In In re Benfield, Bankruptcy Judge David M. Warren overruled a Chapter 7 Trustee's objection to a debtor's tenancy by the entirety exemption in approximately 11 acres of unencumbered real property valued at $200,000, holding that the designation of the debtor and his wife as “separated”id not overcome the statutory presumption that married individuals acquiring property together hold title as tenants by the entirety.
The debtor, Kenneth Bryan Benfield, and his wife originally acquired the property in 2016 as tenants by the entirety, using settlement proceeds from injuries the debtor sustained in a serious motorcycle accident.
In 2017, while the debtor was allegedly suffering from physical and mental disabilities resulting from that accident, the couple purportedly executed a deed transferring the property to the wife's son from a previous marriage. That deed was not recorded until June 2023, when the debtor and his wife were separated and involved in domestic litigation.
The debtor maintained that he had been unaware of the transfer and alleged that his wife and stepson had taken advantage of his medical incapacitation. After he retained counsel to challenge the conveyance as fraudulent, the stepson agreed to return the property.
The September 2023 deed reconveyed the property to:
“SANDRA ANNE MEDLIN BENFIELD (separated) and KENNETH BRYAN BENFIELD (separated).”
Although the parties remained separated, they never obtained an absolute divorce, and their domestic action was administratively closed in December 2025.
When Mr. Benfield filed Chapter 7 bankruptcy in April 2026, he claimed the property exempt pursuant to 11 U.S.C. § 522(b)(3)(B), which protects tenancy by the entirety property to the extent that it is exempt from creditor process under applicable nonbankruptcy law.
The Trustee objected, arguing that the inclusion of the word “separated” in the 2023 deed evidenced an intention to hold the property in some form other than tenancy by the entirety. If successful, the objection would have exposed the unencumbered property to liquidation for the benefit of the debtor's approximately $28,714 in individually owed unsecured debts.
Judge Warren rejected that argument.
Under N.C. Gen. Stat. § 41-56(a)(6), a conveyance to two individuals married to each other presumptively creates a tenancy by the entirety, even when the deed does not specifically describe them as husband and wife, unless a contrary intention is expressed.
The Court concluded that identifying the spouses as separated merely provided notice of their marital status, rather than expressing an intention to create a different form of ownership.
Indeed, the designation could serve a useful purpose by alerting future creditors or purchasers that the tenancy by the entirety might subsequently be severed by divorce.
Had the parties intended to hold the property as tenants in common or joint tenants with right of survivorship, the deed could have expressly stated that intention.
The Court also noted that the history of the property was consistent with restoring the couple's original ownership arrangement. The 2023 reconveyance appeared intended to undo what was likely an avoidable fraudulent transfer and restore the prior tenancy by the entirety.
Accordingly, the Trustee's objection was overruled.
Commentary:
This is a useful decision for North Carolina consumer bankruptcy practitioners, particularly given the frequency with which bankruptcy cases intersect with marital separations, equitable distribution disputes, and imperfectly drafted deeds.
First, separation is not divorce.
North Carolina tenancy by the entirety protections remain available to married spouses even when they are separated, living apart, or engaged in domestic litigation. An absolute divorce terminates a tenancy by the entirety under N.C. Gen. Stat. § 41-63(5), but separation alone does not.
The distinction can be enormously consequential in bankruptcy.
Here, a debtor with less than $29,000 in individually owed unsecured debt faced the potential liquidation of $200,000 in unencumbered real estate. Given that tenancy by the entirety property generally cannot be reached by creditors holding claims against only one spouse, the exemption made the difference between retaining the property and exposing it to administration by the Chapter 7 Trustee.
Second, the statutory presumption should not be overcome merely by ambiguous language in a deed.
As Judge Warren recognized, descriptions of marital status in deeds serve legitimate notice purposes. The mere notation that spouses are separated does not indicate that they intend to abandon the substantial protections afforded by tenancy by the entirety ownership.
