In re Kelly

• Decision Date: 30 January 2003
• Docket Number: No. 02-10744 (MFW).,02-10744 (MFW).
• Citation: 289 B.R. 38
• Parties: In re Kenneth G. KELLY, Debtor.
• Court: U.S. Bankruptcy Court — District of Delaware

289 B.R. 38

In re Kenneth G. KELLY, Debtor.

No. 02-10744 (MFW).

United States Bankruptcy Court, D. Delaware.

January 30, 2003.

David Staats, Law Office of David Staats, P.A., Wilmington, DE, Judgment Creditor.

Kevin William Gibson, Gibson & Perkins, P.C., Media, PA, for the Debtor.

Jeoffrey L. Burtch, Wilmington, DE, Chapter 7 Trustee.

MEMORANDUM OPINION¹

MARY F. WALRATH, Bankruptcy Judge.

I. INTRODUCTION

Before the Court is the Amended Unsecured Judgment Creditors' Objection under 11 U.S.C. § 522(1) to Property Claimed as Exempt under 11 U.S.C. § 522(b)(2)(B). Kenneth Kelly ("the Debtor") claimed as exempt an interest he holds in real property with his second wife. Judgment creditors, the Law Office of David Staats, P.A., and David Staats, individually (collectively "Staats") object to the claimed exemption and seek a declaration that the Debtor and his wife hold the property as tenants in common, not as tenants by the entireties.

To the extent that this Court finds that the Debtor and his wife hold the real property as tenants by the entireties, Staats contends nonetheless that his judgment against the Debtor attaches to the Debtor's interest as a tenant by the entirety in the property and that interest should be administered by the Trustee. Alternatively, Staats asserts that the Debtor's conveyance of real property to himself and his wife was a fraudulent transfer under Delaware law, which may be avoided by the Trustee and recovered for the benefit of the estate.

For the reasons set forth below, the Objection is overruled.

II. FACTUAL BACKGROUND

Staats filed an action against the Debtor on September 5, 1997, in the Superior Court of Delaware to recover $145,267.49 in unpaid legal fees. The Complaint was not timely answered, and a default judgment was consequently entered against the Debtor.

On September 26, 1997, while the Superior Court action was still pending, the Debtor, as sole owner of a parcel of real property located at 2 North Colt's Neck Way, New Castle County, Delaware ("the Property"), conveyed the Property to himself and his second wife. The deed provides that the Debtor conveys to "Kenneth Kelly and Wendy Kelly, his wife" all of his interest in the Property.

Staats asserts he did not learn of the transfer until approximately four years and two months after the transfer. On February 26, 2002, Staats brought an action in the Delaware Court of Chancery to set aside the transfer as a fraudulent conveyance pursuant to Delaware law.

On March 11, 2002, the Debtor filed a voluntary petition under chapter 7 of the Bankruptcy Code. The Debtor claimed the Property as exempt under section 522(b)(2)(B). Staats objected to the claimed exemption.

III. JURISDICTION

This Court has jurisdiction over this matter as a core proceeding pursuant to 28 U.S.C. §§ 1334 and 157(b)(1), (b)(2)(A) and (O).

IV. DISCUSSION

The issue before the Court is in what form the Debtor and his wife hold the Property. Staats asserts that the Debtor and his wife own the Property as tenants in common, rather than as joint tenants or tenants by the entireties. If the Property is held as tenants in common, then the Property may not be exempted by the Debtor under section 522 and applicable Delaware law. The Debtor asserts that he and his wife hold the Property as tenants by the entireties. Accordingly, the Debtor maintains that the Property was correctly listed as exempt.

A. Tenants by the Entireties

Delaware law governs the type of ownership interest vested in the Debtor and his wife by virtue of the language employed in the deed. Butner v. United States, 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979) ("property rights are created and defined by state law").

Staats argues that, since the Debtor did not convey his interest in the Property to himself and his wife with the mandatory language "as tenants by the entireties," the Debtor and his wife only own the Property as tenants in common. The Delaware statute provides in relevant part:

(b) This section shall be construed as authorizing a conveyance of an interest in real property:

(1) By either spouse without the joinder of the other spouse to themselves as tenants by the entireties.

Del.Code Ann. tit. 25, § 309(b)(1) (1997).²

The statute does not state what language is needed to create a tenancy by the entireties. Staats asserts, however, that a person wishing to convey real property to himself and his spouse as tenants by the entireties under section 309 must indicate such an intent by including the notation "as tenants by the entireties" in the deed. See, e.g., Townsend Corp. of America v. Davidson, 181 A.2d 219 (Del.Ch.1962). However, Townsend does not support Staats' assertion that such specific language is required.

