In re Mckain

• Decision Date: 22 July 2011
• Docket Number: No. 10–52370.,10–52370.
• Citation: 455 B.R. 674
• Parties: In re Carey McKAIN, Debtor.
• Court: U.S. Bankruptcy Court — Eastern District of Tennessee

455 B.R. 674

In re Carey McKAIN, Debtor.

No. 10–52370.

United States Bankruptcy Court, E.D. Tennessee.

July 22, 2011.

Fred M. Leonard, Esq., Bristol, TN, for Debtor.Douglas L. Payne, Esq., Greeneville, TN, for Chapter 7 Trustee.

MEMORANDUM

MARCIA PHILLIPS PARSONS, Bankruptcy Judge.

The chapter 7 trustee Douglas Payne objects to certain exemptions claimed by the debtor Carey McKain on the ground that the properties are not held by the Debtor and his wife as tenancies by the entirety and therefore are not exempt under 11 U.S.C. § 522(b)(3)(B). For the reasons discussed below, the Trustee's objection will be sustained as to all properties but the Scott and Stringfellow stock account. This is a core proceeding. See 28 U.S.C. § 157(b)(2)(B).

I.

The Debtor, a resident of Abingdon, Virginia, and his first wife Christine divorced on December 21, 2004. He and wife Sabrina married on March 1, 2005. The Debtor filed for bankruptcy relief under chapter 7 on September 8, 2010. In his bankruptcy schedules, the Debtor lists the following property as being owned “joint[ly] with wife as tenants by the entirety,” and exempt pursuant to 11 U.S.C. § 522(b)(3)(B):

+--------------------------------------------------------------------+
                ¦Property                               ¦Value ofExemption           ¦
                +---------------------------------------+----------------------------¦
                ¦                                       ¦                            ¦
                +---------------------------------------+----------------------------¦
                ¦22475 Tartan Drive, Abingdon, VA       ¦$508,624.00                 ¦
                +---------------------------------------+----------------------------¦
                ¦Branch Banking & Trust Farm Account    ¦$ 4,500.00                  ¦
                +---------------------------------------+----------------------------¦
                ¦Branch Banking & Trust Checking Account¦$ 45,000.00                 ¦
                +---------------------------------------+----------------------------¦
                ¦Highlands Union Bank Shares 1      ¦$ 44,334.00                 ¦
                +---------------------------------------+----------------------------¦
                ¦Scott & Stringfellow Stock Account     ¦$412,822.44                 ¦
                +---------------------------------------+----------------------------¦
                ¦Studebaker Avanti                      ¦$ 20,000.00                 ¦
                +---------------------------------------+----------------------------¦
                ¦2009 Tax Refund                        ¦$ 33,862.00                 ¦
                +--------------------------------------------------------------------+
                

On December 13, 2010, the Trustee timely objected to the Debtor's claim of exemptions. The Trustee argues that the Debtor and his wife hold the claimed properties as joint tenants, rather than as tenants by the entirety, and therefore they are not exempt from his bankruptcy estate. At a hearing on June 2, 2011, the parties stipulated to certain facts set out hereafter and the admissibility of the relevant documents. Thereafter, the court took the matter under advisement.

II.

Under the Bankruptcy Code, a debtor may exempt “any interest in property in which the debtor had, immediately before the commencement of the case, an interest as a tenant by the entirety or joint tenant to the extent that such interest as a tenant by the entirety or joint tenant is exempt from process under applicable nonbankruptcy law.” 11 U.S.C. § 522(b)(3)(B). The applicable nonbankruptcy law in this case is Virginia's. Under Virginia law, property held as tenants by the entirety, while subject to the joint debts of the spouses, is “immune from the claims of creditors of one of the spouses alone.” Bass v. Thacker (In re Thacker), 5 B.R. 592, 595 (Bankr.W.D.Va.1980) (citing Vasilion v. Vasilion, 192 Va. 735, 66 S.E.2d 599, 603 (1951)). On the other hand, a joint tenant's interest in property, even if held with the right of survivorship, is generally subject to the claims of his individual creditors. In re Sampath, 314 B.R. 73, 97 (Bankr.E.D.Va.2004) (citing Jones v. Conwell, 227 Va. 176, 314 S.E.2d 61 (1984)). The jointly held property can be partitioned, and the joint tenant's interest sold to satisfy claims against him. Id.; see also Va.Code Ann. § 8.01–81. Consequently, a debtor's interest as a joint tenant is not exempt from his bankruptcy estate. In re Potter, 274 B.R. 224, 229 (Bankr.E.D.Va.2002).

