Have you been to one of those small towns with a charming Main Street and mom and pop shops? Not only do we feel good by supporting them instead of a big, national corporation, but it can also make us wonder about how feasible it would be to co-own a business with a spouse. Is it a good idea?
From a legal standpoint, there are several considerations that should be at the forefront of your mind. Mainly, you should be thinking about asset protection.
What is a tenancy by the entirety?
Ok. Let’s say you buy a home as a married couple. To whom does the house belong to? If you guessed both spouses own it, you are right. This legal status of joint ownership is called a joint tenancy. If one of the spouses gets sued and loses the lawsuit, the prevailing party/creditor can go after the asset. If one of you passes away, save for homestead exemptions, creditors can go after the spouses’ assets to collect on unpaid monies. If no monies are owed, you would still have to go through the probate process to get your title free and clear.
When you own a business with a spouse as tenants by the entirety, both parties own 100% of the property. If a spouse gets sued, a creditor cannot go after assets owned as tenancy by the entirety. If a spouse passes away, the surviving spouse automatically owns the entire asset without having to go through probate.
How can a business qualify as a tenancy by the entirety?
First, only married couples can acquire property as tenants in common. Also, the asset must be acquired after the parties got married. You can’t add your spouse as an owner to a business you owned prior to the marriage and say it’s a tenancy by the entirety.
In addition, the tenancy has to be created by the same instrument. This means that you both became co-owners at the same time. If one of you started the business, then the other one joined a few years in, that’s not going to cut it. You’ll need a document creating this type of ownership interest.
Will the business be protected from everything?
A tenancy by the entirety will protect your business if only one of the spouses gets a judgment against him or her. This means that if a creditor has a judgment against both of you, the creditor will be able to enforce the judgment against your business.
What happens if the spouses divorce?
As soon as there is a final judgment of dissolution of marriage, the tenancy by the entirety is destroyed. What happens to your business then will be established by that final judgment.
Owning a business as tenants by the entirety offers spouses an excellent option for asset protection. However, each individual case has its own idiosyncracies that need to be studied carefully in order to determine the best course of action. Hunter Business Law can meet with you to discuss all of the available options for asset protection. Contact us to schedule a consult.
This Blog was written by Hunter Business Law Founder, Attorney Sheryl Hunter. View her profile HERE.
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