Tax Refunds and Tenancy By The Entireties Property

Section § 522(b)(3) of the Bankruptcy Code allows an individual debtor to fully exempt any interest in property that the debtor owns as tenant by the entirety provided that such interest is exempt under state law. It is well established that under Florida law property held by husband and wife as tenants by the entireties belongs to neither spouse individually. Therefore, it is exempt from process to satisfy debts owed to individual creditors of either spouse. Entireties property is not exempt from process to satisfy joint debts of both spouses. Thus, a Florida debtor filing an individual bankruptcy petition can fully exempt tenancy by the entirety property as long as there is no joint debt with the non-filing spouse.

There are six characteristics that joint property must possess in order to be held as tenancy by the entirety: (1) unity of possession (joint ownership and control); (2) unity of interest (the interests in the account must be identical); (3) unity of title (the interests must have originated in the same instrument); (4) unity of time (the interests must have commenced simultaneously); (5) survivorship; and (6) unity of marriage (the parties must be married at the time the property became titled in their joint names). In summary, most joint property acquired during a marriage will be considered tenancy by the entirety property, and fully exempt in bankruptcy, so long as the debtor and non-filing spouse do not have any joint debt.

A tax refund received post-petition is property of the estate if it is attributable to wages earned and withholding payments made during prepetition years. Most of the time a debtor will still have remaining personal property exemptions and can at least exempt a portion of the refund. However, courts have been split on whether an individual debtor can claim that his interest in a joint tax refund received post-petition is held as a tenant by the entirety with the non-filing spouse and is therefore exempt.

A recent bankruptcy court decision in the Southern District of Florida, however, ruled that a single debtor may not exempt as entireties property a joint tax refund received after the bankruptcy filing. The court reasoned that since the debtor and the non-filing spouse have separate jobs and income then they would have a separate interest in the tax refund. Thus, the unity of interest is not met and the refund cannot be considered tenancy by the entirety property. The portion of the refund that is attributable to the debtor is therefore property of the estate to the extent that it exceeds the debtor’s personal property exemptions.

The court noted, however, that if the refund is receive prior to the bankruptcy filing and then deposited in a joint bank account then the money might be exempt because joint accounts are presumed be held under tenancy by the entirety. The case is In Re: Ascuntar, 1:12-bk-13965.

Jonathan Bierfeld is an attorney with Martin Law Firm, P.L., whose practice focuses in Bankruptcy Law and Civil Litigation. He is admitted to practice law in the State of Florida and the Federal Court for the Middle District of Florida. He primarily practices in Lee County Florida in Cape Coral and Fort Myers, Florida.