5.1 General Rule
One of the most dramatic examples of the respect afforded tenants by the entirety property in Maryland is Watterson v. Edgerly, 40 Md. App. 230, 388 A.2d 934 (1978), a case cited most often for the operation of spendthrift trusts. In Watterson, a husband had a judgment lien filed against him. His wife, however, was not a creditor on the original debt or as a result of the judgment. The husband transferred his interest in tenants by the entirety property to his wife for no consideration. Thereupon, the wife executed a Will containing a testamentary spendthrift trust for the benefit of her husband. She died 61 days after the conveyance to her of the real estate. The Court of Special Appeals upheld the conveyance of the real estate despite the existence of a judgment lien operating against the husband: “When, as here, a husband and wife hold title as tenants by the entirety, the judgment creditor of the husband or of the wife has no lien against the property held as entireties, and has no standing to complain of a conveyance which prevents the property from falling into his grasp.” (At 238). This holding was not a fluke: “Upon this appeal, appellant, Richard Spitz, Jr., asks us to examine an issue which was settled by the court in Watterson. That issue is: ‘whether a husband may convey his interest in real estate, owned by the husband and wife as tenants by the entirety, to his wife … so as to shield the husband from his judgment creditors…’ Our answer remains the same; yes.” Spitz v. Williams, 69 Md. App. 694, 519 A.2d 775 (1987).
Except for federal tax liens, the rule articulated in Watterson is still good law. As seen below, however, a new rule applies for federal tax liens. Also, Watterson-like transfers within the bankruptcy set –aside period will effectively defeat the technique. For an in-depth discussion of tenancy by the entirety and asset protection in Maryland and elsewhere, see Fred Franke, Asset Protection and Tenancy by the Entirety, 34 ACTEC J. 210 (2009).