In Townsend, stock was held by Morris Townsend and Josephine Townsend as joint tenants. Id. at 220. The Court concluded that "by the language employed a joint tenancy was created." Id. In so holding, the Court reasoned that if a tenancy by the entireties was the intended form of ownership, more specific language could have been employed by the parties. Id. The Court, however, did not provide any guidance as to the appropriate language required to evidence such an intent. Contrary to the assertion of Staats, the Court in Townsend did not conclude that to create a tenancy by the entireties the deed must specify that the real property is held by the parties "as tenants by the entireties."

Further, in interpreting the common law rule with respect to entireties estates (which applied before passage of the statute), many Delaware courts held that a conveyance or devise to a husband and wife creates a tenancy by the entireties absent any clearly expressed intention to the contrary. See, e.g., Greenly v. Greenly, 49 A.2d 126, 129 (Del.Ch.1946) (a conveyance of land to a husband and wife creates a tenancy by the entireties, as opposed to a joint tenancy or tenancy in common); Kunz v. Kurtz, 68 A. 450 (Del.Ch.1899) (a conveyance of real property to a husband and wife creates an entireties estate); Heitz v. Sayers, 121 A. 225 (Del.Super.Ct.1923) (a conveyance of property to a husband and wife results in the parties owning such property as tenants by the entireties); Godman v. Greer, 105 A. 380, 382 (Del.Super.Ct. & Orphans' Ct.1918) ("a grant or devise of land to a man and his wife during coverture, without any express intent to create any other estate, would vest in them an estate by the entireties"). Accordingly, we conclude that the specific designation "as tenants by the entireties" is not required to form an entireties estate under the Delaware statute or common law. Rather, the transfer to a husband and wife creates a tenancy by the entireties, unless language to the contrary is used.

Staats argues nonetheless that express language creating a tenancy by the entireties is necessary under section 701 of the Delaware statute, which provides in relevant part:

No estate, in joint tenancy ... shall be held or claimed by or under any ... conveyance made to any persons, other than to executors or trustees, unless the premises therein mentioned are expressly granted, devised or conveyed to such persons, to be held as joint tenants and not as tenants in common.

Del.Code Ann. tit. 25, § 701 (1953). Delaware law mandates that the creation of a joint tenancy be expressly stated or that the granting instrument "negatively state" that the persons holding the property are not tenants in common. Pagliaro, Inc. v. Zimbo, 1987 WL 10275, at *2 (Del.Super.Ct. Apr.16, 1987); Lee v. Peay, 1998 WL 326688 (Del.Ch. June 16, 1998)(section 701 presumes that real property passes to two parties as tenants in common in the absence of express language that it is a joint tenancy); Bullen v. Davies, 209 A.2d 81 (Del.1965)(because joint tenancies are disfavored by law, section 701 prohibits the creation of a joint tenancy in the absence of specific language conveying the property to joint tenants and not to tenants in common). But see Short v. Milby, 64 A.2d 36, 38 (Del.Ch.1949)(although it is "safer" to copy the words in the statute, such a practice is not essential if the grantor's intention to create a joint tenancy is apparent from the language utilized in the deed).

Delaware courts, however, have held that section 701 has no application to a conveyance of property creating a tenancy by the entireties since it is not a joint estate. Bullen v. Davies, 209 A.2d at 83 (citing Greenly, 49 A.2d 126). Instead, Delaware courts have historically held that a conveyance to a husband and wife will ordinarily create a tenancy by the entireties unless there is an express intention in the instrument to hold the property as tenants in common or joint tenants. Pagliaro, 1987 WL 10275 at *2 ("[w]hile a conveyance or devise to a husband [and wife] will ordinarily create a tenancy by the entireties ... clearly expressed intentions in the instrument [will allow the parties to] ... take as tenants in common or joint tenants"); Greer, 105 A. 380.

Staats argues that Greer supports the proposition that a marital relationship does not prohibit the parties from holding the Property as tenants in common. While that may be true, it does not support Staats' contention that a tenancy in common was created by the Debtor and his wife in this case. In fact, the Court in Greer stated that a tenancy by the entirety is the default form of ownership between a husband and wife:

It is ... clear that a grant or devise of land to a man and his wife during coverture without any expressed intention to create any other estate would vest in them an estate by the entireties. This was the ancient common-law rule, and it is still the rule in Delaware ... unless expressly so granted or devised.

Greer, 105 A. at 382. Because the instrument in Greer contained language clearly stating the grantor's intention to create an ownership interest in the parties as tenants in common,³ such intent was enforced by the...