Till Death Do Us Part: Did Citigroup / Smith Barney Fail Married Couple?

June 17, 2011

In a Financial Industry Regulatory Authority ("FINRA") Arbitration Statement of Claim filed in August 2009, Loretta and Daniel Forer asserted breach of contract; breach of fiduciary duty; and, negligence arising from Respondent Citigroup's alleged failure to change the ownership and title of two of Claimants' accounts to reflect "Husband and Wife, Tenancy by Entirety," thereby exposing the accounts to garnishment. Claimants sought at least $55,000.00 in compensatory damages plus interest, fees, and costs. In the Matter of the Arbitration Between Loretta J. Forer and Daniel B. Forer, Claimants, vs. Citigroup Global Markets, Inc., d/b/a Smith Barney, Respondent (FINRA Arbitration 09-04799, June 13, 2011).

Respondent generally denied the allegations and asserted various affirmative defenses. In its Motion to Dismiss, Respondent asserted, among other points, that the law on fraudulent transfers would have precluded Claimants' damages claims. Further, Respondent argued that joint creditors could still use the assets in an account coded as Tenancy by the Entirety to satisfy their claims.  Claimants countered that as originally titled, their account immunized their assets from garnishment, and Respondent's failure to keep Claimants' accounts in a protected status exposed them to garnishment.

SIDE BAR: What's going on here?  Sadly, we just are not provided with enough details in the FINRA Decision to know. 

As best we can infer, Claimants had accounts that were not held as Tenants by the Entirety and, as a result, it appears that creditors of at least one spouse were able to garnish the assets of those accounts.  However, the FINRA Decision states that Claimants complained that Respondent failed to change two accounts to Tenancy by the Entirety status - which seems a bit contradictory, since Claimants also are depicted as stating that their accounts originally protected them, which suggests that at first they were protected, then they weren't, and now they're complaining that Respondents should have, what?, retained the original account status or returned it to that?  I'm not blaming Claimants for the confusion because it appears that the FINRA Decision fails to clarify the circumstances.

What seems clear is that we are faced with a question as to whether a Tenancy by the Entirety did, will, or would protect the marital assets from creditors.  A Tenancy by the Entirety basically treats a marital couple as if they were a single individual in terms of jointly-held property. As such, within the context of this tenancy, one spouse may not voluntarily or involuntarily dispose of or alienate the subject property without the other's consent. Similarly, neither spouse can subject the property held subject ot a Tenancy by the Entirety to their personal debts. Although a simplification, Tenancy by the Entirety is often intended to protect subject property from judgment creditors of one spouse (although joint marital debts are typically not so protected). 

WARNING: This comment is intended only as a general discussion of the topic and is pointedly not to be relied upon as legal advice. You must consult with an independent professional concerning any brokerage account, estate planning, bankruptcy, creditor, or tax issue and should not rely upon this commentary as dispositive.


The FINRA Arbitration Panel denied Claimants' claims with prejudice.  Why? In keeping with the head-scratching nature of this case, sorry, I haven't a clue.  If there is some value to this case, it's in raising the issue of how best to protect a married couple's joint assets.  Go speak with a qualified professional today.

For a similar matter, read: Ten Ent, 50 Cent and Morgan Stanley's Sorry Client (Street Sweeper, May 20, 2011)

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