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15.2.3.2 Effect of Divorce, Joint Tenancy, Co-Ownership by Spouses

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  6. 15.2.3.2 Effect of Divorce, Joint Tenancy, Co-Ownership by Spouses

15.2.3.2 Effect of Divorce, Joint Tenancy, Co-Ownership by Spouses

Courts vary widely in their treatment of interests created by property division in divorce. In some states, a spouse who has left the home, but whose name is still on the title, is entitled to a homestead exemption.45 In other states, occupancy is required.46 When a spouse no longer has title to a home, but is entitled to a share of the proceeds when the home is sold or to a “buy-out” payment from the other spouse, some courts allow a homestead exemption,47 though this rule is not universal.48

Joint tenancies also raise problems. While there is little disagreement that a debtor can exempt a fractional interest49 in a home, courts differ as to whether the debtor may apply the full exemption50 or only a proportional amount of the exemption.51 Some states allow each member of a married couple to claim a homestead exemption and allow them to stack their exemptions.52 Courts sometimes extend this benefit to unmarried co-owners as well.53 However, bankruptcy courts may refuse to allow a co-owner who has filed for bankruptcy to stack their exemption with that of the non-filing co-owner.54 In addition, some courts have rejected attempts to stack the property owner’s exemption with that of a spouse who does not have an ownership interest in the property.55 Stacking may be allowed even if one spouse has died.56

Some courts hold that an exemption can be based on the right of a spouse to continue residing in the home when the other spouse dies, often referred to as a dower right.57 The Seventh Circuit has ruled, however, that a spouse must have a title interest in the home, not merely the right to claim an interest in the home when the title holder dies, in order to claim a homestead exemption under Illinois law.58

Joint tenancy with right of survivorship is sometimes used as a form of do-it-yourself estate planning: an aging parent adds the name of a son or daughter to the title, instead of making a will. This can result in the parent’s losing the home if the son or daughter incurs debts.59 The risk is especially serious if the son or daughter does not reside in the home and so cannot claim a homestead exemption.60 Similar issues arise with respect to joint bank accounts.61

Footnotes

  • 45 In re Tofani, 365 B.R. 338 (Bankr. D. Mass. 2007) (debtor could claim homestead in home co-owned with ex-wife, who resided there with children when debtor paid for upkeep, visited his children there, and intended to buy and live in house after child support obligations terminated); Beltram v. Kalb, 63 So. 3d 783 (Fla. Dist. Ct. App. 2011) (jointly-owned home is still protected against ex-husband’s debts even after he has moved out, as long as wife and daughter reside there).

  • 46 In re Sacharko, 356 B.R. 786 (B.A.P. 1st Cir. 2007) (table; text available at 2007 WL 128775) (no homestead exemption for 40% interest in former marital home, now occupied by ex-wife and couple’s minor daughter; Rhode Island homestead requires occupancy); Clark v. Guttman, 2013 WL 812017 (D. Md. Mar. 4, 2013) (denying California exemption to debtor who owned former marital home in joint tenancy with ex-wife, with informal agreement that she could live there until child turned 21); In re Parr, 2009 WL 3517602 (Bankr. D. Mont. Oct. 26, 2009) (divorcing couple was living apart on petition date; husband had no exemption because he did not reside on property), aff’d, 2010 WL 6259974 (B.A.P. 9th Cir. July 19, 2010); In re Simmons, 308 B.R. 559 (Bankr. M.D. Ala. 2004) (husband could not exempt his half-interest in marital home when couple were separated and husband lived in apartment); In re Roberts, 280 B.R. 450 (Bankr. D. Mass. 2001) (intent to occupy not shown when, at time of filing, debtor had left marital home); Chase Home Fin. L.L.C. v. Davis, 1 So. 3d 643 (La. Ct. App. 2008) (division of surplus after foreclosure sale; ex-wife who resided in former marital home entitled to entire homestead exemption; ex-husband gets none because occupancy required); In re Nilsson, 315 P.3d 966 (Nev. 2013) (denying exemption for home occupied by ex-wife and minor children; Nevada homestead requires occupancy by debtor). See also In re Wilson, 341 B.R. 21 (B.A.P. 9th Cir. 2006) (Washington homestead generally requires occupancy, or failing that at least an equitable interest; denying exemption when husband was barred from house by court order prepetition and declared homestead was filed after divorce decree had already divested him of interest in property). See generally § 15.2.4.1, infra.

