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

A reader asked whether it matters if he purchases a Florida homestead or a Florida annuity before being served with a lawsuit, and whether he could purchase these assets even after a judgment is entered against him. The answer is much different for an annuity and a homestead. The purchase of an annuity is subject to challenge as a fraudulent conversion of assets if the annuity is purchased any time within the four year statute of limitations. The closer the annuity purchase is in time to the lawsuit, the harder it would be for the debtor to defend a fraudulent conversion action after judgment. An annuity purchase after judgment, or even after service of a lawsuit, would be very difficult to defend unless the purchase has clear and strong financial advantage.

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I received two short homestead questions this week. The first situation involved a homeowner who failed to pay an assessment made by his homeowners association. The Association placed a lien on his homestead for the amount of the unpaid assessment. The homeowner asked if the Association could kick him out of his house. The Association's lien is in the class exceptions to the Constitution's homestead protection. The Association can sue to foreclose the lien, and the lien foreclosure would have the same consequences as a mortgage foreclosure.

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The May 22, 2006, print edition of the Wall Street Journal included an article about higher property taxes assessed to nonresident owners of Florida real property ("snowbirds"). The article stated that a snowbird can become a Florida resident by filing an affidavit of residency in order to qualify for property tax savings. The affidavit may work for establishing residency for tax purposes of Florida's homestead tax benefits, but establishing residency for protection of homestead from creditors is more complicated than filing an affidavit. I have written previously many blog entries about establishing Florida residency for asset protection and homestead. The Journal article may be accurate as to property taxes, but do not confuse residency for property tax purposes with residency for homestead protection. Protection from creditors requires substantially more evidence of domicile in Florida than merely filing an affidavit

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Creditor obtained a judgment against a charitable organization which had registered with the IRS as a 501(c)(3) organization. The creditor garnished the charity's bank account. A representative of the charity asked me if the garnishment was legal because the charity's bank account contained gifts from donors who understood their donation would be used for charitable purposes.

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Can a judge in another state enter a judgment against a Florida resident that circumvents the debtor's homestead exemption? One of my clients is facing a judgment in the state of his former residence which may effectively take his homestead to satisfy an obligation to the plaintiff in that case. The facts are that my client received funds from a trust which were improperly distributed by the trustee to the detriment of the intended trust beneficiary. There were no allegations of fraud or breach of fiduciary duty against my client. Upon receiving the money from the trustee my client moved to Florida and bought a home with the money. The trust beneficiaries sued the trustee and my client in seeking return of their rightful share of the trust money. The judge found my client liable to return the money , the judge imposed a "constructive trust" on the client's homestead in favor of the plaintiff trust beneficiaries. Plaintiff's will domesticate the foreign judgment which will result in a Florida judgment stating that the client's homestead is subject to a constructive trust for the plaintiff's benefit.

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I get frequent questions about what is required to become a Florida resident in order to benefit from Florida homestead protection and other creditor protections under Florida law. Not infrequently, this question comes from people who are not U.S. citizens but who reside in Florida. Several bankruptcy court decisions have held that people without "green cards" which entitled them to permanent U.S. residency are not entitled to homestead protection. The bankruptcy courts ruled that non-citizens without green cards cannot by law intend to make their Florida residence a permanent residence until they have the legal right to remain in Florida permanently under immigration laws. There have been relatively few decisions on this issue in Florida's appellate courts. However, during the first week of May, 2006, the Second District Court of Appeal ("DCA") issued an opinion consistent with prior bankruptcy court opinions.

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A reader seeking help asked me to post a question on the Blog to see if any other reader may help him. I don't provide legal advice by email to people who post comments, but this seemed to be an interesting and not uncommon situation. If you have an opinion, please email the reader at the email at the end of the question.

Here's the question (unedited)

In Sep 1998 a standard revocable trust was established for my parents who resided in Boca Raton.Florida (I reside in New York).
The name of the trust was "John Doe and/or Jane Doe(my mother who died 5 y ago) and/or Stanley Doe(my name) as trustees of the John and Jane Doe revocable trust dated Sep 17th,1998" I am one of the co-trustees.
The trust as well as the will stipulated that I will inherit all assets .Recently my 96 y old father who although understandably somewhat cognitively impaired is MENTALLY COMPETENT, met a woman 25 years his junior who convinced him to marry her and to change his will which will make her the sole beneficiary of his small estate(less than $100.000 in CD's,checking accounts and US Gov EE series bonds).

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Some creditors are smart; some are devious, and others are both smart and devious. Here is an example of the latter type of creditor from an inquiry I received this past week. Creditor files a lawsuit. Defendant hires an attorney to defend the lawsuit. The creditor wins a large judgment against the defendant. When creditor tries to collect the judgment he finds that the defendant has no collectible assets. Creditor tells the defendant that defendant's attorney "screwed up", and that absent the negligence of defendant's attorney the creditor states that the defendant would have won the case. This makes the debtor/defendant angry at his attorney so he sues attorney for malpractice. The attorney has malpractice insurance. After the suit is filed the creditor did one of the following ( it wasn't clear from conversation) : the creditor either levies upon the defendant's cause of action against his own attorney or any insurance proceeds therefrom, or he joins forces with defendant to help fund and prosecute malpractice action against defendant's attorney in exchange for a share of insurance recovery. The creditor now has the attorney's insurance policy as a source of money to recover what he could not otherwise recover from the judgment proof defendant.

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A reader ask whether she can claim Florida homestead protection on a Florida condominium when he works in New York but plans to live in the Florida condo for six months of the year. The reader states that most of his life is in New York.

This situation does not appeal to qualify for Florida homestead. I infer that the reader does not work in Florida. In order to be sure that his condo qualifies as homestead the reader must create a set of facts from which it is clear that Florida is his primary home. Retirement from the New York job and giving up the New York drivers license and voter registration would help. It is not necessary for this reader, or anyone else, to sell their northern home. Florida is full of "snowbird" residents who maintain a home in their state of origin. Residence in Florida does not require you sever your ties elsewhere, but it does require you to demonstrate an intent to make Florida your primary residence and the place you call home.

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Some of my clients who formed Nevis limited liability companies report difficulty opening bank accounts at their local banks in the name of their LLC. The bankers stated that they are reluctant to open an account for a foreign entity because of "9/11 issues." Clients have encountered problems opening accounts for their Nevis LLCs even at banks where the client has a long standing banking relationship.

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