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Should a Physician Put Their Spouses Name On Their Home?
This is a loaded question, but one that every one, not just physicians must ask.
However, physicians fall into what we call the “brand”, this means the “green zone” for lawsuits. Many times in the green zone of lawsuits, the fact that the defendant has deep pockets a suit with minimal merit will proceed.
Let’s switch gears and talk about another green zone for lawsuits. Walmart alone is a green zone. Walmart has deep pockets. The statistics claim that every few minutes there is a suit filed against Walmart. Realizing what a target Walmart is, right or wrong, once can deduce that Walmart is in the business of defending against lawsuits. Walmart is a target.
Physicians are also in the green zone. The green zone means that in the worst-case scenario, the case is worth a look, in the moderate sense, money is attainable through settlement and in the best case, money is attainable at great profit. The average person is not in the green zone. Therefore, what the average person does should not be an example for physicians.
Let’s look at some of the techniques that the average person might rely on for home protection and examine if they are acceptable for physicians. The question is not only whether or not to put the home at risk, but should the physician put the spouse at risk. What works and what does not?
Tenants in Common
Definition – an interest held by two or more parties, each having a possessory right, usually deriving from the title in the same piece of land – Blacks Law Dictionary
This means that though the two parties have unequal distribution amounts in equity they are entitled to the same or equal benefits. This means that an estate with tenants in common, held by a family, can be partitioned and encumbered. This can also pertain to personal property.
The only potential advantage is that the ownership interest is transferable. If three separate people own a piece of property, the property can transfer among them. The problem regarding asset protection is that if three people own a property and two get into trouble with creditors, there is no protection from the creditors and the member who is not in judgment against creditors is likely only to extract their share of equity from the property.
Tenants by Entirety - TE
Definition – Ownership of property, real or personal, tangible or intangible, by a husband or wife together. The survivor of the two is entitled to the entire property. Neither husband nor wife is entitled to alienate the property. – Blacks Law Dictionary
If the husband and wife divorce then the generally the law looks at the property as a Tenants in Common property. The property is considered owned by a couple as one ownership in a way that the law looks at the relationship, as each person owns 100 percent of the property. If any changes are made to the property, both spouses must approve.
This provides added protection in certain states above Joint Tenancy or Tenants in Common. If you live in Arizona, California, Idaho, Louisiana, Nevada, New Mexico, Texas, Washington or Wisconsin you live in a CommonPropertyState.. In these states, each spouses creditors is subject to the others.
If a person acquired property before they were married, the property does not automatically fall into the class of property under TE. The property accumulated during the marriage is community property. Also, if a child gets into a lawsuit, such as a driving accident, then TE will not protect the home during litigation.
If a physician uses TE as an Asset Protection method, it is important to consult an attorney or certified Asset Protection Planner to ensure that the property will be protected by TE in that the legislation of the state of the property continues to support TE. The assets pass without entering into probate court should one of the spouses die.
TE can be a valuable tool for home protection, when it is in place in the proper manner. TE does not protect the home from joint creditors. A husband and wife who own a business together are in grave danger in the event of a lawsuit.
In the event of a divorce in a TE state, you are almost guaranteed that the spouses will take a 50/50 split on the property.
It is all right to use TE if other protection methods are coupled with the legal protection. A certified Asset Protection Planner or attorney should counsel the physician for the best protection.
Joint Tenancy
Definition – A single estate in property, real or personal, owned by two or more persons under one instrument or act of the parties, with an equal right in all to share in the enjoyment of the property.
On the death of one property, the property descends to the survivor or survivors until all have expired.
From a legal perspective, the rights of all owners in Joint Tenancy are the same. This means that one person can sell the property without the permission or knowledge of the others.
The main advantage is that in most states all property in Joint Tenancy passes with the avoidance of probate. This can obviously create problems. In addition, if one person is subject to the attachment of creditors, then the remaining owners would be owners with the creditor. This could result in a loss of the entire property.
Homestead Exemptions
The Homestead Exemption varies from state to state. Homestead Exemptions are laws that serve to protect homeowners from creditors, litigators and taxes. They protect the homeowner and shelter the surviving spouse in death. Different states offer immunity from the forced sale or the exemption of a certain dollar amount during a sale.
A Homestead Exemption is most always a fixed amount. A few states have broader protection, such as Florida and Texas.
Whatever the exemption is in your state, you must file and in some states there are additional qualifications for senior citizens.
The point is that doctors are wealthy people and Homestead Exemptions were not created for the wealthy. They are usually small in comparison with the value of a typical successful physician’s home.
LLCs
Rarely is an LLC the best option for real estate. When a husband and wife own an LLC that owns property, and they are married, it is possible for the liability to flow through by charging order. It is possible that they may stay in the house, but may accrue some type of encumbrance that might have a grave affect on an estate plan.
Trusts
Placing a property into a trust can be great protection for a personal residence. It is possible for the physician to remove themselves from the liability and retain beneficial control.
There are several techniques for using trusts. An expert with understanding of physicians risks and medical malpractice knowledge should be ned when forming a trust.
Equity Stripping
Another technique that provides protection is called Equity Stripping or Equity Harvesting. If there is no equity in a home, even when a creditor attaches to the home, they basically get nothing. Why would a creditor attempt to lien against or attach to a home when there is no equity in the home?
Equity Stripping involves the removal of equity and the placing of the financial assets into a safer harbor such as life insurance. Some people have the attitude that they should pay off their homes as quickly as possible. For a physician the number one priority should be minimizing risk in an acceptable manner.
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