The most important asset that a married couple is likely to acquire during their marriage is their home.
Accordingly, it is also the most important asset in need of protection from creditors. It is not uncommon for spouses to incur separate debts and/or judgments against them individually, and thus, spouses can have individual creditors.
The mechanism used by a married couple in purchasing their home can impact whether or not one spouse's creditor is able to attach to the couple's home to satisfy one spouse's debt or judgment. It is therefore very important for married couples to understand the ways in which they are able to own property in Illinois, and the legal benefits and consequences that come with owning a home.
In Illinois, a married couple can purchase their home in one of three of the following ways: ( 1 ) as a tenancy in common; ( 2 ) as a joint tenancy; or ( 3 ) as a tenancy by the entirety. Each of these types of tenancies has various legal nuances and ramifications associated with them. The focus of this article is the ability of a married couple to protect its home from the individual creditors of one of the spouses.
The default tenancy created in Illinois when two or more people purchase any real estate is a tenancy in common. See 765 ILCS = 1005/1. Such a tenancy is created upon purchase unless the spouses in the contract expressly state that the property is to be held as a joint tenancy or tenancy by the entirety ( explained in more detail below ). Spouses who own their home as tenants in common each own a 50% interest in the property. The problem, however, is that tenants in common are free to encumber and transfer their interest in the property without consent of any of the other tenants. In kind, this also means that one spouse's creditor may attach to that spouse's 50% interest in the property to obtain satisfaction for a debt or judgment. Furthermore, the creditor can foreclose on the married couple's home and force a sale to use its 50% interest in the home to satisfy the debt or judgment.
A second—and widely popular—type of tenancy used to own property in Illinois is a joint tenancy. One of the main differences between a joint tenancy and a tenancy in common is that a joint tenant has a right of survivorship while a tenant in common does not. 765 ILCS - 1005/1. A right of survivorship means that, upon the death of one of the joint tenants, the surviving joint tenant takes the decedent's interest in the property. However, a joint tenancy does not protect the property itself from being subject to satisfaction of a debt or judgment incurred by one of the joint tenants. In this regard, a joint tenancy is generally identical to a tenancy in common. Accordingly, if a married couple chooses to hold property as joint tenants, pursuant to the provisions of 765 ILCS - 1005/1, although they enjoy the benefit of the right to survivorship, one of the spouse's creditors may still be able to use the couple's home to satisfy a debt or judgment.
Because of the lack of protection afforded to joint owners of property noted above, Illinois specifically recognizes the third type of tenancy available to married couples—a tenancy by the entirety. A tenancy by the entirety is recognized only for married couples and only applies to a married couple's primary residence and cannot be utilized for additional properties that the couple may own. See 765 ILCS - 1005/1c. Furthermore, such a tenancy will only be recognized during the couple's marriage. A tenancy by the entirety, like a joint tenancy, has a right of survivorship. Important to this discussion, however, is that Illinois law explicitly provides that the creditors of one spouse may not use a home held by a married couple as a tenancy by the entirety to satisfy a debt or a judgment against that spouse. See 735 ILCS - 5/12-112. Note, however, that this protection is not afforded if both spouses are jointly liable to a single creditor or if spouses transfer property into such a tenancy with the sole intent of avoiding debts and judgments at the time of the transfer. See 735 ILCS - 5/12-112. It is therefore important that married couples create this tenancy early on to protect their home prior to one of the spouses being in a position where he or she is going to be held liable for an outstanding debt.
Purchasing your home with your spouse can and should be one of the greatest moments that a married couple can enjoy together. That being said, however, the way in which your home is owned can have negative consequences if you do not take the proper legal steps to protect it. If you are interested in learning more about the various ways in which you can protect your home and your other assets from potential creditors, please feel free to contact any one of Clark Hill's attorneys.
Angelo D. DiBartolomeo is an Associate with the Litigation Practice Group in Clark Hill's Chicago office. His focus is on various areas of litigation, including commercial litigation, business litigation, and employment litigation. Contact him at 312-985-5549 or adibartolomeo@clarkhill.com .