In the present case, although there has been no stipulation to this effect, it appears from the Debtor's schedules that all of the listed debts arise out of his business and are owed by him individually such that no creditors are owed jointly by the Debtor and his wife. Accordingly, if the Debtor and his wife hold the subject properties as he claims, as tenants by the entirety, they will be exempt from his estate. But, if the Trustee is correct that the Debtor and his wife own the properties merely as joint tenants, then the claim of exemption must be overruled and the Debtor's interest in the properties may be sold for the benefit of his creditors. Wolfe v. Sprouse, 183 B.R. 739, 741 n. 2 (W.D.Va.1995), aff'd, 91 F.3d 133 (4th Cir.1996); Jones v. Conwell, 227 Va. 176, 314 S.E.2d 61, 66 (1984). Each of the properties in question will be examined in turn to ascertain how they are held.

III.

A. 22475 Tartan Drive, Abingdon, Virginia

The Debtor purchased the real property in December 2002 and was its sole owner until he conveyed the property to himself and Sabrina “as joint tenants with the right of survivorship” in two quitclaim deeds dated September 28 and October 5, 2004. Both deeds conveyed the same property, but the latter excluded a tract which had been conveyed earlier to another party by the previous owners.

Notwithstanding the “joint tenant” language in the deeds, the Debtor argues that he and his wife hold the property as tenants by the entirety. He notes that under common law, a conveyance of real property to a husband and wife, assuming the presence of the required unities of interest, title, time, and possession, created a tenancy by the entirety, and that it is the fact of marriage, not the recitation of marriage, that creates the tenancy. See In re Sampath, 314 B.R. at 84. The Debtor concedes that he and his wife Sabrina were not married when he executed the quitclaim deeds. He asserts, however, that he conveyed the property in anticipation of their marriage and that once wed, all requisite unities of a tenancy by the entirety were satisfied.

In response, the Trustee asserts that Virginia has statutorily abolished the common law presumption that a conveyance to a husband and wife creates a tenancy by the entirety, and that under current law, the document must expressly use the words “tenants by the entirety,” or at a minimum, refer to the couple as husband and wife. Alternatively, the Trustee argues that even if the Debtor is correct as to the common law presumption, no tenancy by the entirety was created because the Debtor and his wife were not married at the time the Debtor conveyed his interest to them jointly.

Taking the latter argument first, the court agrees with the Trustee. Tenancies by the entirety are based upon the five unities of interest, title, time, possession, and marriage. Gant v. Gant, 237 Va. 588, 379 S.E.2d 331, 332–33 (1989). A tenancy which lacks the fifth unity of marriage is a joint tenancy rather than an estate by the entirety. Id. Moreover, as recognized by the bankruptcy court in Macconomy, all five of the unities must be present at the creation of the estate. See In re Macconomy, No. 10–16944–RGM, 2011 WL 479739, *2 (Bankr.E.D.Va. Feb. 3, 2011) (applying Virginia law). While Macconomy dealt with the unities of title and time rather than of marriage, this court knows of no reason why the marriage unity should be treated differently. The Debtor has offered no authority for his proposition that a conveyance in contemplation of marriage is sufficient, or that such a conveyance becomes an entirety estate upon the couple's subsequent marriage. To the contrary, as explained in the legal encyclopedia American Jurisprudence:

An estate by the entireties ... is dependent for its creation and also for its continuance on the marital relation of the cotenants. No such estate arises from even the most explicit words in a conveyance to a man and woman who are not husband and wife, even though they are described as such in the instrument of title and are believed by the grantor or devisor to be legally married. It is immaterial that they marry after title vests in them, even if the conveyance was made to them in anticipation of their marriage. The parties must be married as of the date of the conveyance.

Am.Jur.2d Husband and Wife § 24 (2011); see also Wolfe v. Sprouse, 183 B.R. at 742 n. 4 (noting, in dicta, that relevant inquiry for determining tenancy by entirety is whether couple was married at the time of the execution and delivery of the notes, rather than at the time of the bankruptcy filing).

Because the Debtor and Sabrina were not married at the time he conveyed his interest to them jointly, it is irrelevant whether the common law presumption regarding conveyances to a husband and wife is still in effect in Virginia. The conveyance by the Debtor created a joint tenancy rather than a tenancy by the entirety. Because a joint tenant's interest is not exempt under Virginia law, the Debtor's claimed exemption in the real property located at 22475 Tartan Drive, Abingdon, Virginia must be disallowed.

B. Branch Banking & Trust Accounts

The Debtor has claimed two bank accounts at Branch Banking & Trust as exempt on the basis that they are held by him and his wife as tenants by the entirety. Both accounts were opened by the Debtor prior to his marriage to Sabrina, with Sabrina added to the accounts after their marriage. The signature cards for the accounts describe them as “joint with survivorship.” Account no. 4064, referred to in the schedules as a farm account with a value of $4,500, was opened on November 2, 2002, and Sabrina was...