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

Its very important to pay attention to all items on financial account applications, bank account agreements, bills of sale, vehicle titles, and all other transfer documents. For instance, one of my debtor bankruptcy clients married a man who is a commercial fisherman. The husband bought a commercial fishing vessel for all cash using money he earned from his profession and proceeds from the sale of an exempt piece of real property owned jointly with his spouse, my client. Commercial vessels have to be registered and titled by the U.S. government, and an application for new title is typically submitted by private title agencies that deal in these type of commercial boats. My client's husband hired such a private title company which sent a form to the boats prior owner for his signature in order to initiate title transfer. The form included several boxes to be checked, each indicating a different form of joint ownership. One of the boxes was for "tenants by entireties"; another for joint ownership with survivorship; and another for community property. The standard language on the form stated that if none of the boxes were checked it any joint ownership as tenants in common would be presumed. If the boat were owned tenants in common the bankruptcy estate could claim my client's undivided interest amounting to 50% of the fishing boat.

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I recently had dinner with a well-known and extremely bright asset protection attorney from south Florida. Dinner conversation touched on the topic of domestic asset protection trusts. Domestic asset protection trusts (DAPT) are self-settled trust where the debtor is both settlor/trustmaker and the primary beneficiary. Domestic asset protection trusts set up in states which have enacted statutes to protect self-settled trust from attack by creditors of the settlor. Florida has no DAPT statute, and Florida courts have provided no asset protection to any self-settled trust.

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A Florida debtor emailed me a question about tenancy by entireties protection. He said that a collection agency was threatening wage garnishment and a judgment for old credit card debt. This debtor he lives with and supports his girlfriend and their three dependant children. He asks whether his joint bank accounts are protected as tenancy by entireties accounts where the debts are his only. I do not think this debtor can invoke tenancy by entireties protection because he is not legally married. The case law is clear that tenancy by entireties applies to lawfully married couples. I do think that this debtor can defeat wage garnishment because his support of his children probably qualifies him as the head of a household. In most situations, Florida statutes prohibit a creditor from garnishing wages and other compensation paid to a Florida resident who is head of household .

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I received an email from Florida attorney Tye Klosster concerning asset protection of a trust established for the benefit of a Florida debtor where the trust agreement names the same debtor/beneficiary as trustee and also includes standard spendthrift protection. Such trust arrangements are often set up by parents' living trusts for the benefit of their children as part of the parents' estate planning. Otherwise stated, the question is whether trust beneficiary enjoys protection from standard "spendthrift provisions" where the beneficiary serves as trustee with discretion to make distributions to himself.

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Florida statutes exempt from creditors wages, salary, and other compensation for services earned by the head of household. A head of household is the person who provides more than 50% of the support for a dependent. Florida courts have held that the "dependent" does not have to be a dependent for income tax purposes and does not have to reside in the household. There must be a legal or strong moral obligation to provide economic support.

A email asked if a debtor could be head of household if the debtor lives with and financially supports a same sex partner. Although there arguably is a moral obligation of support in this situation, in my opinion, that obligation is too far removed from the intent of the statute. Debtors who asserted head of household based on moral support obligations have done so in the context of a traditional family. For instance, a debtor may have a moral support obligation toward an adult child residing in a separate dwelling or toward an elderly parent. Even though a debtor may feel morally obligated to support a live in boyfriend or girlfriend, I do not think that obligation to a non-family member would be strong enough for the debtor to be entitled to wage exemption as the head of a household.

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A Florida resident entered into a commercial contract which contract included a waiver of homestead rights. The same Florida resident was subsequently by the other party to the contract, and a money judgment was entered against the Florida resident and in favor of the other party. The other party, now a judgment debtor, seeks to enforce the money judgment by forcing the sale of the debtor's homestead arguing that the debtor had waived homestead protection when he signed the agreement. The issue presented to the appellate court in Florida was whether Florida's homestead protection can be waived in a commercial contract.

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There is an interesting asset protection planning idea in article published in ABA Health eSource and co-authored by attorneys Alan Glassman of Clearwater, Florida and Justin Pikramenos of Stetson University in Deland, Florida. The article addresses the hypothetical situation where a debtor jointly owns with his spouse an expensive homestead property and where the debtor also has substantial amount of non-exempt assets titled in his name individually. For example, assume that the jointly owned homestead is worth $1,000,000 and the debtor has $500,000 of individually owned assets. Glassman and Pkramenos suggest that the debtor spouse buy his non-debtor's spouse ½ interest in the homestead property for $500,000 and that payment be made with the debtor's $500,000 of non-exempt assets. The debtor spouse would end up with 100% ownership of the exempt homestead and no non-exempt assets.

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A person with creditor problems or a money judgment against himself may feel "lucky" if a relative dies and leaves him an inheritance. Yet, the inheritance is an asset as soon as it is determined by a court, or pursuant to a living trust, that the debtor has a beneficial interest. If money is distributed from the decedent to the beneficiary the money is even more accessible to creditors. If the debtor accepts the inheritance and then transfers the money to another non-debtor family member or to a protected asset, such as an annuity, that transfer will be attacked as a fraudulent conveyance subject to reversal. The best situation would be if the decedent had made a bequest to his heirs or beneficiaries in a trust for their benefit rather than outright distributions, assuming the trust document had proper spendthrift language to provide creditor insulation. Unfortunately, the decedent himself usually does not have asset protection concerns at the time the testamentary will or trust is created, and protection of the inheritance from the creditors of one or more of his heirs is not an important estate planning motive.

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