You recently wrote that as long as both spouses lived at the address, they get a full $500,000 capital-gains tax exemption on the sale of their home. Here's a curveball for you! What if there's a lien against the property? How would that affect the tax break if the lien is against the person who isn't on the deed?

There's a flaw in your hypothetical scenario. Yes, a married couple qualify for a $500,000 tax exemption on their profit when they sell their house even if only one spouse owns it, provided they've both lived there for two of five years before the sale. But the spouse who isn't on the deed doesn't own the house — so his or her creditors can't put a lien on it.

OK, but what if they're both on the deed?

In New York, spouses typically own a house jointly by the entirety — a form of ownership that's reserved for married couples. One advantage of ownership by the entirety is that one spouse's creditors cannot exercise a lien on the house during the other spouse's lifetime. Let's say Tom and Jenny own their house by the entirety. Tom's creditors can't collect on their lien while Jenny is alive. If Tom dies first, she inherits the house free and clear.

In the unlikely event that they own the house as tenants-in-common, Tom's creditors could indeed exercise a lien against his half share of the proceeds when it's sold.

But none of these scenarios would affect the couple's tax exemption. If they've lived there for two of five years, up to $500,000 of their profit would be tax-free — even if Tom must immediately forfeit his share of the proceeds to creditors.

The bottom line

Creditors can't put a lien on a house their debtor lives in, but doesn't own.

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