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Secured Creditors Need to Rethink Collection Efforts

May 2018

CSG Bankruptcy & Creditors' Rights Law

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.

For more information regarding this ruling, please contact your CSG attorney or the authors listed below.

Robert E. Nies | Member of the Firm | rnies@csglaw.com | (973) 530-2012

Beth J. Rotenberg | Counsel | brotenberg@csglaw.com | (973) 530-2118