New York Law Review

Tag: Tenancy by the Entirety

  • Goldman v. Goldman, 95 N.Y.2d 120 (2000): Effect of Mortgage on Tenancy by the Entirety During Divorce Proceedings

    Goldman v. Goldman, 95 N.Y.2d 120 (2000)

    A mortgage taken on one spouse’s interest in a tenancy by the entirety during a pending divorce action survives the divorce judgment and award of the property to the other spouse, creating a tenancy in common subject to the mortgage.

    Summary

    In Goldman v. Goldman, the New York Court of Appeals addressed whether a mortgage placed on a spouse’s interest in property held as a tenancy by the entirety during a divorce proceeding survived the divorce decree, which awarded the property solely to the other spouse. The wife granted her attorney a mortgage on her interest in the marital home to secure legal fees. The husband, aware of the mortgage, did not disclose it to the divorce court. The Court of Appeals held that the mortgage survived the divorce, attaching to the wife’s former interest, which became a tenancy in common. This decision underscores that a spouse can encumber their interest in a tenancy by the entirety during a divorce, and the resulting encumbrance remains valid even after the property is awarded to the other spouse in the divorce.

    Facts

    Debra and Scott Goldman acquired a house as tenants by the entirety in 1985. In December 1990, Debra commenced a divorce action against Scott. During the pendency of the divorce, Debra granted her attorney, Phyllis Gelman, a $50,000 mortgage on the marital property as security for legal services, without Scott’s knowledge or consent. Gelman recorded the mortgage in August 1991. The Goldmans were divorced in October 1994, and the divorce judgment awarded exclusive title to the marital home to Scott. Scott knew of the mortgage but did not inform the divorce court.

    Procedural History

    After the divorce, Scott moved to discharge Gelman’s mortgage. Gelman moved to intervene and opposed the motion to discharge. The Supreme Court granted Scott’s motion, concluding the mortgage was extinguished by the divorce judgment. The Appellate Division reversed, reinstating the mortgage. Scott appealed to the New York Court of Appeals.

    Issue(s)

    Whether a mortgage taken on one spouse’s interest in a tenancy by the entirety during a pending divorce action survives the entry of a judgment of divorce that awards the property to the other spouse.

    Holding

    Yes, because the spouse had the right to mortgage her interest in the property as a tenant by the entirety during the pending divorce action, and the attorney acquired a contingent interest in all the rights the spouse possessed at the time of conveyance. Once the divorce was finalized, the attorney retained an interest in the tenancy in common that resulted from the severance of the tenancy by the entirety.

    Court’s Reasoning

    The Court of Appeals reasoned that a tenancy by the entirety is a form of property ownership available only to married couples. Each spouse has an equal right to possession and may sell, mortgage, or otherwise encumber their rights, subject to the other spouse’s continuing rights. “[E]ach tenant may sell, mortgage or otherwise encumber his or her rights in the property, subject to the continuing rights of the other” (V.R.W., Inc. v Klein, 68 NY2d 560, 565). Upon divorce, the tenancy by the entirety converts to a tenancy in common.

    The Court emphasized that Debra had the legal right to mortgage her interest in the tenancy during the divorce action. Gelman acquired a contingent interest in Debra’s rights at the time of the conveyance. Once the divorce transmuted Debra’s interest into a tenancy in common, Gelman retained an interest in that tenancy in common. The distributive award divested Debra of her interest, but Gelman’s pre-divorce rights were not impaired.

    The Court rejected Scott’s argument that reinstating the mortgage was inequitable, noting that Scott knew of the mortgage but failed to inform the divorce court, which could have considered it when distributing marital property. The Court stated that the Domestic Relations Law does not authorize courts to defeat the secured interest of a third-party mortgagee in marital property conveyed before a final divorce judgment. “[S]ection 234 was intended only as a procedural device to permit a court in a marital action to determine questions of possession and title * * * and was not intended to alter existing substantive property law principles” (Kahn v Kahn, 43 NY2d 203, 210).