  • 47 See, e.g., In re Wenstrom, 2013 WL 321678 (Bankr. D.N.D. Jan. 28, 2013) (allowing exemption of buy-out payment awarded to wife, who was required to quitclaim her share of marital home to husband); In re Patterson, 482 B.R. 755 (Bankr. D. Vt. 2012) (homestead exemption continues in new home purchased with proceeds of old; when couple divorced, wife received marital home, husband received a package of other assets, including the IRA he used to pay for new home); In re Dubravsky, 374 B.R. 467 (Bankr. D.N.H. 2007) (allowing homestead exemption for former marital home, although debtor was excluded by divorce decree, when home was to be sold at later date and proceeds divided); In re Ballato, 318 B.R. 205 (Bankr. M.D. Fla. 2004) (ex-husband could claim homestead exemption for his share of proceeds of marital home, sold by court order during property division); In re Cumberbatch, 302 B.R. 675 (Bankr. C.D. Cal. 2003) (court-ordered sale of home during property division was “forced sale to satisfy a money judgment” within the meaning of California statute allowing automatic exemption for six months in proceeds); In re Willoughby, 2003 WL 22849766 (Bankr. C.D. Ill. Dec. 2, 2003) (wife’s court-ordered payment to husband as compensation for award of former marital home was exempt as proceeds of homestead); In re Marriage of Christodolou, 383 S.W.3d 718 (Tex. App. 2012) (exempting promissory note executed by ex-husband to guarantee payment of wife’s share of value of marital home).

  • 48 In re Johnson, 375 F.3d 668 (8th Cir. 2004) (lien on former marital home, to assure ex-wife’s payment of husband’s share of value, not an interest in land within meaning of Minnesota homestead exemption); In re Jefferies, 468 B.R. 373 (B.A.P. 9th Cir. 2012) (Washington protects only proceeds of voluntary sale; sale pursuant to divorce decree not voluntary, even though it incorporated separation agreement voluntarily negotiated by couple); In re Gourdin, 431 B.R. 885 (B.A.P. 1st Cir. 2010) (debtor’s interest in former marital home ended when probate court ordered him to deed it to wife, even though he had not complied; only remaining interest was right to payment of money, which cannot be exempted under Massachusetts homestead); In re Majors, 2008 WL 5330002 (Bankr. N.D. Ala. Dec. 18, 2008) (ownership interest required for Alabama homestead; not shown when house titled in ex-wife, but separation agreement allowed debtor husband to live there while renovating it for sale and entitled him to half the sales proceeds); In re Toppi, 378 B.R. 9 (Bankr. D. Me. 2007) (denying exemption for ex-husband’s right to receive $50,000 from wife, to whom he quitclaimed home, when home was sold or in seven years); In re Kujan, 286 B.R. 216 (Bankr. D. Conn. 2002) (ex-wife who had quitclaimed her share of house to husband at divorce could not claim homestead exemption in her right to receive payment when youngest child reached eighteen or house was sold; she had no right to occupy or buy property and sum might be paid without selling house). Cf. In re Dixon, 327 B.R. 421 (Bankr. E.D. Mo. 2005) (husband could not claim homestead exemption for $15,000 ex-wife owed him pursuant to divorce decree when no evidence linked lump sum specifically to debtor’s equity in marital home).

  • 49 In re Stenzel, 301 F.3d 945 (8th Cir. 2002) (Minn. law) (one-third remainder interest in property was sufficient to support exemption); In re Mazoue, 240 B.R. 878 (E.D. La. 1999) (finding Louisiana homestead exemption inapplicable to debtor’s one-quarter ownership interest in home where he lived with co-owner family members; erroneously applying a Louisiana statute that addresses rights of surviving spouses and minor children, not rights of co-owners); In re Bradigan, 501 B.R. 151 (Bankr. W.D.N.Y. 2013) (treating husband as having 50% interest in entireties property; since his homestead exemption is greater than half the equity in the home, he can exempt his entire interest); In re Marcus, 2009 WL 262762 (Bankr. M.D. Ala. Feb. 4, 2009) (one-eighth interest is sufficient ownership for Alabama homestead statute, which applies to a “fee or less estate” held “in common or in severalty”).

