Homestead Exemption

THE PHRASE “homestead exemption” occasionally refers to a break on property taxes that’s available in some states. But at issue here is something quite different: In some states, you can’t be forced to sell your home to satisfy the demands of creditors.

In states such as Alaska, Colorado and New Mexico, the amount of protection is capped at a relatively modest level. But in other states, such as Florida, Iowa, Kansas, South Dakota and Texas, the protection is quite broad.

A homestead exemption may help if you lose a lawsuit, have nonmortgage debt or file for bankruptcy. But it only applies to your primary residence, not a second home. Moreover, it probably won’t help you if you default on your mortgage or owe taxes.

Don’t live in a state with a robust homestead exemption? You might see if you and your spouse can title your home and other assets as “tenancy by the entirety.” This form of ownership is only available to married couples and only in some states. What’s the advantage of tenancy by the entirety? You can’t transfer your ownership stake without the consent of your spouse. That could prevent a forced sale of your home if one of you loses a lawsuit. It won’t, however, help if you are both sued.

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