Tenancy by the entirety is one of the greatest advantages available to married homeowners. The Joint Tenancy Act (the “Act”) protects married homeowners by not allowing the creditors of one spouse to seize the home of both spouses. As a result, it is one of the few assets that is thoroughly protected from the actions of a single individual in the marital unit. However, even the Joint Tenancy Act has its limitations. Recently, in a case of first impression before the 1st District Court of Appeals, the Illinois Appellate Court imposed a new limitation on the protections of the Act.
In 2007, Lawrence Gesiakowski’s automobile business was struggling. As a result, he took out two mortgages: one on his business property and another on his home. Lawrence signed his business mortgage over himself, but he ran into a snag with his home mortgage. Years prior, Lawrence and his wife Gail had placed their home in a land trust with them as the beneficiaries and a third-party as the trustee. While the couple held their home as a tenancy in the entirety, the debt that Lawrence was accumulating was taken on by him alone as it was related to his business. Therefore, the assumption was that were Lawrence to default on his loan, the creditors would only be able to foreclose on his business property while his home remained protected by the Act.
However, since the land was held in trust with a third-party as a trustee, Lawrence could not mortgage his ownership interest in the home on his own. Instead, the trustee could only mortgage the home under Lawrence’s direction, with the approval of both him and his wife. Notably, when Lawrence wrote to the trustee permitting the trustee to take out a mortgage the home, Lawrence and Gail both signed the letter. When Lawrence eventually defaulted on his debts, the creditors came for his and his wife’s home and unfortunately, the Joint Tenancy Act was no longer able to protect them as a result of her signature.
In a precedential case for Illinois, the 1st District Court of Appeals held that because both spouses executed the letter to the trustee, tenancy by the entirety could no longer protect them. The Gesiakowski’s argued that Gail’s signature was merely an acknowledgement of her husband’s attempt to mortgage, not an endorsement. However, the Court was not persuaded and stated that a trustee could not have executed a mortgage without the consent of both spouses. Furthermore, nothing in the letter evidenced that Lawrence was only seeking a mortgage for his half-interest in the home. As a result, the land trust that is often used in estate planning for couples has a fundamental flaw in its ability to preserve a core protection of a tenancy by the entirety. Since third-party trustees in land trusts normally require the consent or action of both spouses, correspondence is often signed by both spouses. As a result, if a spouse is not diligent, the intent of one spouse can now bind the other at the cost of their once-protected home.