  • 50 In re Moore, 495 B.R. 1 (B.A.P. 8th Cir. 2013) (Missouri law allows one co-owner to claim entire exemption, provided other owners do not claim exemption); Abernathy v. LaBarge (In re Abernathy), 259 B.R. 330 (B.A.P. 8th Cir. 2001) (debtor who owned one-third interest in property, in joint tenancy with non-debtor sisters, could claim entire amount of Missouri homestead exemption), aff’d, 2001 WL 1104482 (8th Cir. Sept. 20, 2001); In re Diaz Collazo, 524 B.R. 431 (Bankr. D. P.R. 2015) (husband filing individual bankruptcy may claim entire amount of exemption; wife did not file); In re Nguyen, 332 B.R. 393 (Bankr. W.D. Mo. 2005) (debtor could claim whole $15,000 exemption in her half interest in home owned in joint tenancy with non-debtor domestic partner); In re LaHaye, 2003 WL 22764771 (Bankr. N.D. Cal. Sept. 10, 2003) (debtor could claim entire exemption for her half-interest in property); In re Cunningham, 276 B.R. 314 (Bankr. D. Mass. 2002) (debtor may claim a homestead interest in all of a triple-decker, occupied by her and her two sisters, in which she owns a two-thirds interest; court does not explicitly address whether she can apply her full exemption but appears to allow it). See also In re Gatrost, 2008 WL 545002 (Bankr. D. Neb. Feb. 22, 2008) (married couple may jointly assert the state’s $60,000 exemption to protect jointly-owned homestead from lien based on judgment against both debtors; rejecting interpretation that would have applied homestead exemption only to husband’s undivided one-half interest in the property, leaving wife’s interest unprotected).

  • 51 In re Nardo, 554 B.R. 1 (Bankr. D. Mass. 2016) (Massachusetts $500,000 homestead exemption extends to home owned by a trust, but 1% beneficiary is entitled to only 1% of exemption amount); In re Newcomb, 513 B.R. 7 (Bankr. D. Mass. 2014) (debtor who owned remainder interest in trust that was sole beneficiary of trust that owned his residence could claim homestead exemption in proportion to his ownership); In re VanBuskirk, 511 B.R. 220 (Bankr. D. Mass. 2014) (debtors who owned 25% interest in trust that owned their residence could claim only 25% of Massachusetts exemption, though they were the only beneficiaries residing on property); In re Strobbe, 2007 WL 2562611 (Bankr. D. Mont. Aug. 31, 2007) (owner of undivided one-sixth entitled to one-sixth of statutory exemption amount); In re Kleinfeldt, 2007 WL 2138748 (Bankr. D. Vt. July 23, 2007) (part owner entitled to proportionate share of homestead exemption); In re Norton, 327 B.R. 193 (Bankr. D. Vt. 2005) (joint tenant, not married to co-tenant, who owned one-half interest in property could claim one-half of Vermont homestead amount); In re Smith, 254 B.R. 751 (Bankr. W.D. Mo. 2000) (debtor who co-owned home with his sister could not claim entire statutory homestead exemption when sister had also filed bankruptcy and claimed the exemption). Cf. In re Wynn, 369 B.R. 605 (Bankr. D. Or. 2007) (separated couple who sold marital home could allocate exemption between themselves as they chose, so long as total did not exceed cap).

