In re Estate of Wall

• Decision Date: 23 February 1971
• Docket Number: No. 22507.,22507.
• Citation: In re Estate of Wall, 440 F.2d 215 (D.C. Cir. 1971)
• Parties: In re Estate of Jacob S. WALL. Sol M. ALPHER et al., Appellants, v. Nathaniel A. PRESTON, Administrator C.T.A. of the Estate of Jacob S. Wall, also known as Jack Wall, Deceased.
• Court: U.S. Court of Appeals — District of Columbia Circuit

440 F.2d 215 (1971)

In re Estate of Jacob S. WALL Sol M. ALPHER et al., Appellants, v. Nathaniel A. PRESTON, Administrator C.T.A. of the Estate of Jacob S. Wall, also known as Jack Wall, Deceased.

No. 22507.

United States Court of Appeals, District of Columbia Circuit.

Argued January 23, 1970.

Decided February 23, 1971.

Mr. Robert B. Frank, Washington, D. C., for appellants.

Mr. Jack A. Hillman, Washington, D. C., for appellee.

Before LEVENTHAL, ROBINSON and ROBB, Circuit Judges.

SPOTTSWOOD W. ROBINSON, III, Circuit Judge:

At issue is the ownership of a fund in which a deceased husband had an interest during his lifetime, and for which his widow and two of his creditors are now arrayed as competitors. The fund, consisting of the net proceeds of a sale of District of Columbia realty in 1963, is on deposit in an account in the names of Jacob S. Wall, the decedent, and Frances P. Wall, the widow, as tenants by the entireties.¹ Mr. Wall died in 1965 and his estate has since been in administration under supervision of the District Court.

In 1968, appellants, who are among Mr. Wall's creditors, petitioned the court for an order requiring appellee, the administrator cum testamento annexo, to take over the fund as an asset of the estate. The petition alleged that Mr. Wall was insolvent at death, and it envisioned further litigation to establish the rights of the parties in the fund.² The court ordered appellee to show cause and, after a hearing, denied the petition. This appeal followed.

Appellants contend that although they are creditors of an insolvent estate, they were precluded by the District Court's ruling from proving that the fund, or at least a one-half interest therein, belonged to the estate. They argue that they were barred from offering such proof simply because the deposit was titled in the Walls as tenants by the entireties.³ On close review of the record, however, we think appellants faced much more formidable obstacles. Standing out in bold relief is the fact, alleged by appellee and not disputed by appellants, that the Walls had also held the real estate, from the sale of which the fund was derived, as tenants by the entireties.⁴ Further, evidence, such as it was but never contradicted, indicated a plan whereby the sale proceeds were deposited, in that form of cotenancy, as substituted security for an indebtedness previously secured by the lien of a deed of trust on the realty.⁵ The question, then, is whether, in light of these additional circumstances, appellants made enough of a showing in the District Court to develop a triable issue as to the ownership of the fund. Concluding that they did not,⁶ we affirm.

I

The estate by the entireties subsists in the District of Columbia with its most distinctive common law features still intact.⁷ "The tenancy by entireties," this Court has observed, "is essentially a joint tenacy, modified by the common-law theory that husband and wife are one person."⁸ While the common law concept of marital unity has been abolished legislatively,⁹ the peculiar advantages which the estate by the entireties offers its owners have sustained it in this jurisdiction and elsewhere as an ongoing and popular arrangement between husband and wife.¹⁰ We ourselves have recognized that the marital relation is well served by a form of coownership safeguarding marital property from legal hazards which other types leave as exposures.¹¹ And in the protection tenancy by the entireties affords the marital partners,¹² we have found solid justification for its continued existence in modern society.¹³

So it is with us today that the full complement of common law characteristics of cotenancy by the entireties is preserved. A unilaterally indestructible right of survivorship,¹⁴ an inability of one spouse to alienate his interest,¹⁵ and, importantly for this case, a broad immunity from claims of separate creditors¹⁶ remain among its vital incidents. Property so held is, of course, liable for the spouses' joint debts,¹⁷ and for the individual debts of the surviving cotenant.¹⁸ But as long as the coverture is whole, an estate by the entireties unimpeachable at inception is unreachable by legal process at the instance of creditors of one but not of both.¹⁹ And it matters not in this jurisdiction whether the subject matter is real or personal since we recognize the estate, with the same qualities, in each.²⁰

This is not to say, however, that rights and remedies of existing creditors can be obliterated by the simple expedient of erecting a tenancy by the entireties in property that is otherwise vulnerable. Husband and wife, of course, take the property subject to liens burdening it when the tenancy is born; beyond that, when such tenancies are created, the legal rules imperiling conveyances that hinder, delay or defraud creditors²¹ must be respected.²² If the interspousal transaction happens to infringe those rules, it is open to attack by affected creditors,²³ and herein appellants' salvation is to be found, if at all.

