Secured Creditors Need to Rethink Collection Efforts

On May 8, 2018, in the case of Jimenez v. Jimenez, Case No. A-2495016T1, 2018 WL 2106639, the New Jersey Appellate Division provided guidance to creditors seeking to pursue the assets of a debtor who holds property as a tenancy by the entirety with a non-debtor spouse. Pursuant to N.J.S.A. 46:3-17.4, “[n]either spouse may sever, alienate, or otherwise affect their interest in the tenancy by entirety during the marriage or upon separation without the written consent of both spouses.”

Under a tenancy by the entirety, the husband and wife are deemed to own jointly the property, and each co-tenant enjoys the right of survivorship. With the passage of N.J.S.A. 46:3-17.2 to -17.4, a creditor may no longer force the partition of property held as a tenancy by the entirety. A spouse may alienate his or her right of survivorship, but pursuant to N.J.S.A. 46:3-17.4, neither spouse can otherwise sever, alienate, or affect the shared interests in the tenancy by the entirety during the marriage.

In Jimenez, the Plaintiffs began collection efforts against the Husband/Debtor’s personal property, which efforts were unsuccessful. The Plaintiffs then brought a motion for partition and sale of the property owned by Debtor with his non-debtor wife. Noting that it was constrained by the language of N.J.S.A. 46:3-17.4, the Law Division denied the Plaintiffs’ motion for partition and sale of the real property.

Affirming the ruling of the Law Division, the Appellate Division held that “the statutory prohibition [under N.J.S.A. 46:3-17.4] applies to a situation where, as here, one spouse’s failure to pay his personal debts to third-party creditors has resulted in a money judgment entered against him alone.” Id. It noted that the legislature’s intent in the passage of N.J.S.A. 46:3-17.4 was to protect the interest of a married couple in the property over the interest of the creditors of a single spouse. Jimenez, 2018 WL 2106639, at *3.

While there still are limited exceptions to the ruling, such as when a fraudulent conveyance created the tenancy by the entirety, in New Jersey creditors may not seek to partition and sell real property jointly held by a debtor and non-debtor spouse as a tenancy by the entirety. What remains to be seen is the potential impact upon lending and estate planning strategies.