Most people, including myself, understood that all IRAs were exempt from creditors outside of bankruptcy and were exempt from the bankruptcy estate for debtors who filed bankruptcy. I received an email from attorney Tye Klooster about an Illinois bankruptcy case which holds that some IRAs are not exempt. If followed in Florida courts this ruling would diminish IRA protection for Florida residents.
Continue Reading...I never stop learning about asset protection; I am always looking for new and better ways to protect people's assets. This week I attended a meeting of a small number of nationally recognized financial professionals and tax attorneys as a guest of one of the member firms. The majority of attendees were nationally recognized financial planners who were top producers; the professionals at this conference service exclusively the wealthy and very wealthy.
At this conference I learned about several advanced level financial products that can be great asset protection tools. I have found that many asset protection clients reject financial protection tools because these tools are primarily insurance based. I had usually agreed with my clients that they should be suspect of insurance and annuity programs because someone was making a commission.
Continue Reading...I recently read a case issued by the federal Court of Appeals which illustrated again the different treatment of homestead protection under Florida state law and in bankruptcy law. In this case a debtor obtained a money award through the settlement of her personal injury lawsuit to recover for personal injuries sustained in an accident. She never took possession of her share of the award. Instead, she directed her personal injury attorney to pay her award directly to the bank that held a mortgage on her homestead property. During the personal injury suit the debtor had been sued by American Express for her non-payment of credit card debt. The debtor stated that she had the personal injury award paid directly to her homestead mortgage in order to protect the award from American Express by virtue of Florida's homestead protection laws.
A few months later the debtor filed bankruptcy. The bankruptcy trustee sought to put an equitable lien on her home. Under Florida law, paying extra money to reduce a mortgage, even if done to protect the money from current creditors, cannot be undone or reversed with one exception. If the money was invested in the homestead to protect it from creditors was the result of fraud or other egregious circumstances courts can give a creditor an equitable lien on the homestead for the amount of the creditor's debt. This bankruptcy trustee argued that what this debtor did with her personal injury proceeds was either fraudulent or egregious and warranted the imposition of an equitable lien on the homestead.
There are separate rules in bankruptcy applicable to this transaction. In bankruptcy, if a debtor converts money to a homestead or other exempt asset within a year or two of filing bankruptcy in an effort to defraud creditors the bankruptcy court can deny the debtor its discharge of unsecured debts pursuant to Section 727 of the U.S. Bankruptcy Code.
Continue Reading...Occasionally, I get questions from creditors trying to collect judgments in Florida. Some of the questions are relevant to asset protection planning. Here's one. An out of state creditor had a judgment against a Florida resident who owned rental real property in Florida. The creditor wanted to see if he could garnish the tenants' rent payments. The creditor wanted to know if he could get a continuing writ of garnishment against the tenants so that each month the tenants would sent their rent payment to the creditor instead of their debtor/landlord.
I always tell people that if a judge wants to "get you" they will usually find a way- especially the federal judges. One of my clients was sued in federal district court in another state up north. The client was already a resident of Florida. The judge ruled against him and gave the other party a money judgment. Knowing the client, now the judgment debtor, had recently purchased an expensive condominium in Florida as his main asset, the judge issued an injunction to stop the debtor from selling the condominium. The judge rejected imposition of a constructive trust over the condominium because, among other reasons, he probably did not have jurisdiction over Florida property and because he may have questioned the court's ability to impose a remedy over a Florida homestead protection. What the court did, however, is issue an injunction against the client/debtor personally to stop him from taking any action to sell or transfer the condominium
Continue Reading...Consider a man and his wife who moves from Georgia to Florida and purchase a homestead for $100,000 cash. Title to the homestead is in the name of the husband only. After he and his wife reside in the new home for a few months, the man gets an equity line second mortgage. He uses $50,000 of loan proceeds to purchase an investment property title to which is taken in the wife's name only. A year later, the man encounters severe financial difficulty and files chapter 7 bankruptcy. Because he has not lived in Florida for two years prior to filing he is not eligible for Florida bankruptcy exemptions and must file with Georgia exemptions even though he is a Florida resident. Georgia has a relatively small homestead exemption which I'll assume is $10,000. (exact amount is not relevant ). Therefore, only $10,000 of his homestead is an exempt asset in bankruptcy. The issue is whether the equity line loan used to purchase the $50,000 property for his wife is a fraudulent conveyance of $40,000 subject to attack in the bankruptcy
Continue Reading...I received an email inquiry about whether "equity reduction plans" are an effective asset protection technique. The mail described these plans as a version of equity stripping . In the equity reduction plan someone puts a friendly mortgage or lien on the debtor's property but no money actually changes hand. I inferred that the tool is supposed to place a priority lien on the property to a friendly creditor without having to actually find or obtain enough cash to fund a lien large enough to cover most of the property equity.
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