Asset Protection Planning Involving the Home

Anyone with modest knowledge about entireties property knows, and this should include all asset protection planners, that the creditors of only one of the spouses cannot reach their entireties property. There are exceptions of course. Fraudulently transferring property into the T/E format doesn’t work and the IRS can reach the debtor’s interest in T/E property. But for the most part the technique works. Divorce and death though can be hazardous in more ways than one.

So here is today’s news. We can now be comfortable that outside of bankruptcy a debtor spouse can convey his or her interest in T/E property to the non-debtor spouse without such transfer constituting a fraudulent transfer. Estes v. Titus, 481 Mich. 573 (2008). What’s odd is why this is even an issue. Common sense tells us if the debtor spouse’s interest in T/E property is exempt from the reach of his creditors how could his transfer of that interest to his wife ever constitute a fraudulent transfer. Such conclusion is clearly the result of the “no harm-no foul” analysis.

A different rule seems to apply in bankruptcy where the “no harm no foul” analysis has previously been rejected. In Matter of Wickstrom, 113 B.R. 339 (1990), the Court decided in what this author believes is a very strained analysis that a trustee is not prohibited from seeking to recover, as a preferential transfer or a fraudulent conveyance (now a fraudulent transfer), transfers of entireties property owned by a debtor and nondebtor married couple to a third party. Perhaps Wickstrom would be decided differently today in light of Estes if the Bankruptcy Court looks to State law as it is required to do.