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.
The seller filled out the form naming my client and her husband as joint owners with rights of survivorship, and the seller signed the form. Neither my client nor her husband signed the application for title. However, the seller did not check any of the boxes. My client claimed the fishing boat was exempt as a tenants by entireties asset because the title application listed here and her husband as joint owners. Yet, the story does not end here.
The bankruptcy trustee now argues that because no boxes were checked the boat is owned tenants in common by virtue of the standard form language even though my client did not fill out or sign the form. As a result my client has to either incur significant legal fees to contest the trustee’s objection to the tenants by entireties exemption or pay the trustee substantial amount of money to settle the disagreement. An innocent oversight in a transfer document will cost my client significant amounts of money regardless of her decision to fight or settle.
Perhaps the lesson is that in order to protect assets using Florida exemptions such as tenants by entireties debtors must pay very careful attention to all details of ownership. Laymen typically ignore small print and boxes on standard forms because they don’t appear to be significant.
What may not appear meaningful to a layman can have legal significance in asset protection planning. A small legal error opens the door for creditors to challenge exemptions, and even if the creditor’s position is wrong or extreme, the debtor will at least incur legal costs to defend their exemption, and there is always a risk that a result-oriented judge will rule against the debtor. When you implement your asset protection plan make sure you have the assistance of someone with experience and knowledge.