset protection standpoint.  A creditor filed a judgment lien against Robert Parks.  When Mr. Parks failed to pay the judgment, the creditor filed a foreclosure action against his residence, naming both him and his wife (the co-owners), even though the judgment was only against Robert Parks and not his wife.  The trial court ruled that even though Mrs. Parks was not subject to the judgment, the residence nevertheless had to be sold.  Mrs. Parks was to get half of the net equity after the sale and the creditor would receive the other half.  The Ohio Court of Appeals, Ninth District, affirmed the ruling of the trial court.

From the Parks' standpoint it was a lot better that their house was in joint name than in Mr. Park's name alone.  The joint tenancy provided some protection.  However, even though title was held jointly, the couple was forced out of their house.  In addition, the creditor got one half of the net equity.  Not a great result for this couple.

Holding certain assets as joint tenants (such as a checking account with relatively limited funds) often makes great sense, simply for convenience.  Advantages of joint tenancy may out-weigh the disadvantages for certain parties.  When deciding whether to hold assets jointly, the assets cannot be looked at in isolation.  How best to title your assets will depend on a wide variety of factors, including your occupation, marital status, income, net worth, asset mix and many other considerations.  Titling an asset one way could be good for one purpose and not for another.  You should not assume, however, that jointly held property will provide great protection from any of your creditors.

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Protecting Your Home from Creditors -- Huge Variations in State Laws

Posted on June 30, 2009 by Ken Laino

A debtor’s personal residence is a natural target of his or her creditors. Some states (Florida, in particular) provide special protection for your home against claims of creditors. Currently, Florida’s protection is so strong that some debtors have re-located to Florida solely to take advantage of this protection. Texas also provides a very strong homestead exemption. Ohio, however, currently provides little statutory protection. Until very recently, the Ohio homestead exemption was only $5,000 -- one of the lowest in the country.  The exemption was recently raised to $20,200 (Ohio Revised Code Section 2329.66).  Furthermore, Ohio law does not permit residents of Ohio to utilize the federal bankruptcy exemption, which would be a higher amount. Even in bankruptcy, therefore, Ohio residents have only a $20,200 homestead exemption. There are huge variations in state homestead exemptions.   Texas and Florida are essentially unlimited; Nevada is currently $550,000. Other states -- like Ohio -- offer very limited exemptions.  

The Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 has significantly curtailed the previous ability to move from state to state to take advantage of a better homestead exemption. Essentially, the federal law provides that the state homestead exemption is limited to $125,000 if the debtor moved within 3 years and 4 months of the bankruptcy and in certain other limited circumstances. This limitation applies only in bankruptcy, however, and not to a creditor’s action outside of bankruptcy.

In several states, debtors may benefit from re-titling their residence as “tenants by the entireties.” Ohio, however, does not currently recognize this form of home ownership. While “joint” ownership is sometimes used to avoid probate, it is not helpful from an asset protection standpoint. Creditors of either joint tenant may be able to reach the entire property to satisfy debts of the joint tenant.

In light of the fact that Ohio provides such a low statutory homestead exemption, we look at alternative means of protection for our Ohio clients. We can sometimes gain some protection for clients through certain trusts. Not all trusts provide creditor protection. Certain trusts, however, may provide some protection for a residence. We also frequently advise re-titling the house in the name of the spouse who is least likely to face future litigation.

Issues relating to your personal residence cannot be analyzed in isolation. They should always be considered in connection with an over-all asset protection strategy.

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