A Buffalo Bankruptcy Trustee's argument that each of the joint married owners of their home owns the entire equity in the property. Judge Carl L. Bucki, Chief Judge of the United States Bankruptcy Court for the Western District of New York rejected this argument in In re Bradigan, Chapter 7 Bk #12-13821 (WDNY; opinion dated Oct. 29, 2013).
In New York State, real estate that has more than one owner is usually owned in one of two ways, either "in common" or "joint". When property owned "in common", each owner is entitled to his or her share of the property, and if an owner dies his or her share goes to his or hear heirs. When property is owned "jointly", each owner is considered to own, simultaneously, the entire property, and if one owner dies, that owner's share of the property is subtracted out, and the remaining owner or owners continues to own the full property, and nothing passes to the dead former owner's heirs.
Married couples who jointly own their home can take ownership in an especially strong form of joint ownership, called the "entireties". This is an enhanced form of ownership, where the creditors of only one of the married couples cannot enforce a judgment lien against the property. The ancient statute that describes this ownership "by the entireties" states that each of the married owners is "seized of the whole and not of any undivided portion." ( see the New York Court of Appeals decision, Stelz v. Shreck, 128 N.Y. 263, 266, dated 1891 and cited by Judge Bucki in the Bradigan decision).
A married debtor in Buffalo, Jerome Bradigan, filed a chapter 7 case alone in 2012. He and his wife owned their home, which had about $35,000 in equity. He used the federal bankruptcyt exemption to exempt his half of that equity. The bankruptcy trustee took the interesting position that, as Mr. Jerome owned the house by the entireties, that he, therefore, owned the entire $35,000 in the equity in the house. As the maximum limit for the federal homestead exemption is $22,975, the trustee contended the debtor had $12,000 in unexempt equity in the house.
Judge Bucki ruled that even in cases where property is owned by the entireties, each spouse only owns half of the equity in the property. He noted that a bankruptcy case out of the Northern District of New York, In re Flinn (95 B.R. 13), reached this same conclusion in 1988.
Judge Bucki stated that "Mathematically, the total must always equal the sum of its parts. To the extent that husband and wife each hold a recognizable interest in property, their respective individual interests must necessarily equal something less than the whole. To hold otherwise would invite havoc in those instances where wife and husband file separate and non-joint petitions for bankruptcy relief. Surely, neither of their separate trustees can administer the whole of property held by the entireties, but must accept an allocation as between the two estates. Exemptions, if claimed, would then apply to the allocated interest of each spouse. Similarly, where only one spouse files, he or she may exempt an aggregate interest in that same allocation."
The exemption of assets is an extremely important part of a bankruptcy analysis. I have been following trends and developments in exemption law, both federal and New York State, for many years. If youy live in the Greater Rochester NY area and have a question as to whether an asset you own will be safe in a bankruptcy filing, please feel free to contact me, through my website, for a phone analysis, at no charge, of your situation.