Asset protection can be a valuable tool when building an estate plan. For married couples, state law may offer an additional layer of asset protection by virtue of mere property ownership rules.

Tenancy by the entirety, or TBE, is a special type of property ownership designation that is similar to joint tenancy. There are distinct differences, though: The most significant is that TBE applies only to married couples.

TBE also provides a certain level of creditor protection to the property not otherwise available for joint tenancy. This essentially protects the property from the creditors of each spouse individually, but not from the spouses’ joint creditors. For example, if a husband takes out a loan in his own name to buy a car and later defaults on that loan, the TBE property (and his wife’s individually owned assets) will be protected from any judgment issued against him as a result of the loan default. But if the husband and wife were both debtors on the loan, their TBE property would not be protected. 

The survivorship rules for TBE property are similar to joint tenancy property, so that after the first spouse’s death, the transfer to the surviving spouse will avoid probate and result in his or her full legal ownership of the property. However, the special creditor protection afforded to the spouses while both were alive will no longer apply to the surviving spouse.

While TBE has its benefits, these may vary state by state. For example, Missouri offers TBE protection to married couples for all property titled in the joint names of the spouses. In fact, any property titled in the joint names of a Missouri married couple is presumed to be tenancy by the entirety unless the title clearly indicates otherwise.

Illinois law applies TBE protection only to a married couple’s primary residence, or homestead. Furthermore, special language must be used in the deed transferring such property to the married couple to get such protection. No favorable presumption applies like in Missouri. Further, a married couple may have TBE apply only to one property at a time in Illinois.

In 2011, new laws in both Illinois (effective Jan. 1, 2011) and Missouri (effective Aug. 28, 2011), among other things, permitted married couples to transfer TBE property to their joint inter vivos trusts and still maintain ownership as tenants by the entirety. This allows couples to use trusts more safely in their estate planning and still incorporate the TBE protection over their property. Nonetheless, it is recommended to talk to an estate planning attorney before creating any such trusts and making such property transfers.