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

I've written many time about clients who underestimate their creditors zeal and underestimate the ability of courts to freeze assets during litigation. Most people incorrectly believe that courts can do nothing more in civil cases than issue money judgements, and that creditors have the task of finding and seizing non-exempt assets. Most people also understand that courts can freeze assets though injunctions and temporary restraining orders to stop debtors from transferring their assets after money judgments are entered which give creditors an interest in debtors property.

Recently, I learned of a civil case in federal court where the federal judge took more drastic action to the dismay of the defendant. The court and plaintiff were frustrated by repeated delays on the part of the defendant and his litigation attorney to comply with plaintiff's discovery orders. The court sanctioned the defendant by dismissing his pleadings and entering a default for an amount to be determined later. Even though no amount of damages had been determined and no final judgment against defendant entered, the court ordered the defendant and his controlled business entities not to transfer any assets. This order is not directed to any specific property, but is a restraint on the persons from taking any action to transfer any asset.

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Clients often tell me of their frustrated attempts to get competent asset protection advice from attorneys who work in large law firms. Attorneys in traditional, "tall building" firms take a dim view of asset protection planning. As an example, a colleague attended last week a seminar on Florida asset protection taught by an attorney in one of Florida's silk stocking law firms. The instructor taught that any transfer or conversion of assets that is later found to be a fraudulent transfer in violation of Florida's fraudulent transfer statutes constitutes criminal fraud. Accordingly, any attorney who assists or advises a client to make a transfer of property subsequently reversed by a court as a fraudulent conveyance is engaged in assisting the commission of a crime. Such attorney, according to the instructor, is not only unethical but may himself be subject to civil remedies and criminal prosecution.

The problem with this opinion expressed authoritatively to other lawyers at a teaching seminar is that the view is unsupported by Florida law and has been rejected essentially by Florida courts. There is not statute that deems a fraudulent conveyance to be a criminal violation or punishable by fines or incarceration. The Florida Supreme Court and lower appellate courts have thus far consistently found that the fraudulent conveyance statutes are creditor recovery remedies only and they impose no additional civil liability on the debtor or any third party who assists the debtor. Some Florida judges have expressed contrary views in dissent opinions, and other state courts have reached contrary conclusions based on their own state's laws. Florida law, however, is based not on minority views or foreign law, but rather on the decisions by the majority including the Supreme Court.

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A Florida resident owns an LLC with in turn owns real estate. The LLC sells the real estate and receives substantial case proceeds. The owner wants to purchase an annuity with some of the sales proceeds because of the investment features and because he heard annuities are protected from creditors. The LLC owner would be the annuitant and beneficiary. Does it make any difference if the LLC distributes the sales proceeds to the owner who in turn buys the annuity versus having the LLC buying the annuity directly and naming the owner as the beneficiary. Lets look at the applicable statute.

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Some types of personal property have little value to anyone except a debtor, but the property is extremely valuable to the debtor. Although the same property has little market value in the hands of a creditor, the creditor may still seek to levy on this unique personal property in order to pressure the debtor to pay all or part of a judgment.

An example I recently experienced was a client who ran a sales business primarily though the internet. The business had no inventory, and all sales were paid in advance so the business had no receivables. The business's most valuable asset was the domain name of its website. If a creditor levied on the domain name the creditor could close the website and business would grind to a stop. Even though the website domain had little market value in the creditor's hand it could be a primary target of collection efforts.

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Homesteads are protected on lots up to ½ acre in size within a municipality and up to 160 acres in a county outside any municipality. If your large homestead lot in a county is subsequently incorporated within an expanding municipality your homestead status is "grandfathered" and the homestead over ½ acre remains protected after annexation by the municipality.

A client posed the following question about annexation. He lived in a house situated on a lot over ½ acre in the county. Then, he got married an moved into a new home with his spouse, but he did not sell the old house. He and his spouse filed for a homestead tax exemption. A few years later upon getting a divorce he sold the marital home and moved back to his first house. During the time he was living with his wife a nearby city annexed his lot. The question is whether his homestead status on a lot larger than ½ acre now located in a municipality is grandfathered since he owned and lived on the property prior to annexation.

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I had previously written a post about homestead protection of a duplex where one half is owner occupied and the other unit is rented. The issue is whether the constitutional homestead protection includes a rental unit attached to the dwelling where the two units cannot be subdivided. The prior post cited precedent that the constitution protects dwellings and businesses located on the same property outside a municipality but that homestead properties within a municipality are limited to the actual dwelling unit. Other cases have protected dwellings and attached units used for business where the property could not be subdivided.

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A creditors rights to collect money from a partnership interest or LLC interest are limited by statute to a charging lien against distributions to the partner/member. A client explained that one of his creditors has asked a court to appoint a receiver over his family limited partnership for the purposes of collecting partnership assets and enforcing a charging lien against the client's partnership interest. The family partnership was formed outside of Florida and the motion for receivership is being litigated in the foreign state where the partnership is formed. The foreign state in question has charging lien remedies similar to Florida laws.

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From time to time, and most recently this week, a new asset protection client has previously established LLCs, corporations, or other entities in the State of Nevada. I asked the most recent person why he decided to pay significantly more money to set up an LLC in Nevada. corporation. He said that under Nevada law corporations may issue "bearer shares" whose ownership is established by physical possession. In theory, the client explained, just before a creditor asked under oath about his ownership of investment the stockholder can give the shares to someone else and truthfully testify that he owns no share of stock in any Nevada company because he has relinquished physical possession of the share certificates. This argument sounds better than it would work in the real world.

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