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Tenancy by the Entirety is Not an Absolute Shield Against Creditors
Tuesday, March 28, 2023

Under Illinois law, married couples may own their Illinois residence as tenants by the entirety. Likewise, spouses can own their Illinois residence in a land trust with each spouse owning their beneficial interest as a tenant by the entirety. In either case, the creditor of only one spouse is precluded from foreclosing upon the property.

At the same time, however, a beneficial interest in a land trust constitutes personal property of the beneficiary. Generally, personal property of a debtor can be subject to turnover to satisfy a judgment and the creditor may sell the beneficial interest like any other piece of personal property.

There is an obvious conflict between the protections afforded to tenants by the entirety and the rights of creditors to satisfy their judgments with the property of debtors. More specifically, this raises the question: what remedies are available to a creditor against a debtor whose residence is titled in a land trust and where the beneficial interests in the land trust are owned as tenants by the entirety?

In such circumstances, a creditor should consider at least two possible remedies. First, the creditor can seek an order impressing a lien against the debtor’s beneficial interest in the land trust, even if that interest is held in tenancy by the entirety. Such a lien survives termination of the citation proceeding and remains a lien against the beneficial interest for as long as the judgment remains active (generally seven years). That lien may be recorded with the local recorder of deeds, which puts the world on notice of the lien. Consequently, when/if the real estate is sold, the creditor’s lien must be considered by any purchaser and any title company insuring clean title.      

Second, the creditor should examine whether the tenancy by the entirety remains in place. Specifically, such a tenancy exists only as long as: (i) the tenants remain married to each other; (ii) the property is their residence; and (iii) neither die. Often, the financial troubles of a spouse can lead to divorce or separation. In such cases, any real estate previously titled as tenants by the entirety is no longer afforded the protections discussed above. As such, creditors are well served to search court records for any divorce filings by a debtor whose residence was titled as tenants by the entirety, either directly or through a land trust. Divorce filings often contain sworn statements by the spouses stating that they no longer reside together, which can be used as evidence by a creditor conducting post-judgment citation proceedings. Further, in the event of the non-debtor spouse’s death, the creditor may be able to attach the debtor’s survivorship interest in the entire land trust.

In sum, even though a debtor’s real estate is titled as tenancy by the entirety, either directly or through a land trust, the creditor should not assume it has no recourse against the real estate. At a minimum, the creditor is entitled to a lien against the debtor’s beneficial interest, which can result in payment if/when the real estate is sold. Further, if the tenancy has been destroyed, the creditor is entitled to a turnover of the debtor’s beneficial interest, which can be sold to satisfy the judgment.

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