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

My website includes a list of common asset protection mistakes- no mistake is bigger than underestimating creditors and their attorneys. Clients and many professionals are too quick to trust their wealth to the theoretical protections promised by various asset protection tools. Professional planners often suggest plans including various asset protection trusts or limited liability companies because on paper these tools protect against creditor collections. No asset protection tool offers perfect protection in the real world, and planners underestimate the creditors' ability mount arguments against their asset protection devices. Skilled creditor attorneys look for and often find small cracks in asset protections plans which undo the most sophisticated and expensive planning tools. Because most judges tend to be sympathetic to people owed money and less generous to debtors trying to evade debts even a small mistake or technical deficiency in asset protection planning can lead to judicial destruction. Debtors should not believe planners who tell them that a complicated and expensive planning device offers sure protection. Instead, debtors and planners should learn to think like a creditor. They should spend energy trying to figure out how they might attack their own plan focusing more on the weaknesses of asset protection tools rather than their theoretical benefits. My experience taught me that successful asset protection requires that debtors and planners not believe their own baloney.

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Florida's Third District Court of Appeals has upheld Florida's homestead protection against creditors in Conseco Services v. Cuneo. The Third District Court opinion also clarified some issues and questions raised about the Supreme Court's important homestead decision in Havoco v. Hill, 790. So 2d 1018.

Conseco Services obtained a civil judgment in Indiana against the Cuneos for their failure to repay a large loan, and after judgment Cunseco filed a proceedings supplementary alleging that the Cuneos transferred assets to other family members to hinder, delay and defraud their creditors. Subsquent to the judgment and the fraudulent conveyance complaint the Cuneos liquidated $8 million in investment securities and took out a $2.45 mortgage on a second home in Connecticut. The invested $10.2 million in a home in Florida which they proceeded to declare as a Florida homestead. Conseco filed an action in Florida attempting to put a lien on the Florida homestead.

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I read a report in Leimberg Information Services about a Missouri Court of Appeals case which held that a debtor and other parties can be held liable for civil conspiracy in a fraudulent transfer when they create new entities through which the debtor conducts future business. The case essentially finds that opportunity shifting is a form of fraudulent conveyance. When a creditor obtains a judgment against a business and its principal owner the individual businessman often starts a new company to conduct the same business and gives ownership of the new business to his spouse or other family member so that neither the new corporation nor the owners are subject to the prior judgment. The Missouri court found this technique of creditor avoidance, although not a traditional form of transfer, nevertheless could be undone as a form of fraudulent conveyance. To date, no Florida case has reached the same result. The Missouri court also found the debtor and his wife were both liable for damages on the theory of civil conspiracy for their efforts to set up successor businesses operated by the debtor. Leimberg's article says that the case is evidence that, "civil conspiracy is the creditor's new super-weapon against planning meant to render a debtor judgment-proof." While this observation may be generally true throughout the county, Florida courts have held uniformly that the fraudulent conveyance statutes do not support claims against third parties for civil conspiracy or any other basis of liability.

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I have been receiving several email questions about the new bankruptcy law. One person complained because the new information was not yet incorporated on my website. This law is more complex than it seems. It raises many issues that will take years to resolve through court decisions. I am planning to attend a seminar on the bill soon, and will probably attend several more this year. There is no benefit to a fast analysis six months before the bill's effective date. Some people want to be the first to publish information about the bill as if being first to deliver the news is of some benefit. What is most important is to understand and process the law's changes in a thoughtful manner. People who rush to change asset protection plans may be making hasty mistakes. Keep in mind, as previously stated on this blog, the new bankruptcy law does not change Florida's homestead law or asset exemptions in state court proceedings. The changes are important only if a debtor files bankruptcy.

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An attorney called me this week to discuss a prospective bankruptcy client. The client was being sued in state court by numerous people who alleged they were fraudulently billed for chiropractic services. The client could no longer afford attorneys fees involved in these multiple suits. The attorney suggested that a chapter 7 bankruptcy would focus all the fraud allegations into a bankruptcy court setting. He suggested that the bankruptcy would effectively consolidate the civil suits, provide faster resolution, and possible give the client a more sympathetic forum. The question was whether bankruptcy is a preferred forum to defend civil fraud.

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I have commented previously that limited liability companies probably do would not have asset protection benefit in a bankruptcy proceeding. My reasoning was that the LLC protects assets by virtue of the limited creditor remedy of a charging lien provided in Florida statutes, but that in bankruptcy the trustee would claim that he is not limited by the state's creditor procedures and has title to all of the debtor's interest in a LLC. A bankruptcy court decision earlier this year in Arizona analyzed a trustee's rights to a debtors membership interest. The case was In re Ehmann decided January 13, 2005.

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Most of my asset protection clients have significant cash warehoused in a bank account or a brokerage money market account. Many clients are often afraid that future creditors will garnish their bank accounts without notice. Often, I am asked if there is something they can do to protect cash accounts from surprise garnishment. I have been unable to offer anything better than the stock answer to "put the cash in the mattress." This past week I met some new clients who seemed skilled in finding places to store cash where it could not be found or garnished by their creditors. I will relay their experiences and recommendations to others without my endorsement or guarantee.

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The May edition of the Florida Bar Journal contains an article Mr. Robert Meyer about whether a disclaimer for estate planning purposes can be set aside as a fraudulent conveyance against creditors of an heir or trust beneficiary. The article includes an interesting discussion of the meaning of insolvency for purposes of fraudulent conveyance allegations.

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Many clients asked me how they can deal with consumer creditors such as credit card companies when they are delinquent in payments. I had a new client this week who seemed to be very successful in getting creditors to stop calling and in negotiating favorable settlements for delinquent credit card debts. They settled several debts for less than 50% of the balance, and they had eliminated most collection agency harassment. I asked them why they had been successful and where they learned their tactics. The clients said they read a book called "How to Settle Your Debts" which they found and purchased on Amazon.com. They said the book clearly explained how consumers can best deal with collection agencies and how to negotiate favorable settlements which included elimination of adverse reports to credit agencies. I found the book on Amazon for $15.00. It's a new book having been published in September 2004. ; I have not read the book, but based on these clients' experience, many people could benefit from whatever advice the book offers.

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Involuntary bankruptcy has become one of the biggest concerns of my clients since the Senate passed the new bankruptcy law. Involuntary bankruptcy will be a more important planning issue when the Bankruptcy Reform Act is effective, but in most cases, people are overly worried about this contingency. The new bankruptcy law creates a disparity between asset protection in state courts and in bankruptcy court with the latter becoming a much more creditor friendly environment because the new bankruptcy law strips away many protections otherwise available in state court. What most people do not understand is that it is difficult for any creditor to force a debtor into involuntary bankruptcy.

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