Pennsylvania: A Debtor’s Paradise for the Married

Pennsylvania is part of the small minority of states that provides for a peculiar form of ownership of property between a husband and wife which often frustrates the creditors of one spouse. Known as a “tenancy by the entireties,” this estate in property is founded upon the idea that when spouses marry, they become a single legal entity or person. Therefore, when a husband and wife purchase a house or other real or personal property, each is deemed to acquire a one hundred percent undivided interest in the property which cannot be severed or encumbered by the acts of only one of the spouses.  This form of ownership is presumed in Pennsylvania upon conveyance to a husband and wife unless there is an affirmative effort to title the property in another matter.

The practical consequence of a tenancy by the entireties is that the debts and judgments against one spouse cannot affect property held by the entireties.  To the extent that all of a judgment debtors property of value is held with the judgment debtors spouse, it is shielded from execution.  In Pennsylvania, a tenancy by the entireties can even survive the sale of property – Courts in Pennsylvania view the proceeds of sale of property held as a tenancy by the entireties to be exempt from execution, even after deposited into the bank account titled only in the name of the debtor spouse.

There are very few ways around the roadblock of a tenancy by the entireties for creditors.  If a debtor conveys property to himself and his spouse in an effort to frustrate his creditors, the transfer may be avoided under Pennsylvania’s Fraudulent Transfer Statute.  If the non-debtor spouse predeceases the debtor spouse, then title to the property passes to the surviving spouse by operation of law, and a judgment creditor may execute upon the property.

To illustrate how a tenancy by the entireties benefits creditors, the 2005 Pennsylvania Supreme Court case of Regions Mortgage, Inc. v. Muthler is instructive and eye-opening.  In Regions Mortgage, a husband and wife applied for a Mortgage jointly.  The Mortgage Company, in a unilateral mistake, prepared the Mortgage with only the husbands name, however the Deed named the husband and wife as grantees, creating a tenancy by the entireties.  Shortly after recording the Deed, the husband passed away, and by operation of law the wife became the sole owner of the house, however the debt to purchase the property did not pass to the wife.  The Mortgage Company then sued the wife to “reform”the Mortgage to make the wife responsible for the debt.  The Pennsylvania Supreme Court held that the Mortgage Company could not reform the Mortgage to make the wife responsible for the debt, and when the husband died, the wife came to own the property free and clear of the Mortgage Company’s Mortgage Lien.