  • 52 ALLOWING STACKING: In re Butturini, 411 B.R. 553 (E.D. Tenn. 2009) (Tennessee allows $25,000 homestead for individual with custody of minor child; married couple with one child could claim an exemption apiece and stack them); In re Roen, 556 B.R. 401 (Bankr. W.D. Wis. 2016) (Wisconsin statute allows each spouse to claim exemption if residence is owned jointly, in common, or as marital property, but not shown here when home was titled only in wife’s name and it was not marital property under Wisconsin domestic relations law); In re Colon, 525 B.R. 1 (Bankr. D. P.R. 2015) (married couple filing jointly may stack their Puerto Rico homestead exemptions); In re Rich, 2013 WL 1628723 (Bankr. D. Kan. Apr. 16, 2013) (allowing couple to stack federal exemptions even though Kansas exemptions cannot be stacked); In re Young, 471 B.R. 715 (Bankr. E.D. Tenn. 2012) (allowing stacking); In re Limperis, 370 B.R. 859 (Bankr. S.D. Fla. 2007) (married couple, subject to $125,000 Bankruptcy Code cap for homestead acquired within 1215 days, could claim an exemption apiece and stack them for total exemption of $250,000); In re Rasmussen, 349 B.R. 747 (Bankr. M.D. Fla. 2006) (each spouse is entitled to $125,000 homestead allowed by bankruptcy law for property acquired during 1215-day look-back period; couple may stack exemptions); In re Burnett, 303 B.R. 684 (Bankr. M.D. Ga. 2003) (applying Georgia law that allows double exemption in bankruptcy when couple’s home is owned by individual debtor). Cf. In re Duncan, 294 B.R. 339 (B.A.P. 10th Cir. 2003) (applying Wyoming state law exemptions; spouses may stack their homestead exemptions, but wife who had no ownership interest on petition date had no exemption).

    DISALLOWING STACKING: United States v. Fincher, 593 F.3d 702 (8th Cir. 2010) (Arkansas law allows only one homestead per married couple); In re Garran, 338 F.3d 1 (1st Cir. 2003) (Mass. law) (couple could not stack exemptions; wife’s filing of homestead declaration, which protected entire household, superseded husband’s earlier homestead declaration); In re Rowe, 236 B.R. 11 (B.A.P. 9th Cir. 1999) (Nevada law allows a married couple, even if living apart, to claim only one homestead exemption); Vinson v. Dakmak, 347 B.R. 620 (E.D. Mich. 2006) (Michigan homestead amount is aggregate maximum; co-owners may not stack); In re Arrendondo-Smith, 436 B.R. 412 (Bankr. W.D. Tex. 2010) (only one homestead per married couple; denying homestead to debtor wife’s new home because she had established homestead in former marital home, owned by estranged husband); In re Gunnison, 397 B.R. 186 (Bankr. D. Mass. 2008) (separated but still married couple could claim only one homestead; husband’s later-filed homestead declaration terminated wife’s homestead in her solely owned property); In re Lindstrom, 331 B.R. 267 (Bankr. E.D. Mich. 2005) (married couple may claim only one homestead exemption); In re Dawson, 266 B.R. 355 (Bankr. N.D. Tex. 2001) (since family is entitled to only one homestead, husband cannot claim separate homestead until divorce is final, even if he is living elsewhere); In re Arnold, 73 P.3d 861 (Okla. 2003) (married couple may claim only one 160-acre rural homestead). See also In re Papageorge, 2018 WL 6440603 (Bankr. E.D. Wis. Dec. 7, 2018) (individual debtor may assert only his exemptions, not those of non-filing spouse); In re Soper, 258 B.R. 748 (Bankr. W.D. Mo. 2001) (married couple living together may claim equity in only one home, even though combined equity in house and vacation cabin less than state homestead cap; statute exempts “a dwelling house”); Kipp v. Sweno, 683 N.W.2d 259 (Minn. 2004) (married couple entitled to only one exemption, but individual debtor can claim entire exemption to protect his survivorship interest).

  • 53 See In re Cassesse, 286 B.R. 472 (Bankr. D. Mass. 2001) (interpreting exemption statute to allow each of two unrelated co-tenants to declare same property as homestead; noting that homestead exemption automatically extends to co-tenants who are family members). See also In re Ewbank, 359 B.R. 807 (Bankr. D.N.M. 2007) (New Mexico statute, permitting stacking of exemptions for “homestead owned jointly by two persons,” did not require joint tenancy; father and daughter who owned home as joint tenants may stack their exemptions). Cf. In re Rabin, 359 B.R. 242 (B.A.P. 9th Cir. 2007) (Cal. law) (treating registered domestic partners, living together in house they co-owned, same as married couple, so they are entitled to only one homestead exemption).

