tenancy by entirety account created after the lawsuit was filed

[singleton6]

What is the name of your state? Florida

I live in Florida. Recently I am sued by my neighbor. After that, I opened a tenancy by entirety bank account with my husband and my salary is directly deposited into that tenancy by entirety bank. My husband has no contribution to that tenancy by entirety bank account. He is not a party in that lawsuit. We are spending some of the money from that tenancy by entirety bank account for our living and other expenses.



FLA. STAT. § 655.79 states: “Any deposit or account made in the name of two persons who are husband and wife shall be considered a tenancy by the entirety unless otherwise specified in writing. The presumption created in this section may be overcome only by proof of fraud or undue influence or clear and convincing proof of a contrary intent.”



In Beal Bank SSB v. Almond & Assoc., 780 So.2d 45, 53 (Fla.2001), the court states: “However, when property is held as a tenancy by the entireties, only the creditors of both the husband and wife, jointly, may attach the tenancy by the entireties property; the property is not divisible on behalf of one spouse alone, and therefore it cannot be reached to satisfy the obligation of only one spouse.”



I read CHAPTER 726 on FRAUDULENT TRANSFERS. It says “Transfer” means every mode, direct or indirect, absolute or conditional, voluntary or involuntary, of disposing of or parting with an asset or an interest in an asset, and includes payment of money, release, lease, and creation of a lien or other encumbrance.

“Asset” means property of a debtor, but the term does not include: … An interest in property held in tenancy by the entireties to the extent it is not subject to process by a creditor holding a claim against only one tenant.



If I lose the case, can the creditor claim that the salary I am depositing into the tenancy by entirety back account as fraudulent transfer and attach it?

 

[adjusterjack]

If I lose the case, can the creditor claim that the salary I am depositing into the tenancy by entirety back account as fraudulent transfer and attach it?

Absolutely, yes. You've made a common mistake. You've read the definitions and you think the definitions are the law. They aren't.

Now read the rest of the statute.

http://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&URL=0700-0799/0726/0726ContentsIndex.html&StatuteYear=2019&Title=->2019->Chapter 726

It's obvious that you opened the account in an attempt to shield money from creditors after you were served the lawsuit. In fact, you've pretty much admitted it.

That's the epitome of a fraudulent transfer.

 

[singleton6]

Appreciate your response. For your additional information purposes: no transfer of money took place here, I did not transfer ANY money (from my single personal account, cash, etc) to that tenancy by entire account. I am only making direct deposit of my salary into that tenancy by entirety account.

Also in FLA. STAT. § 655.79 states: “Any deposit or account made in the name of two persons who are husband and wife shall be considered a tenancy by the entirety unless otherwise specified in writing. The presumption created in this section may be overcome only by proof of fraud or undue influence or clear and convincing proof of a contrary intent.”, could you let me know what is is meant by fraud in "proof of fraud"? Is it fraudulent transfer or chapter 817 http://www.leg.state.fl.us/statutes/index.cfm?App_mode=Display_Statute&URL=0800-0899/0817/0817.html or something else?

 

[adjusterjack]

no transfer of money took place here, I did not transfer ANY money (from my single personal account, cash, etc) to that tenancy by entire account. I am only making direct deposit of my salary into that tenancy by entirety account.

Which conforms to the definition of "transfer."

The presumption created in this section may be overcome only by proof of fraud or undue influence or clear and convincing proof of a contrary intent.”,

Doesn't have to be "proof of fraud." Could be proof of "a contrary intent."

Your intent is to shield your salary from the person who is suing you. Opening the account right after receiving the lawsuit is "prima facie" (google it) evidence of at least "a contrary intent."

Besides, even if you are successful in shielding the account from the person, it won't matter because getting a money judgment against you will allow that person to garnish your pay and that money will be intercepted before you even see it.

 

[singleton6]

Appreciate again. My concern is on what is "fraud" means in "proof of fraud"? is it fraud in "fraudulent transfer" of chapter 726, or frauds in chapter 817, or something else?

 

[LdiJ]

Which conforms to the definition of "transfer."



Doesn't have to be "proof of fraud." Could be proof of "a contrary intent."

Your intent is to shield your salary from the person who is suing you. Opening the account right after receiving the lawsuit is "prima facie" (google it) evidence of at least "a contrary intent."

Besides, even if you are successful in shielding the account from the person, it won't matter because getting a money judgment against you will allow that person to garnish your pay and that money will be intercepted before you even see it.

I am sorry but I completely disagree with you. Deciding to change where your ongoing salary is direct deposited, when its still in an account in your own name, is not a transfer of any kind. On top of that, its neither fraud, contrary intent or anything else nefarious.

