We have pointed out in the past that joint tenancy can be a recipe for disaster if you blindly use it as a will substitute. However, it bears pointing out that there is a very special kind of joint tenancy between spouses that has important benefits. It is called "tenancy by the entirety." If you and your spouse own real estate in the State of Hawai'i, there is a very good chance that you own it as tenants by the entirety. You would need to check your deed to make sure.
By the way, when we use the term "spouse" in this article, we mean it to include all relationships to which the law of State of Hawai'i ascribes the benefits of traditional marriage. Thus, "spouse" may refer to a husband or wife, as well as a reciprocal beneficiary or a party to a civil union.
Among the characteristics of property owned in tenancy by the entirety: 1. One spouse, acting alone, cannot convey any interest in the property (in other words, both spouses have to sign a deed in order to transfer the property to someone else), 2. The property automatically passes to the surviving spouse upon the death of the first to die, 3. The creditors of one spouse cannot reach tenancy-by-the-entirety property.
The latter characteristic was defined in the Hawai'i Supreme Court case of Sawada vs. Endo. In that case, the defendant had been involved in a car accident. He was sued and a judgment requiring him to pay money to the plaintiffs was entered against him. At the time of the accident, the defendant and his wife owned their home as tenants by the entirety. Immediately after the accident, Mr. and Mrs. Defendant transferred their primary asset--their home--to their children. When the plaintiffs tried to force the sale of the home in order to collect their judgment, the court refused to allow them to do so. The court reasoned that, since one spouse, acting alone, cannot convey away an interest in tenancy by the entirety property, the creditors of one spouse cannot satisfy their claims out of such property.
Sawada vs. Endo is actually a bit more convoluted than explained above, but the bottom line is that the case upholds a very important benefit of tenancy by the entirety: creditor protection.
Scott A. Makuakane and Roya J. Deyhim are estate planning attorneys with the law firm of Est8Planning Counsel LLLC. Contact Est8Planning Counsel LLLC at 891-8881 or www.est8planning.com.