    The court also mentioned a rule enacted after the mortgage was created that requires attorneys to seek court approval and notify the other spouse before obtaining a security interest in marital property.

  • V.R.W., Inc. v. Klein, 68 N.Y.2d 560 (1986): Effect of Divorce on Mortgagee’s Interest in Tenancy by the Entirety

    V.R.W., Inc. v. Klein, 68 N.Y.2d 560 (1986)

    A divorce between spouses holding property as tenants by the entirety transforms a mortgagee’s interest (derived from only one spouse) from a right subject to survivorship to an ordinary tenancy in common, extinguishing the right of survivorship.

    Summary

    This case addresses the impact of divorce on a mortgagee’s rights when the mortgage is only on one spouse’s interest in a property held as tenants by the entirety. V.R.W., Inc. (plaintiff) provided a loan to Richard Klein, secured by a mortgage on property he owned with his wife (defendant) as tenants by the entirety. The wife’s signature was later found to be a forgery. After the mortgage was executed but before foreclosure, the Kleins divorced. The court held that the divorce transformed the tenancy by the entirety into a tenancy in common, thereby extinguishing the wife’s right of survivorship and allowing the foreclosure to proceed against the husband’s interest without being subject to that survivorship right. The court reasoned that the mortgagee’s rights are not immutably fixed and can be altered by subsequent events like divorce, just as they would be by the death of a spouse.

    Facts

    • June 22, 1981: V.R.W. gave Richard Klein a $50,000 business loan.
    • The loan was secured by a mortgage on real property owned by Richard and his wife as tenants by the entirety.
    • The wife’s signature on the mortgage was later determined to be a forgery.
    • Richard defaulted on the loan, and V.R.W. commenced a foreclosure action in October 1981.
    • December 1981: Richard conveyed his interest in the property to his wife during the pending foreclosure action.
    • Richard and his wife subsequently divorced.

    Procedural History

    • The trial court found the wife’s signature on the mortgage was a forgery.
    • The trial court dismissed the foreclosure action against the wife’s interest.
    • The trial court ordered the sale of the husband’s former interest as a tenancy in common, with all rights of survivorship extinguished.
    • The Appellate Division affirmed the trial court’s judgment.
    • The wife appealed to the New York Court of Appeals, challenging the extinguishment of survivorship rights.

    Issue(s)

    Whether a divorce between spouses, who hold property as tenants by the entirety, after one spouse has mortgaged his interest, transforms the mortgagee’s interest in the property by extinguishing the right of survivorship that existed during the marriage?

    Holding

    Yes, because the divorce dissolved the tenancy by the entirety, converting it into a tenancy in common, which eliminates the right of survivorship for both the former spouses and any third party who had a claim on one of their interests.

    Court’s Reasoning

    The Court of Appeals reasoned that the nature of a mortgagee’s interest in a tenancy by the entirety is not fixed immutably at the time the mortgage is executed. While the rights of a mortgagee are generally fixed at the time the mortgage is executed and cannot be impaired by subsequent acts of the mortgagor, this principle is not absolute. The court explicitly rejected the holding in Ryan v. Fitzsimmons, which reached a different conclusion. The court stated, “The mortgagor’s rights and obligations at the time of the mortgage conveyance were subject to change upon a termination of the marriage; the interest conveyed to the mortgagor should be deemed similarly transmutable.” The court emphasized that a mortgagee’s interest is subject to change upon the occurrence of events like the death of a spouse. Similarly, a divorce decree should also alter the mortgagee’s interest. Allowing the wife to retain her right of survivorship against the mortgagee after the divorce would give her a windfall due to the husband’s actions, placing her in a more advantageous position than if the mortgage had never occurred. The court noted that it would make little sense to allow partition at the instance of a third party to whom one spouse has conveyed, since to do so would be, in effect, to authorize the destruction of the nonconveying spouse’s possessory rights as a consequence of the unilateral action of the other spouse. The court concluded that after the divorce, the purchaser at the foreclosure sale acquires the rights of an ordinary tenant in common, including the right to seek partition.