 

[Taxing Matters]

I am sorry but I completely disagree with you. Deciding to change where your ongoing salary is direct deposited, when its still in an account in your own name, is not a transfer of any kind. On top of that, its neither fraud, contrary intent or anything else nefarious.

I think you may misunderstand both the statute and what the transfer involved here does. First, let's look at the fraudulent conveyance statute. Like similar statutes of other states, Florida's fraudulent conveyance statute is a way of protecting creditors from debtors transferring assets to avoid the creditors getting their hands on them, often by transferring the assets to friends or relatives to hold for them out of the reach of creditors. The statute has two parts, one that deals with transfers made before the debt arises, and another part that deals with transfers made after the debt arises. Here, the OP is being sued by the neighbor, so the act that gave rise to the debt has already occurred. That means that the part dealing with transfers made after the debt arises comes into play. Florida Statute section 726.106 is therefore the part that would apply here. It reads as follows:

726.106 Transfers fraudulent as to present creditors.—​

(1) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made or the obligation was incurred if the debtor made the transfer or incurred the obligation without receiving a reasonably equivalent value in exchange for the transfer or obligation and the debtor was insolvent at that time or the debtor became insolvent as a result of the transfer or obligation.​

(2) A transfer made by a debtor is fraudulent as to a creditor whose claim arose before the transfer was made if the transfer was made to an insider for an antecedent debt, the debtor was insolvent at that time, and the insider had reasonable cause to believe that the debtor was insolvent.​

The statute declares a transfer "fraudulent" in this case under subsection (1) in the following circumstance: the transfer is made after the debt had arisen, the transfer is made without receiving "reasonably equivalent value in exchange" for the property transferred, and the debtor was insolvent at the time of the transfer or is made insolvent by the transfer. This is the classic fraudulent conveyance statute. Subsection (2) is much the same, but tweaks it a bit for insider transfers. Note that despite the word "fraud" being used in the statute there is no element of a misrepresentation made by the debtor or any kind of fraudulent intent as you would find in a criminal fraud statute or most other fraud situations. As a result, the word in the statute is not really an accurate term for what is going on here, which confuses a lot of people. All that is really going on is that the debtor is putting assets beyond the reach of the creditor by transferring them without getting back the value of the transferred asset and not leaving enough other assets for the creditor to collect the debt. That's it. But that's enough to allow the courts to reverse the transfer, put it back in the name of the debtor, and subject it to collection by the creditor.

So now let's look at the transfers being made here. The OP, who is being sued by the neighbor, is taking the paycheck she gets, which is her sole asset at the time paid, and depositing it into a checking account held with her spouse as tenants by the entirety (TBE). I think few nonlawyers appreciate just how distinctly different TBE ownership is from the other two common forms of joint ownership, tenants in common (TIC) and joint tenants with a right of survivorship (JTWROS). TBE is a form of ownership that is only available to married couples. And unlike the TIC and JTWROS, neither spouse has an individual ownership interest in the jointly owned assets. Rather, the assets held TBE are owned by the marital unit. As a result, a creditor of just one spouse cannot attach ANY portion of property held TBE to collect the debt. Only debts owed by the married couple jointly may attach TBE property (with an exception now under federal law that allows the IRS to reach a spouses share of TBE property for the federal tax debts of just one spouse).

On the other hand, if the property were held TIC or JTWROS then the creditor could attach debtor's spouse interest in the jointly held property (50% or whatever it turns out to be in the specific circumstance). Often the rule that applies for bank accounts is that a creditor can hit a TIC or JTWROS account for the full amount in it under the theory that since the debtor may on his or her own take money out of the account then the creditor may too, since the creditor steps into the shoes of the debtor in exercising its rights. That doesn't work for bank accounts held TBE, however. In the case of a TBE account, the creditor of just one spouse would get not even a penny of the account absent a law like a fraudulent conveyance statute.

So when a spouse transfers an asset he or she owns separately into TBE ownership with a spouse, the effect will be to put that asset beyond the reach of the spouse's sole creditors. This is what triggers the fraudulent conveyance statute: the spouse is transferring assets he or she has to the someone else — the marital unit — and if the spouse does not get something of approximately equal value back for it and the spouse is insolvent (or made insolvent) at the time of the transfer that will allow the creditor to get that asset back.

