Florida Asset Protection : Asset Protection Law & Planning in Florida - Florida Homestead Exemption

 I have had two different clients during this past month who were anticipating civil suits by two separate U.S. government agencies for their alleged violation of agency regulations. Both clients were W-2 employees and both clients supported people in their respective families. Both clients were “head of household” for purposes of Florida’s wage garnishment statutes. Both clients expected that  would be exempt from wage garnishment under Florida law. 

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 Some of my out of state clients want claim Florida residency to protect assets, but they really do not want to move to Florida. Some married debtors ask whether they can invest in a Florida property and claim the property as their homestead while their non-debtor spouse remain in their family home in another state. Can a debtor and his non-debtor spouse have separate homesteads?

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One of my clients owns a small 1/4 lot within a municipality. There are two separate residential buildings on this small lot. The client and his family live in one building. The client leases the second building to tenant who is not a family member. The client asks me if the entire property is exempt homestead.

The issue is whether the debtor’s lease and collection of income from the second building converts part of the property to a business property rather than a residential homestead. There have been several cases over many years which have addressed this issue. I understand that under  the current law, as interpreted by the Florida Supreme Court, makes a distinction between leasing part of a homestead located inside a city and leasing part of a homestead in the county.

 

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Social security payments are exempt from garnishment under federal social security statutes. The IRS has collection remedies significantly more powerful than a creditor’s collection tools under state law. A CPA asked me the intersection of social security exemptions and IRS collections: can the IRS garnish a taxpayer’s social security check.

Section 6334 (c) of the Internal Revenue Code (26 U.S.C. 6334 (c)) allows Social Security benefits  to be taken to collect unpaid Federal taxes. If your monthly benefit is more than $750, the IRS  may garnish fifteen percent of your social security  monthly benefit for taxes that are at least six months in arrears. The IRS is required to notify you before it begins to garnish , and you can appeal the garnishment for"hardship.”

This rule is common sense. People who owe the government money should pay their government debt before they receive additional government money.

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I am frequently  asked whether a creditor can get a court to hold a debtor in contempt of court for not paying a civil judgment. This past week one of my clients explained that he had recently moved to Florida but maintained a car, bank accounts, and collectibles in his former residence. He asked me whether his creditors could obtain a Florida court order commanding him to transport the car and collectibles to Florida and move his money to a Florida bank, and if they could, whether he could be held in contempt and put in jail if he did not comply with the court order.

I am not been involved in any case where a court has threatened to hold my client in contempt if he did not move his own assets from another state into Florida where a creditor could more conveniently levy upon the assets. Essentially, a court would be ordering a debtor to collect his own assets to pay his creditor and threatening to put the debtor in jail for non-compliance.

 

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A woman client  asked me the following question about homestead protection. Her husband purchased a homestead property prior to their marriage. The house was titled in the husband’s name. The husband was convicted of a white collar crime and sent to prison. The husband and wife had substantial joint debts, including some civil judgments, which the client  could not pay without the husband’s income. The client wanted to know if their creditors could put a lien on their house once the husband was incarcerated and no longer living in his homestead.

Courts have interpreted the constitutional homestead exemption to protect the homestead owner and his family. One of the policies underlying the homestead exemption is ensuring that a debtor’s dependents are not forced out of the family home. Also, a debtor loses homestead protection if he voluntarily abandons the homestead property Courts have stated that criminal incarceration is not a voluntary abandonment of homestead as long as the debtor intends to reoccupy the house at the end of his prison sentence.

I advised the client that I did not think the joint creditors could force the sale of, or place an enforceable lien upon, the homestead while her husband was in prison.
 

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Judgment debtors frequently maintain multiple bank accounts at particular banks. Some accounts may be in the debtor’s individual name and subject to the creditor’s writ of garnishment. Other accounts may be exempt joint accounts, wage accounts, or even accounts in the name of a separate, non-debtor  business entity for which the debtor has signature authority. Many of my clients find that their judgment creditors cause the bank to freeze all accounts at their bank including the exempt accounts and accounts of separate entities which are not involved in the lawsuit.

My clients ask me why did their creditor garnish a joint account which is obviously an exempt entireties account, or how could the creditor garnish the business account when the business does not owe the creditor any money. The answer is that the creditor served a writ of garnishment on the bank; the creditor did not serve a writ of garnishment on any particular account. The bank is the party which chose what accounts to freeze subject to resolution of the garnishment. Most banks will freeze any and all accounts which have the debtor’s name on the title or accounts for which the debtor has signature authority.  Florida law protects banks from liability from freezing an account later determined to be exempt or not subject to the debt. Banks may be liable for not freezing an account which should be covered by the writ.

 

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Creditors cannot garnish wages of Florida debtors who qualify as head of household. That’s the general rule. I represented a Florida resident who lived with and supported a minor child. The client was in active military duty stationed outside of Florida. The judgment creditor served a writ of garnishment on the military. The debtor responded to the writ claiming the creditor could not garnish her pay because she was a Florida resident and head of household. The military responded that they were still required to hold her pay in response to the writ regardless of Florida’s garnishment exemptions. Here’s why.

The military states that the creditor procedure for military personnel is not a court ordered garnishment, but it is an administrative procedure called “involuntary allotment.” Involuntary allotment is used because military personnel reside all over the country and are constantly being relocated. Involuntary allotment is governed by 32 CFR Part 113. The procedure has no provision for garnishment exemptions based upon state law. Therefore, head of household exemptions do not protect against garnishment of military salary using the administrative procedure of involuntary allotments.

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A recent  Federal District Court opinion, if not appealed, suggests a significant asset protection planning opportunities through uses of Florida inter-vivos (“living”) trusts. To review, a judgment creditor may not attack a debtor’s beneficial interest in a trust where the trust has spendthrift provision. Spendthrift protection does not apply where the debtor established or funded the trust with his own assets for his own benefit (so-called “self settled trusts”). Self-settled trust does protect creditors in other states which have enacted statutory protections with domestic asset protection trust legislation, but Florida courts will apply Florida law to the debtor’s beneficial interest in trusts formed elsewhere.

The Florida District Court held that where a debtor sets up a trust, or contributes his own money to a trust, for the debtor’s benefit, the trust is not “self-settled” because the debtor is not the “settlor” to the extent another person has the power to revoke or withdraw the settlor’s  assets from the trust. The court cited the definition of settlor from Florida statutes and the Uniform Trust Code. The Court referenced comments made by the statute’s drafters which explained that a family member donating assets to a trust revocable by another family member should not be considered to be a settlor of the trust.


 

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