One of the bedrock principles of Michigan property law is that property held jointly by husband and wife is protected from the claims from one spouse’s creditors. However, a recent federal court ruling has significantly undercut this important property right.
In a recent opinion, the Sixth Circuit Court of Appeals (available at http://www.law.justia.com/cases/federal/appellate-courts/ca6/10-1498/11a0580n-06-2011-08-18.html) ruled that proceeds from a tax sale of property held as tenants by the entirety between a husband and wife should, presumptively, be split 50-50. Under a tenancy by the entirety, a husband and wife hold joint title with a right of survivorship. This form of ownership is only available to married couples and does not allow one spouse to sell or transfer the property without the other spouse’s consent.
In US v. Barczyk, the Internal Revenue Service sought foreclosure of a home owned by a married couple in tenancy by the entirety. The married couple filed individual tax returns under the status of “married filing separately,” and the husband owed over $500,000 in back taxes. The house was worth approximately $200,000 and litigation ensued between the wife and the United States to determine two issues. First, the court had to determine whether the federal government had the authority to sell the property when the Barczyk’s holding the property as tenants by the entirety. Second, if the United States could foreclose on the property, to what percentage of the property was Mrs. Barczyk entitled.
In reaching the first issue, the Sixth Circuit had to determine whether the peculiarities of the tenancy by entirety prevented attachment of a tax lien. After noting that federal tax liens attach to property held as tenants by the entirety, the court ruled, that the United States had the authority to foreclose on the property under IRC § 7403, despite Michigan law.
After determining that the federal government could foreclose on, and sell the property, the court then considered what percentage of the house the woman owned. The Sixth Circuit determined that there is a presumption that a husband and wife each have an equal ownership interest in property held as tenants by the entirety. Mrs. Barczyk argued that she had a greater interest in the property based on actuarial evidence. The court rejected this argument by noting that the Mr. and Mrs. Barczyk were only five years a part in age and that both were in comparable health. As a result, Mrs. Barczyk was entitled to half of the proceeds acquired after the foreclosure sale of the property.
Although a significant property right is undercut by this ruling, it should be noted that the scope of the ruling is quite narrow. The ruling applies only to the federal government. Michigan law still protects property held jointly by husband and wife against creditors other than the federal government.
