Joint ownership of property can be a powerful tool for protecting assets from creditors in Florida. Florida law provides various forms of joint ownership, each with distinct benefits. This article explores how property can be shielded from creditors through joint ownership, particularly by using tenants by the entirety (TBE) for married couples, and compares joint tenants with right of survivorship (JTROS) with tenants in common (TIC) for estate planning purposes.
Tenants by the Entirety: Strong Protection for Married Couples
For married couples in Florida, titling property as tenants by the entirety (TBE) provides one of the most powerful forms of asset protection. Under TBE, both spouses are considered to own the entire property as a single legal entity, rather than owning distinct shares. This structure provides two key benefits:
Creditor Protection: In Florida, property owned as TBE is generally shielded from creditors of just one spouse. This means that if one spouse has debts or faces a lawsuit, creditors cannot place a lien on property held as TBE to satisfy those claims. Only creditors of both spouses can reach TBE property.
Automatic Survivorship: Upon the death of one spouse, full ownership of the property passes automatically to the surviving spouse, without the need for probate. This ensures that the property remains within the family and can help avoid delays in transferring ownership.
However, it is important to note that TBE is only available to married couples, and both spouses must be named on the title for the property to qualify for this protection.
Estate Planning: JTROS vs. Tenants in Common
When considering joint ownership of property, individuals (both married and unmarried) often have the option of titling the property as joint tenants with right of survivorship (JTROS) or tenants in common (TIC). These forms of ownership come with different benefits and implications for estate planning.
Joint Tenants with Right of Survivorship (JTROS): Under JTROS, each co-owner has an equal share in the property, and upon the death of one co-owner, the deceased's share automatically passes to the surviving co-owner(s). This is similar to TBE in that it allows for a seamless transfer of ownership without going through probate. JTROS can be beneficial for estate planning purposes, as it ensures that the property is inherited by the surviving co-owner without the need for a will or trust.
Tenants in Common (TIC): In contrast to JTROS, TIC allows co-owners to hold unequal shares in the property. Each co-owner's interest is treated as a separate, distinct portion of the property, which they can sell, transfer, or leave to heirs in a will. Unlike JTROS, there is no automatic right of survivorship—when one co-owner dies, their share passes to their heirs or beneficiaries, rather than the surviving co-owners.
Estate planning Implications of TIC: TIC is often useful when co-owners want the flexibility to designate specific heirs to receive their portion of the property. However, the downside is that the deceased co-owner's interest may need to go through probate, potentially delaying the transfer of ownership and increasing costs.
Creditor implications: Because each owner holds a distinct interest in the property, a creditor of one co-owner may be able to place a lien on that co-owner’s interest in the property, potentially leading to forced sale or partition. This is a less protective option than JTROS or TBE for shielding property from creditors.
Joint Ownership of Limited Liability Company and Limited Partnerships
In addition to real estate, individuals can hold interests in business entities like Florida limited liability companies (LLCs) and limited partnerships (LPs) as JTROS or TBE. This strategy provides an additional layer of asset protection. This is because applicable laws (Florida Statutes, chapters 605 and 620) prevent a creditor of a member of either of these entities from directly levying his interest. Instead, a creditor’s remedy is limited to a charging order against any distributions that the entity makes to the member.
· LLC/LP Ownership as TBE: If a married couple owns an interest in an LLC as TBE, Florida law protects that interest from creditors of just one spouse, just as it does with real estate titled as TBE. In the event of one spouse’s death, the surviving spouse automatically inherits the entire ownership interest, bypassing probate.
· Joint LLC/LP Ownership by unmarried people: LLC membership interests can be held as JTROS, allowing the surviving member(s) to automatically inherit the deceased member's interest without the need for probate. However, JTROS does not offer the same creditor protection as TBE, especially against creditors of an individual member.
· Asset Protection for Business Interests: Holding a business interest in an LLC or limited partnership as TBE is particularly effective for asset protection, as it shields the business interest from the creditors of a spouse who is sole owner of a business. Additionally, owning these interests as JTROS can ensure a smooth transition of ownership without involving probate courts.
Conclusion
Joint ownership can be a valuable tool for both asset protection and estate planning in Florida. For married couples, tenants by the entirety provides a strong defense against creditors and an easy transfer of ownership upon the death of one spouse. For other co-owners, joint tenants with right of survivorship (JTROS) can offer some creditor protection and avoid probate, while tenants in common (TIC) gives flexibility in estate planning but may expose the property to more risk from creditors.
When combined with careful planning, joint ownership can also extend to LLCs and LPs. Whether you own real estate, business interests, or other assets, joint ownership strategies can help you protect your assets and pass them to your chosen heirs with minimal cost.