  • Kahn v. Kahn, 43 N.Y.2d 203 (1977): Authority to Order Sale of Property Held as Tenancy by the Entirety

    Kahn v. Kahn, 43 N.Y.2d 203 (1977)

    A court cannot order the sale of a marital home owned by the parties as tenants by the entirety unless the legal relationship of husband and wife has been altered by granting a divorce, an annulment, a separation, or by declaring a void marriage a nullity.

    Summary

    In a divorce action, the New York Court of Appeals addressed whether a court could order the sale of real property held by the parties as tenants by the entirety when the marital relationship had not been legally altered. The husband brought an action for divorce, which was dismissed, and the wife’s counterclaim for separation was withdrawn. The Court of Appeals held that absent a divorce, annulment, separation, or declaration of nullity, the court lacks the authority to order the sale of a marital home owned as tenants by the entirety. The Court clarified that Section 234 of the Domestic Relations Law is procedural and does not alter existing property law principles.

    Facts

    The wife and husband were married in 1949. The husband initiated a divorce action based on cruel and inhuman treatment. The wife counterclaimed for a separation, a share of jointly held bank accounts, and payment for necessaries, support, and counsel fees. The wife later withdrew her counterclaim for separation. The trial court dismissed the husband’s complaint but awarded the wife possession of the marital home, her interest in the joint bank accounts, and payment for support and necessaries accruing from separation until the date of trial.

    Procedural History

    The trial court dismissed the husband’s complaint and awarded the wife possession of the marital home, her interest in joint bank accounts, and payment for support and necessaries. The Appellate Division affirmed the dismissal of the husband’s complaint but ordered the sale of the marital premises and the division of proceeds based on the parties’ equities. The Appellate Division also reduced the wife’s share of the bank accounts and the award for necessaries and support. The wife appealed to the New York Court of Appeals.

    Issue(s)

    Whether, in a matrimonial action, a court may order the sale of real property held by the parties as tenants by the entirety, even though the marital relationship has not been legally altered.

    Holding

    No, because unless a court alters the legal relationship of husband and wife by granting a divorce, an annulment, a separation, or by declaring a void marriage a nullity, it has no authority to order the sale of a marital home owned by the parties as tenants by the entirety.

    Court’s Reasoning

    The Court of Appeals emphasized the common law principle that husband and wife are considered one person, owning the estate in its entirety. The court cited Stelz v. Shreck, 128 N.Y. 263 (1891), noting that termination of the legal fiction of unity should have an effect on the estate. While divorce or annulment converts a tenancy by the entirety into a tenancy in common, separation without a judicial decree does not alter the ownership. The Court addressed Section 234 of the Domestic Relations Law, clarifying that its primary purpose is procedural—to resolve disputes involving possession and title within a marital action—rather than to alter substantive property law. The court stated, “[T]he determination of title questions [is] to be controlled by principles of property law.” (1963 Report of Joint Legislative Committee on Matrimonial and Family Laws, NY Legis Doc, No. 34, 1963, pp 84-85). Since the parties had not obtained a divorce, annulment, or separation, the tenancy by the entirety remained intact. The Court distinguished cases where a separation decree had been granted, arguing that such a decree legally alters the marital relationship. The court held that absent a judicial decree altering the marital relationship, a court cannot order the sale of property held as tenants by the entirety. The Court also addressed an error by the Appellate Division related to the wife’s share of the joint bank accounts, finding that the lower court erroneously concluded that certain funds had been double-counted.

  • Matter of Estate of Grossman, 38 N.Y.2d 565 (1976): Determining Estate Value When Property is Held in Tenancy by the Entirety

    Matter of Estate of Grossman, 38 N.Y.2d 565 (1976)

    When calculating a testamentary bequest expressed as a fraction of the estate, property held by the testator in tenancy by the entirety does not form part of the testator’s estate.

