Refinance Proceeds May Be Used By Nondebtor Spouse in MA

The case of Nickless v. Lodi (In re Lodi), 2007 Bankr. LEXIS 3075 (Bankr D MA, 09/12/07) (Rosenthal, J.) presented the not-uncommon situation of a debtor and his then-wife refinancing their home, with the nondebtor wife using the proceeds to pay off her $11,000 car loan and keep another $9,000. The husband filed bankruptcy three months later in 10/05 and the wife filed for divorce in 11/05. The bankruptcy trustee accused the wife of receiving a “fraudulent transfer,” a transfer of property either (1) without the husband receiving fair consideration in return or (2) with the intent to hinder, delay or defraud the husband’s creditors.

The court ruled against the trustee, finding that the home had been held as tenants by the entireties and therefore the refinance proceeds were also tenancy by entireties property with each spouse entitled to all of it. Moreover, the fraudulent transfer requirements that the wife be a creditor and the transfer be on account of a pre-existing debt were not met.

While simple to state, these facts have given debtor’s counsel great pause because of uncertainties involved with a Massachusetts tenancy by entireties. This case has not been appealed.

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