What You Need To Know About Title To The House

It was community property that garnered me my first hug from Doug Jacobs.

Or rather, it was the absence of community property that did it.

You see, Doug had described his dilemma with his case involving an elderly couple who had a home with lots of equity (that’s what tips you off to the age of this story) on a list serve I followed.

The clients had credit card and medical debt that their income wouldn’t cover, but a bankruptcy case would leave substantial equity in their home exposed to sale by the trustee.

California is one of the nine US states where spouses hold their acquisitions during marriage as community property. Bankruptcy Code section 541 says that all of the community property comes into the bankruptcy estate even if only one spouse files.

So how to get this couple relief from their debts without losing the house?

My question to Doug was whether he’d looked at the deed by which they held the house.  Because, I reminded him, the presumption that property acquired during marriage is rebutted when title is held in joint tenancy.

Bingo!  They held as joint tenants, which meant that each spouse held their half of the house as their separate property.  One spouse could file bankruptcy and bring only that spouse’s half of the property into the bankruptcy estate.

Better yet, the BAP ruling in my McFall case (112 B.R. 336 (9th Cir. B.A.P. 1990)) established that one spouse was entitled to use the entire homestead exemption against his half of the house.

Doug’s clients filed serial bankruptcies, each using the homestead exemption to protect their half of the house’s equity from the trustee and the creditors.

And this fine result was made possible by a careful look at the way spouses hold title and how the result of state law characterization of marital property played in bankruptcy.

When Doug and I finally met face to face at a NACBA event, I stuck out my hand in greeting.

He refused to shake hands.  I got a hug instead, celebrating what community property concepts can do in bankruptcy.

Image courtesy of wikimedia.

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  1. Phil_Rhodes says:

    Aw, knowing both of you, that just warms my heart.  What a great outcome for Doug’s clients!

  2. Garth Sullivan says:

    now that they are past the bk, i’ve read articles suggesting they may want to consider changing their joint tenancy to community property so as to take advantage of the step up in basis upon the death of either of the party.

    •  My recollection from the long ago time when I did some estate planning is that the IRS is less exacting about finding community property even when title is held as joint tenants, but for the retired, I think holding as cp makes everyone’s life easier.  Both halves of the community get a step up in basis at death of one to fair market value date of death.