    Summary

    This case concerns the proper calculation of a wife’s bequest from her husband’s will. The will provided the wife with a fraction of the “estate remaining after the deduction of debts, funeral and administrative expenses.” The dispute centered on whether real property held by the husband and wife as tenants by the entirety should be included in the calculation of the ‘estate’. The court held that because the husband’s interest in the property terminated upon his death, the property was not part of his estate for the purposes of calculating the bequest. This affirmed the principle that a will speaks from the time of death unless a contrary intention is expressed.

    Facts

    The decedent’s will provided a general bequest for his wife, calculated as a fraction of the estate remaining after deductions. At the time of his death, the decedent held two parcels of real property with his wife as tenants by the entirety. A dispute arose regarding whether these properties should be included when calculating the value of the estate for the purpose of determining the wife’s bequest.

    Procedural History

    The lower court determined that the properties held in tenancy by the entirety should not be included in the calculation of the estate. This decision was appealed. The Court of Appeals affirmed the lower court’s order.

    Issue(s)

    Whether real property held by the testator and his wife as tenants by the entirety should be included in the calculation of the testator’s “estate” for the purpose of determining the amount of a bequest expressed as a fraction of the estate.

    Holding

    No, because upon the decedent’s death, his interest in the tenancy by the entirety property ceased to exist and could not be passed by will; therefore, it was not part of his “estate.”

    Court’s Reasoning

    The court reasoned that a will speaks from the time of death unless the testator expresses a contrary intention. The will in this case did not provide any specific definition of “estate” that would override this general principle. Upon the husband’s death, his interest in the properties held as tenants by the entirety extinguished. As the court stated, “In this case, the decedent, upon his death, ceased to have any interest which he could pass by will in the two parcels of realty which he and his wife had come to hold as tenants by the entirety.” Because the decedent could not pass the interest by will, the properties were not part of his estate. The court cited several cases supporting the principle that property held in tenancy by the entirety is not part of the estate for distribution under a will, including Sulz v Mutual Reserve Fund Life Assn., 145 NY 563, 574 and Matter of Basile, 63 Misc 2d 845, 846. The court found no expression of intention in the will to suggest that the term ‘estate’ should be interpreted differently than its common legal meaning. The absence of such an intention meant that the general rule applied, and the tenancy by the entirety property was excluded from the calculation of the widow’s bequest.

  • Estate of Mueller, 28 A.D.2d 231 (1967): Enforceability of Joint Wills and Spousal Right of Election

    Estate of Mueller, 28 A.D.2d 231 (1967)

    A joint will that clearly manifests an intent to be binding on the surviving spouse takes precedence over a subsequent will and the surviving spouse’s right of election, particularly when the joint will represents the primary means of distributing the couple’s collective property.

    Summary

    Conrad and Bertha Mueller executed a joint will leaving their property to each other and then to named beneficiaries. After Bertha’s death, Conrad remarried and executed a new will leaving everything to his second wife, Martha. The court addressed whether the joint will was binding and whether it took precedence over Martha’s spousal right of election. The court held that the joint will was binding due to its clear language and that it created a constructive trust for the beneficiaries, taking precedence over Martha’s claim to the property acquired through the joint will or as tenants by the entirety.

    Facts

    Bertha and Conrad Mueller executed a joint will in 1961, leaving their estate to the survivor and then to named beneficiaries. Bertha died in 1962, and Conrad inherited her estate per the joint will. Conrad remarried Martha Louise Mueller in 1963 and executed a new will a week later, naming Martha as the sole beneficiary. Conrad died in 1964. The assets included a house and lot held as tenants by the entirety and joint bank accounts funded by money from accounts Bertha and Conrad jointly owned.

    Procedural History

    The case originated in a lower court to determine the rights of the widow (Martha) and the beneficiaries under the joint will. The lower court found in favor of the beneficiaries, imposing a constructive trust. The Appellate Division affirmed this decision. The case then went to the New York Court of Appeals.

    Issue(s)

    1. Whether the joint will executed by Conrad and Bertha Mueller was binding on Conrad after Bertha’s death, preventing him from executing a subsequent will.
    2. Whether the beneficiaries under the joint will are entitled to specific enforcement of the agreement over the claim of Conrad’s second wife, Martha, based on her spousal right of election.

