Friday, August 27, 2010

Tenancy by the Entirety and the Debts of an Estate: The Virginia Supreme Court's Decision in Dolby v. Dolby

In Dolby v. Dolby (June 10, 2010), the Supreme Court of Virginia concludes that the sole debt of a deceased husband is the obligation of his estate, notwithstanding that the debt was secured by real estate owned by the husband and his wife as tenants by the entirety.

You can link to the full-text of Justice Millette's opinion in Dolby here.


In 2002, Mr. Dolby acquired title to a house in Fairfax County, with a promissory note in his name alone secured by a deed of trust on the property.  In 2006, Mr. Dolby married Mrs. Dolby and transferred the Fairfax real estate to himself and his new wife as tenants by the entirety.

Mr. Dolby did not, however, have Mrs. Dolby assume the existing promissory note (or sign an amended one).  In other words, he remained at all times the sole obligor on the loan, even though the real estate was now owned by both spouses as tenants by the entirety.


Mr. Dolby's 2006 last will and testament included the following relevant provision:
I hereby expressly empower my Executor to pay such debts and expenses ... My Executor shall not be required to pay prior to maturity any debt secured by mortgage, lien or pledge of real or personal property owned by me at my death, and such property shall pass subject to such mortgage, lien or property.
The question addressed by the Supreme Court was whether, in light of the provision in Mr. Dolby's will, the debt secured by the Fairfax real estate (a) was a liability of his estate (and must be paid now) or (b) passed to Mrs. Dolby along with the property (with the possibility of delaying payment until maturity).


Several of Mr. Dolby's children from a prior marriage argued that Mr. Dolby had (effectively, if not in writing) "assigned" the debt secured by the Fairfax real estate and, further, that his will evidenced an intent that the debt not be paid immediately on his death but instead pass with the property. 

The Fairfax Circuit Court ruled for the children.

The Supreme Court overruled and said that Mr. Dolby's estate was liable for payment of the promissory note. 

The Court reasoned, first, that Mrs. Dolby had never assumed the existing promissory note (or signed a new one) and that it was therefore a valid debt of Mr. Dolby's estate.  Second, since Mr. Dolby's estate did not own the property secured by the note (it having passed to Mrs. Dolby by operation of law, by virtue of the TBE ownership), the provision in his will which provided for the Executor not paying off debts until their maturity was inapplicable.


It is unclear based on the stated facts of the case whether Mr. Dolby would have intended the result reached by the Supreme Court: namely, that Mrs. Dolby now owned the real estate free of the prior debt. 

The practice lesson, however, is clear: if a re-marrying spouse intends for a sole debt to become a debt of both spouses, then the loan document must be accordingly amended.