II

Uncontested allegations and representations in the record establish several circumstances that bear critically on the questions before us. The real estate, from the sale of which in 1963 the fund in litigation arose, was owned by the Walls as tenants by the entireties. The sale was not prompted by any purpose, at least on Mr. Wall's part, to dissolve that arrangement, but rather by an understandable inclination to rescue the Walls' investment from a foreclosure then imminent.²⁴ Mr. Wall desired the same type of ownership of the proceeds, and was opposed to any change,²⁵ whatever Mrs. Wall's wishes on that score might have been.²⁶ He advocated, too, a deposit of the proceeds in the names of both spouses as "tenants by the entireties,"²⁷ and unquestionably that was done.

The record discloses nothing that would serve to impeach, at the suit of creditors, the estate by the entireties which the Walls shared in the realty prior to its sale. It does not suggest that Mr. Wall was in financial straits when the estate came into being, or that he was then indebted to either appellant.²⁸ We know from Mr. Wall's letter that a foreclosure was threatened in 1962 when the Walls contracted to sell the property,²⁹ but that fact sheds no light on their financial situation when it was acquired. Thus, from aught that appears, or that appellants proffered in the District Court, the Walls' tenancy by the entireties therein was beyond attack by separate creditors.³⁰

It was, moreover, within the Walls' power to maintain in the sale proceeds the same estate they had in the realty. Where, as in the District of Columbia, personalty can be held by the entireties,³¹ the great weight of authority is to the effect that, absent a contrary arrangement by the parties, an estate by the entireties preexisting in particular property continues automatically in its derivatives on disposition.³² That rule has been applied in a variety of contexts,³³ including cash sales of realty³⁴ such as we have here. In this jurisdiction, the rule has been given specific application, in a situation similar to that now presented, over the protests of separate creditors.³⁵

This, we think, is as it should be. The rule continuing in derivatives the estate previously subsisting in the realty subserves the policy justifying present-day ownership by the entireties and enjoyment of its related incidents.³⁶ We perceive nothing in reason or legal principle to oppose it. And since the estate in the derivative is an extension of the estate, and not an interest newly created,³⁷ the rule does not operate to alter, one way or the other, the rights of existing creditors. We conclude, then, that absent a different treatment by the Walls, they held the sale proceeds as tenants by the entireties in prolongation of their preexisting cotenancy in the realty, and held it free from the claims of separate creditors of either.

III

The question remains, then, whether the Walls modified their ownership of the proceeds so as to carve the fund on deposit into separate though undivided shares. In the District Court, in support of the order to show cause, appellants stated — and this was their sole proffer — that at an evidentiary hearing they would submit proof that the Walls had been separated since 1949, that Mr. Wall had filed a separate federal income tax return for 1963, and that in it he had reported as income the capital gain from the sale and the interest accruing on the deposit. But no more than the District Court could we accept such a showing as proof that the parties had mutually undertaken to dissolve what otherwise would have been a tenancy by the entireties in the deposited fund.

Mere separation is not tantamount to divorce, and only some kind of divorce can terminate the marital relation which is indispensible to ownership by the entireties.³⁸ We cannot assume that undivorced marital partners would normally desire to forego the advantages of an existing tenancy by the entireties simply because they are unwilling to share the same roof. Nor do we consider Mr. Wall's method of reporting 1963 income for tax purposes inconsistent with a continuing cotenancy of that type in the fund.

It was the parties' option to file either joint or separate federal income tax returns.³⁹ No real significance can be attached to so common an occurrence as the filing of a separate return, particularly when the spouses live apart. And the record tells us why Mr. Wall filed a separate return embracing the entire income. A letter written by his accountant⁴⁰ referred to a large tax arising from the capital gain on the sale, for the payment of which the deposited fund ostensibly constituted the only available source, and proposed a course of action involving a withdrawal by mutual agreement coupled with a promptly filed return by Mr. Wall. The letter also disclosed that Mrs. Wall opposed withdrawals without some sort of settlement in her favor.⁴¹ His...