    Holding

    1. Yes, the joint will was binding because its language clearly indicated the Muellers’ intention to be bound by its terms.
    2. Yes, the beneficiaries under the joint will are entitled to prevail because the joint will created a constructive trust in their favor, taking precedence over the widow’s claim.

    Court’s Reasoning

    The court reasoned that the language of the joint will demonstrated a clear intention to be binding, referencing the phrase “upon the death of the second one of us to die… the estate of the second decedent… is hereby bequeathed, devised and disposed of as follows.” This phrasing, in the present tense, implied a present intention to make a gift of the collective property effective upon the survivor’s death and binding as of the signing. The court distinguished this case from Matter of Zeh, where the language indicated the survivor had absolute ownership. The court highlighted the use of plural pronouns (“we,” “our,” “us”) throughout the will and the omission of a provision allowing the survivor to alter the disposition. Regarding the spousal right of election, the court held that Conrad’s acceptance of benefits under the joint will impressed a trust in favor of the beneficiaries. While Conrad gained full ownership of jointly held property upon Bertha’s death, this ownership was subject to the agreement in the joint will. The court distinguished cases involving separation agreements, noting that joint wills typically represent the primary effort to distribute collective property, whereas separation agreements involve individual property. “While neither a husband nor a wife can dispose of property owned by them as tenants by the entirety so as to affect the right of survivor-ship, they may do so by acting in concert, as by a joint will, or by a contract.”

  • Reister v. Town Board of Fleming, 18 N.Y.2d 92 (1966): Signatures of Tenants by the Entirety on Water District Petitions

    Reister v. Town Board of the Town of Fleming, 18 N.Y.2d 92 (1966)

    When a property is owned by tenants by the entirety, and the assessment roll lists only one tenant as the owner, that listed tenant’s signature on a petition for a water district is sufficient to represent the entire assessed valuation of the property.

    Summary

    This case concerns the establishment of a water district in the Town of Fleming. Property owners challenged the district’s formation, arguing that the petition lacked the requisite signatures under Town Law § 191 because properties owned as tenancy by the entirety were only signed by one spouse, even though only one spouse’s name appeared on the assessment roll. The Court of Appeals held that the signature of the spouse listed on the assessment roll was sufficient to represent the entire assessed value of the property. The court reasoned that tenants by the entirety each possess the whole estate, allowing the listed owner to act on behalf of the entire property for petition purposes.

    Facts

    A petition was presented to the Town Board of Fleming to establish a water district. The total taxable real property in the proposed district was valued at $324,900, requiring signatures representing at least $162,450 in assessed value. The petition contained signatures purportedly representing $225,000 in assessed value. However, for properties owned by husbands and wives as tenants by the entirety, the assessment roll only listed the husband as the owner. The assessed value of these properties totaled $92,300. If only half the value of these properties were counted ($46,150), and another $35,700 in signatures were deemed invalid by the trial court, the petition would fall short of the required $162,450.

    Procedural History

    Property owners in the district filed an Article 78 proceeding challenging the sufficiency of the petition’s signatures. The Supreme Court dismissed the petition. The Appellate Division affirmed the Supreme Court’s decision. The Court of Appeals granted the property owners leave to appeal.

    Issue(s)

    Whether, when the assessment roll lists only one tenant by the entirety as the owner, that tenant’s signature on a petition to establish a water district is sufficient to vote the entire assessed valuation of the property for the purposes of Town Law § 191.

    Holding

    Yes, because each tenant by the entirety owns the entire fee; therefore, either tenant may be included in the statutory description of “owners of taxable real property” and can vote the entire assessed valuation when their name appears on the assessment rolls.

    Court’s Reasoning

    The Court of Appeals reasoned that the nature of tenancy by the entirety is such that each spouse is seized of the whole, not just an undivided portion. Quoting Matter of Klatzl, the court emphasized the unique relationship between husband and wife in this type of tenancy, where each owns the entire fee. Consequently, the court determined that either or both spouses could be considered “owners of taxable real property” under the statute. The court distinguished cases cited in the dissent, which focused on tenants’ rights to income and possession, arguing that those cases did not address the fundamental nature of the tenancy itself—the ownership of the whole undivided estate by both parties.

