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A Deed to a Husband and Wife May Not Accomplish Its Intended Goal

February 15, 2018adminLegal News

To quote the Indiana Supreme Court in a 2017 decision, “Indiana has a longstanding legal presumption . . . that spouses owning real property hold their interests as tenants by the entirety.” However, that presumption is rebuttable, and as the case of Cheryl Underwood v. Thomas Bunger, in His Capacity as the Personal Representative of Kenneth K. Kinney, et al., illustrates, the wording in the conveyance document is critical as to whether the presumption of the spouses’ ownership as tenants by the entireties will stand.

In Underwood, Cheryl Underwood, Kenneth Kinney and Judith Fulford, Kinney’s wife, acquired real property in Bloomington near the Indiana University Campus.  The deed conveying the property granted title to “Cheryl L. Underwood, of legal age, and Kenneth Kinney and Judith M. Fulford, husband and wife, all as tenants-in-common.”  When Kinney passed away, Underwood and Fulford remained owners of the property.  Subsequently, Underwood’s former employer obtained a six-figure judgment against her and Kinney.  The plaintiff holding the judgment sued to partition and sell the property and distribute the proceeds.

The deceased husband’s estate sought to dismiss the plaintiff’s action, arguing that the plaintiff’s claim should fail because it presupposes the deceased husband’s estate had an interest in the property. If the husband and wife held their interests in the property as tenants by the entireties, the husband’s interest would have passed to the wife upon his death, and the estate would no longer have any interest in the property.

Both the trial court and the Indiana Court of Appeals found that the deed conveying the property to the parties was clear and unambiguous in creating a tenancy by the entireties in the husband and wife. Accordingly, the marital unit (the husband and wife) was a tenant in common with Underwood, and when the husband’s interest in the property passed to his wife upon his death, the ownership in the property formerly held by the husband and wife was not subject to the judgment, which was rendered only against the husband and Underwood.

The Supreme Court first held that the deed was sufficiently clear to overcome the presumption that the husband and wife held the property as tenants by the entireties. It noted that any conveyance to spouses presumptively creates an estate by the entireties, but concluded that the granting clause indicating that the parties held the property “all as tenants-in-common” was sufficient to overcome the presumption that the conveyance to the spouses created such a tenancy by the entireties.

Specifically, the Court noted that the presumption is established under Indiana common law and also by an Indiana statute adopting the common-law presumption favoring a tenancy by the entireties when real property is conveyed to spouses. As quoted by the Court, the statute provides that “a contract shall not be construed as creating a tenancy in common unless it shall be expressed therein or shall manifestly appear from the tenor of the instrument that it was intended to create a tenancy in common.”  The Court went on to note that the word “manifestly” was removed from the statute by a recent amendment.

The Court held that the presumption that the husband and wife held the property as tenants by the entirety was rebutted by finding that the phrase “all as tenants-in-common” was intended to create a tenancy in common among all of the grantees and not to treat the husband and wife as one entity taking title by the entireties. As a result, the husband’s interest in the property was also subject to the judgment, so that the wife lost the protections she otherwise would have enjoyed had she and her late husband held the property by the entireties, and only her remaining interest as a single tenant in common was insulated from the plaintiff’s judgment.

By George H. Abel, II