People often mistakenly believe their assets ‘jointly held’ with their spouse are exempt from execution by a creditor. Oftentimes they make such assumptions until confronted by a creditor’s action against them – at which time it may be too late to change the way their assets are titled. In fact, only certain types of ‘jointly held’ accounts are exempt.
Accounts which are held as ‘joint tenants with the rights of survivorship’ by a husband and wife may be susceptible to a creditor’s execution based on a judgment only against one spouse for that spouse’s one-half of the account. This is because the law views such accounts as belonging to one-half each to each spouse, so each person has only his or her separate share.
In contrast, a joint account held as ‘tenants by the entireties,’ a form of ownership available only to married couples is exempt from execution, except by a creditor holding a judgment against both spouses, jointly. The distinctive feature of the account titled as ‘tenants by the entireties,’ is that the property is held an indivisible unit, where each spouse owns the whole. Not all banks or brokerages offer ‘tenancy by the entireties’ accounts. You may wish to review your options to have your accounts titled in this manner.
Changes made in the titling and means of ownership of assets when litigation is impending may be set aside by a creditor as fraudulent transfers. A conversion by a debtor of an asset that results in the proceeds of the asset becoming exempt by law from the claims of the creditor may be a fraudulent asset conversion – if the debtor made the conversion with the intent to hinder, delay, or defraud the creditor. A transfer may be fraudulent where the creditor’s claim arose before the transfer was made, and the debtor made the transfer without receiving a reasonably equivalent value in exchange, and the debtor faced debts beyond his ability to pay as they became due.
Statutes invalidating fraudulent conveyances are generally applicable only to a property which may be subjected to the payment of debts. Therefore, as a general rule, exempt property such as an annuity is not susceptible to fraudulent transfer. However, an exemption from attachment, garnishment or legal process provided by law is ineffective if it results from a fraudulent transfer or conveyance. Creditors have four years from the fraudulent asset conversion to bring their claim to set aside such transfers.