  • 54 See, e.g., In re Drew, 2011 WL 4915006 (Bankr. D. Mass. Oct. 17, 2011) (debtor may not stack his Massachusetts elderly homestead exemption with that of his non-debtor wife); In re Taylor, 320 B.R. 214 (Bankr. N.D. Ga. 2005) (debtor who owned residence jointly with non-debtor husband limited to single $10,000 homestead exemption).

  • 55 In re Ellis, 446 B.R. 22 (Bankr. D. Mass. 2011) (although Massachusetts homestead exemption protects owner’s spouse, wife who has no property interest in property titled in husband cannot claim exemption); In re Scotti, 456 B.R. 760 (Bankr. D.S.C. 2011) (South Carolina homestead requires ownership interest; where property was titled in wife, husband had at most a possessory interest and equitable distribution rights in case of divorce; allowing couple only one exemption). See generally § 13.3.7, supra.

  • 56 In re Collins, 2005 WL 3506356 (Bankr. C.D. Ill. Nov. 30, 2005) (widow who inherited marital home could stack her exemption, as owner, with deceased husband’s exemption, which protected surviving spouse and minor child). But cf. In re Joseph, 262 B.R. 33 (Bankr. W.D.N.Y. 2001) (widow not permitted to claim both her own homestead exemption and that of husband who had died in 1980; N.Y. statute which allows survival of homestead exemption for protection of spouse and children applies only to debts of deceased spouse, not individual debts of survivor).

  • 57 See, e.g., In re Pugh, 2015 WL 5145030 (Bankr. N.D. Ohio Aug. 31, 2015) (husband’s state law dower interest in property inherited by wife was protected by homestead exemption); In re Wycuff, 332 B.R. 297 (Bankr. N.D. Ohio 2005) (husband’s dower interest in wife’s property was property interest within meaning of homestead statute, so he could assert exemption up to value of this interest). Cf. In re Lindquist, 395 B.R. 707 (Bankr. D. Or. 2008) (husband’s name not on title, but he lived in marital home and made the payments; his equitable interest was sufficient that couple could claim larger exemption for joint owners).

  • 58 In re Belcher, 551 F.3d 688 (7th Cir. 2008). See also In re Cassity, 281 B.R. 365 (S.D. Ala. 2001) (homestead exemption cannot be based on dower interest); In re Martinez, 469 B.R. 74 (Bankr. D.N.M. 2012) (non-titled husband’s rights in marital home not sufficient to support exemption; must show that property is “owned, leased, or being purchased”; no equitable lien because he failed to show that funds he spent for repairs were his separate property); In re Hendrix, 2008 WL 276576 (Bankr. M.D. Ala. Jan. 29, 2008) (right to claim share after husband’s death insufficient); GMAC Mortg., L.L.C. v. Arrigo, 8 N.E.3d 621 (Ill. App. Ct. 2014) (Illinois homestead requires “formalized” ownership; rights created by Rights of Married Persons Act insufficient to provide homestead rights to non-titled spouse).

  • 59 United States v. Dorman, 603 Fed. Appx. 844 (11th Cir. 2015) (Fla. law) (allowing forfeiture and sale of property owned by criminal defendant in joint tenancy with right of survivorship with his mother); In re Cario, 2012 WL 1122887 (Bankr. S.D. Fla. Apr. 3, 2012) (mother transferred half interest in home to daughter, for no consideration, noting on the deed “for estate purposes”; this was insufficient to put bona fide purchaser on notice, so daughter’s bankruptcy trustee could sell the home). But see Wachter v. Lezdey (In re Lezdey), 373 B.R. 164 (Bankr. M.D. Fla. 2007) (deed for joint tenancy with rights of survivorship does not conclusively establish that joint tenants own equal shares; fact question whether brother’s name was placed on deed merely as estate planning).

  • 60 In re Santiago, 2012 WL 393405 (Bankr. S.D.N.Y. 2012) (non-contributing daughter’s name was on title of home sold many months prepetition; daughter had no homestead exemption because she did not reside in home on petition date, and New York exempts only proceeds of involuntary sale; trustee could sue non-debtor mother for half the sales proceeds).

  • 61 See § 14.5.4.5, supra. See also National Consumer Law Center, Consumer Banking and Payments Law § 10.2.7.4 (6th ed. 2018), updated at www.nclc.org/library (application of banker’s right of setoff to joint bank accounts).