For example, the IRS made use of the Florida fraudulent conveyance statute to recover real estate transferred to TBE ownership with his spouse. The issue was raised in the debtor's bankruptcy proceeding and the bankruptcy court explained the law as follows:

Here, the undisputed facts and record evidence demonstrate that the transfer of the Sarasota Property to the Defendants, as tenants by the entirety, occurred on May 11, 2009. (Doc. No. 35-1, at ¶ 19). At that time, Major possessed assets with a maximum value of $228,224.77, and owed liabilities to the IRS in a minimum amount of $218,260.62. (Doc. No. 35, at 16-17). As a result, the transfer of the Sarasota Property, which had a just appraised value of $112,000.00, decreased the maximum value of Major’s assets to $116,224.77 “by eliminating all of the equity that had been in [Major’s] name alone.” See In re DelCorso, 382 B.R. 240, 259 (Bankr.E.D.Pa.2007) (holding that the recording of a deed purporting to transfer the debtor’s home to her and her husband as tenants by the entirety was a constructively fraudulent transfer because the debtor “received nothing for it, it was to an insider, and because it rendered her insolvent by eliminating all of the equity that had been in [her] name alone.”). As a result, Major became insolvent as a result of the transfer of the Sarasota Property, as the amount of his liabilities exceeded the value of his assets by approximately $102,035.85. In addition to rendering him insolvent, the undisputed facts and record evidence demonstrate that Major did not receive reasonably equivalent value in exchange for the transfer of the Sarasota Property, as Major’s wife did not provide any consideration for the transfer and so called “marital consideration” is not sufficient to create a genuine issue of fact under Section 726.106(1). See In re Treadwell, 699 F.2d at 1051. Thus, the transfer of the Sarasota Property to Major and his wife, as tenants by the entirety, is avoidable as a matter of law.​

​

United States v. Major, 551 B.R. 531, 541–42 (M.D. Fla. 2016). Note that while the Supreme Court had already held that the IRS could reach a spouse's share of TBE property by the time this transfer took place, it was to the advantage of the IRS to pursue getting the entire transfer set aside because the IRS would get the whole of the property, not just half.

Here, I think the amounts spent out of the account for joint necessary household expenses like food, etc., are likely going to be ok. But amounts still in the account or that were used to benefit her spouse might be clawed back by the creditor under the Florida fraudulent conveyance statute unless some other Florida exemption would protect those funds. I would strongly urge the OP to discuss this matter with her lawyer to see if there is a risk of a significant problem arising out out of what is occurring. I don't have sufficient information to hazard a good guess as to whether she ought to do something else instead.

 

[Ohiogal]

OP, believe Taxing Matters over LD. TM is an attorney. LD is nothing legally.

 

[Chyvan]

I don't have sufficient information to hazard a good guess as to whether she ought to do something else instead.

Can she do this assuming they have surplus income and that's what she's trying to protect:

The husband puts his money in the TBE account. Then the two of them live off the wife's salary first, and only spend the husband's money from the TBE account to make up for any shortfall.

 

[singleton6]

Appreciate all your responses greatly.

 

[Taxing Matters]

Can she do this assuming they have surplus income and that's what she's trying to protect:

The husband puts his money in the TBE account. Then the two of them live off the wife's salary first, and only spend the husband's money from the TBE account to make up for any shortfall.

The problem is that money is fungible — each dollar is the same as every other one. One they both put money into the account, how do you say that $X taken out is her deposit rather than his?

 

[singleton6]

Appreciate again. Probably, Chyvan is saying that I put my salary in a single account on my name alone, and use that money for living expenses for me and my husband. If that money is not enough then use my husband's money from TBE.

If I buy annuities from my money alone on my name will it be fraudulent transfer? Also if I pay tuition for my college going child, will it be fraudulent transfer?

 

[Taxing Matters]

If I buy annuities from my money alone on my name will it be fraudulent transfer?

If the annuities are owned only by you then no, because you got back annuities that have approximately the same value as the money you used to buy them.

Also if I pay tuition for my college going child, will it be fraudulent transfer?

That's almost certainly a fraudulent transfer unless you have a legal obligation (e.g. court order) to pay for that. Gifts to kids are one of the classic fraudulent transfer situations.

 

[quincy]

For how much are you being sued? Do you have a defense to the lawsuit?

 

[LdiJ]

Appreciate again. Probably, Chyvan is saying that I put my salary in a single account on my name alone, and use that money for living expenses for me and my husband. If that money is not enough then use my husband's money from TBE.

If I buy annuities from my money alone on my name will it be fraudulent transfer? Also if I pay tuition for my college going child, will it be fraudulent transfer?

You are free to spend your money how you see fit. The issue isn't how you spend your money. The issue is whether or not money or assets that you have can eventually be attached by your creditors.