This is particularly important because N.C. Gen. Stat. § 41-56(a)(6) expressly establishes tenancy by the entirety ownership when two individuals who are married to one another receive title together, even without language identifying their marital relationship.
A contrary intention must be expressed in the conveyance. It should not be inferred simply because the spouses' marriage has become troubled.
Third, the decision underscores the importance of examining the complete history of real property transfers.
The facts here were unusually complicated, involving a serious injury, allegations of incapacity and fraudulent conveyance, delayed recording of a deed, domestic litigation, and an eventual reconveyance by the debtor's stepson.
Fortunately, the Court recognized that the reconveyance appeared intended to restore the original ownership arrangement rather than create a different form of title.
Judge Warren did note an additional complication: the stepson's marital status had changed between the deeds, raising the possibility that his former spouse might have retained some interest in the property. That issue was not resolved and serves as another reminder that title questions can be considerably more complicated than the schedules initially suggest.
Fourth, practitioners should remain mindful of the limitations of tenancy by the entirety protection.
The exemption does not necessarily protect property from joint creditors of both spouses. Nor does it eliminate the risks created by an eventual absolute divorce, which converts the tenancy by the entirety into a tenancy in common.
Attorneys representing separated debtors should therefore carefully examine the nature of their clients' debts, the status of any divorce proceedings, and whether an impending divorce could alter the ownership interest before or during bankruptcy.
There is also a practical lesson for attorneys preparing deeds: if the intention is to create a tenancy in common rather than a tenancy by the entirety, say so explicitly. Conversely, identifying spouses as separated should not, standing alone, be treated as an election to surrender their statutory protections.
A Decision Worth Sharing with Family Law and Real Property Attorneys:
This is also a decision that deserves attention beyond the bankruptcy bar.
If anyone knows divorce or real property attorneys—or, even better, has access to the Family Law or Real Property Sections of the North Carolina Bar Association or the North Carolina Advocates for Justice—please share this decision with them.
Bankruptcy and divorce or separation frequently go hand in hand, and decisions made in one proceeding can have significant, sometimes unintended, consequences in the other. Family law attorneys should understand how the timing of a divorce, the characterization of marital property, and the language of deeds can affect the protection of assets from creditors.
Similarly, real property attorneys should be mindful that seemingly routine descriptions of marital status in deeds can create substantial disputes over ownership interests. As Benfield demonstrates, identifying married grantees as “separated” does not, without more, defeat the statutory presumption of tenancy by the entirety. Careful drafting can prevent expensive litigation and potentially devastating consequences for property owners.
And, leaving aside the broader importance of asking clients about their complete financial circumstances, a simple 10¢ PACER search to determine whether a client or spouse has filed bankruptcy can be an invaluable precaution for attorneys in all practice areas, particularly before undertaking property transfers, equitable distribution, or other transactions affecting ownership interests.
Bankruptcy attorneys, in turn, need to understand the effects of domestic proceedings and real property conveyances on their clients' exemptions.
Greater awareness and communication among bankruptcy, family law, and real property practitioners would serve all three areas of practice—and, more importantly, their clients.
Conclusion:
With only approximately $28,700 in scheduled unsecured debts, there was a significant disparity between the amount at stake for creditors and the value of the property the Trustee sought to administer.
Whatever the complications surrounding the earlier conveyances, the debtor and his wife remained married, and the deed reconveyed the property to both of them. North Carolina law presumptively made that a tenancy by the entirety.
The decision properly applies that presumption and avoids transforming a routine description of marital status into the forfeiture of a valuable property protection.
For consumer bankruptcy practitioners, Benfield is a worthwhile addition to the collection of cases establishing that tenancy by the entirety depends on the parties' legal marital status and the language of the conveyance—not simply whether the marriage remains intact in practice.
Finally, good work by Philip Sasser in defending this exemption.
To read a copy of the transcript, please see:
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