Tenancy by the Entirety and the Value of Wealth Insurance for Entrepreneurs

Jeffrey Traczynski

Journal of Law, Finance, and Accounting, 2020, vol. 5, issue 2, 337-359

Abstract: This paper explores the willingness of entrepreneurs to pay for wealth insurance to protect personal assets in case of business failure and the impact of this strategy on small business operation decisions. I show that antidiscrimination laws allow married firm owners in half of U.S. states to choose between asset protection and having more collateral for business funding, revealing an entrepreneur’s valuation for preserving personal assets at time of failure. I find that firm owners value the asset protection offered by tenancy by the entirety laws at $900-$1200 per year. Firms receive smaller loans and hold fewer assets when entrepreneurs use this form of ownership to reduce the personal costs of firm failure, but show no differences in hiring patterns or spending on risky projects. The asset protection strategy affects small businesses primarily through the funding channel.

Keywords: Personal bankruptcy; tenancy by the entirety; revealed preference; entrepreneurship (search for similar items in EconPapers)
JEL-codes: K35 K36 L26 M13 (search for similar items in EconPapers)
Date: 2020
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Persistent link: https://EconPapers.repec.org/RePEc:now:jnllfa:108.00000044

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