How to Title Your Investment Accounts

If you are married, and you own a home, I am willing to bet that title to your home is in your joint names as “tenants by the entirety.” But if you are married and you have a brokerage account or other investment account, I am almost equally sure that you own that account as “joint tenants with rights of survivorship.”

Is one form of title preferable to another? Absolutely. If you and your spouse are going to own a financial account in your joint names, “tenants by the entirety” is almost always the way to go. It has to do with asset protection.

Imagine you are sued. It’s not that farfetched. You might be sued because you are negligent in driving your car and you cause damage to someone else. You might be sued because you break a contract and cause harm to the other party. You might be sued because you are a professional – such as a doctor, lawyer, or architect – who makes a mistake and causes injury to a patient or client or customer.

Now, imagine you go through a court trial and you are the losing party. The court then enters a monetary judgment against you. If you do not have insurance, or enough insurance, to cover the amount of the judgment, it is likely that your creditor will seek to collect the remainder of the amount owed by going after assets that you own personally.

The first asset the creditor might try to levy upon will be your residence. If the home is owned by “Tom and Jane, as tenants by the entirety,” and the judgment is against Tom only, your home is judgment-proof. Under Virginia law, and the law of most states, an asset held by a married couple as tenants by the entirety is not viewed as being owned one-half by Tom and one-half by Jane. Rather, it is owned by the mystical union of Tom and Jane as a married couple and one member of that union cannot unilaterally cut the asset into two separate pieces.

And if Tom can’t do that unilaterally, neither can one of Tom’s creditors. If Jane is not a party to the lawsuit, the asset is protected from Tom’s creditors.

But suppose your investment account is jointly held by “Tom and Jane, as joint tenants with rights of survivorship.” Those assets are not judgment proof. Tom’s creditors could, through the courts, separate the assets into two equal shares and then take Tom’s one-half to apply towards the monetary judgment against him.

Why don’t financial institutions routinely title the assets of married couples as tenants by the entirety? Historically, it was unclear whether the law allowed married couples to own financial assets as tenants by the entirety, or whether that privilege was limited to real estate. Va. Code § 55-20.2 was enacted to remove any doubt about Virginia law. Other states have similar statutes.

If you never get sued, consider this a theoretical discussion. But you cannot safely change titling the day after you learn you are being sued. That could be considered a fraud on your creditors. So my advice to most married clients is: if you are going to hold financial accounts in your joint names, be sure to include the phrase “tenants by the entirety” after your names. And if your financial institution tells you they do not offer this as a titling option, find a new financial institution.