    The dissent argued that because husband and wife have equal estates, including the right to half the income during coverture (citing Hiles v. Fisher), only half of the assessed valuation should be considered when only one spouse signed the petition. The dissent also pointed to a County Court case, Matter of Village of Holcomb, which held that each spouse is entitled to sign for half the assessed value of the parcel. The dissent further contended that the Married Women’s Acts significantly altered the substance of tenancy by the entirety, precluding the husband from signing for more than his half during his wife’s lifetime. The dissent concluded that the assessment roll should not evince fictitious ownership, and objectors should not be precluded from asserting the true facts.

    The majority rejected this argument, finding that each tenant owns the whole fee; cases about income and possession are irrelevant.

  • Hawthorne v. Hawthorne, 13 N.Y.2d 82 (1963): Division of Fire Insurance Proceeds for Tenants by the Entirety

    Hawthorne v. Hawthorne, 13 N.Y.2d 82 (1963)

    Proceeds from a fire insurance policy on real property owned by tenants by the entirety are considered personal property and are not subject to the inseverable quality of ownership associated with the real property itself, allowing for division of the proceeds.

    Summary

    The case concerns whether fire insurance proceeds for property owned by a husband and wife as tenants by the entirety should be divided at the request of one owner. The court held that the insurance proceeds, being personal property derived from a contract, are not subject to the same inseverable ownership as the real property. Thus, the proceeds can be divided. The court distinguished this situation from involuntary conversions like condemnation awards, where the substituted property retains the original ownership structure, because the insurance proceeds arose from a voluntary contract.

    Facts

    Plaintiff wife and defendant husband owned real property as tenants by the entirety.
    The property was insured under a standard fire insurance policy.
    The property was damaged by fire, and insurance proceeds were paid out.
    The wife sought to have the proceeds divided, while the husband argued they should be treated as held by the entirety.

    Procedural History

    The Special Term dismissed the wife’s complaint.
    The Appellate Division affirmed the dismissal.
    The wife appealed to the New York Court of Appeals.

    Issue(s)

    Whether the proceeds of a fire insurance policy insuring the interests of a husband and wife as tenants by the entirety are required to be divided at the demand of one owner, or whether they are impressed with the inseverable quality of ownership akin to the real property.

    Holding

    No, because the insurance proceeds are considered personal property derived from a contractual agreement, not an involuntary conversion of the real property itself.

    Court’s Reasoning

    The court reasoned that while the unity of person historically explained entireties in realty, it doesn’t dictate the relationship regarding insurance proceeds. Personal property cannot be held by the entirety.
    The court distinguished this case from condemnation cases where the award substitutes the real property and retains the original ownership structure. Here, the insurance proceeds stem from a personal contract, not an operation of law on the real property.
    “These proceeds have been paid pursuant to a personal contract of insurance entered into between these parties and the insurance company.”
    The court emphasized that the loss of the realty was involuntary, but the draft (insurance proceeds) was the product of a voluntary contractual act.
    The court cited Matter of Blumenthal, where a purchase-money bond and mortgage taken back by a husband and wife on the sale of real property held by them as tenants by the entirety were deemed to be held as tenants in common, not by the entirety. The court in Blumenthal stated, “Estates by entirety are peculiar to real estate. No such thing exists, except by analogy, as to personal property.”
    The court noted that applying the incidents of a tenancy by the entirety to personal property is only by analogy and that considerations of policy and common convenience support the division of the proceeds.
    The court stated: “Therefore, since it is only by analogy that the incidents of a tenancy by the entirety may apply to personal property (Matter of Albrecht, 136 N. Y. 91, supra), considerations of policy and common convenience reinforce the applicability of the reasoning of the Blumenthal case.”
    Therefore, the complaint stated a valid cause of action for the compulsory division of the insurance proceeds.