Entireties Exemption in Florida and New Jersey

The adversary proceeding in the case of In re Kirshner, Case No. 05-34406, Adversary Case No. 06-01872 (Bankr.S.D.Fla. October 30, 2007)(Hyman, C.J.) presented various issues to the court. Among them was the trustee's objection to the debtor's claim of exemption of certain personal property as held as tenants by the entireties. The case was commenced by the filing of an involuntary chapter 7 petition in New Jersey and was transferred to the Southern District of Florida. The debtor consented to the entry of an order for relief but converted the case to a chapter 11 case. The chapter 11 case was later converted back to a chapter 7 case.

Pursuant to 11 U.S.C. section 522(b)(3)(B), an individual is allowed to exempt from the bankruptcy estate "...any interest in prooperty in which the debtor had, immediately before the commencement of the case, an interest as a tenant by the entirety...to the extent that such interest...is exempt from process under applicable nonbankruptcy law. 11 U.S.C. section 522(b)(3)(B). The court allowed the exemption of certain stock. The court found that the stock certificate was issued while the debtor resided in Florida and therefore the Florida law of tenancy by entireties applied. Furthermore, the court held that the trustee failed to introduce any evidence of any joint debt with the non-filing spouse.

The court also examined the exemption of the household goods under section 522(b)(3)(B). The court reviewed the six characteristics of property held as tenancy by the entireties - unity of possession, unity of interest, unity of title, unity of time, survivorship, and unity of marriage. In addition, the parties must have intended to create an estate of tenancy by the entireties. The court found that given the requirement of intent and the unity of time, the issue of whether a tenancy of the entireties was created must be determined under New Jersey law which was the state in which the property was acquired. The court noted New Jersey statutes does provide for the holding of personal property as tenants by the entireties if certain requirements are met. New Jersey Statutes section 46.3-17.2. But the court found that debtor did not meet the statutory requirements as to the household goods as the debtor did not produce a written instrument. In any event, the court apparently noted in footnote one, that in New Jersey property owned as tenants by the entirety is not exempt from the claims of an individual's sole (non-joint) creditors as is the case in Florida.

It is interesting to note that in footnote one, the court stated that in Florida, with limited exceptions, that entireties property does not become property of the estate when only one spouse files for bankruptcy. (citing e.g. In re Kossow, 325 B.R. 478, 483 (Bankr.S.D.Fla. 2005). This would be in contrast to a position that such property is initially part of the estate but is subsequently exempted out.

The debtor also sought to exempt his claim to the Rule 9011 motion that he filed against the petitioning creditors and their attorneys for allegedly having improperly filing the involuntary chapter 7 petition against him. The court held that before the issue of the exemption should be determined, it needed to be determed whether the Rule 9011 motion was property of the estate. The court noted that the 11th Circuit has held that federal law determines whether an interest is property of the bankruptcy estate but that property and interests are created and defined by state law. Witko v. Menotte, 374 F.3d 1040, 1043 (11th Cir.2004). The court found that under Florida law, a cause of action accrues when the last element constituting the cause of action occurs. In re Alvarez, 224 F.3d 1273, 1277 (11th Cir. 2000), Fla. Stat. section 95.031(1). The court found that the 9001 motion cause of action did not arise until the involuntary petition was filed against him and that it was not "sufficiently rooted" in the debtor's pre-bankruptcy past as was the malpractice claim in the Alvarez case. The court therefore found that the issue of the exemption of the Rule 9011 motion was moot as it was not property of the estate.