Protection of Disability Insurance Proceeds
Florida asset protection law sometimes make important distinctions between protected assets and the proceeds of those assets in the debtor's hands. For instance, Florida Statute 222.14 expressly protects both annuity contract and annuity proceeds. Other laws protecting assets do not deal with proceeds therefrom. Today, a caller inquired whether disability proceeds and proceeds from the refinance of a homestead remain protected in his bank account. Florida Statute 222.18 protects disability income benefits under any insurance contract, but the Statute makes no mention of disability proceeds. Similarly, Florida's Constitutional homestead provision does not address proceeds from the sale or refinance of homestead property.
Homestead protection is for most purposes the best Florida asset protection. However, Florida courts restrict the protection of homestead proceeds. Proceeds from homestead are protected only so long as the owner intends to reinvest the proceeds in a replacement homestead within a reasonable time. Proceeds from the refinance of a homestead deposited in the owners bank account would lose protection if the debtor intended to remain in his current home.
Florida courts have liberally protected disability proceeds. Although there are few decisions on this issue, appellate courts have interpreted Florida Statute 222.18 to protect disability income proceeds after receipt, without any time restriction, as long as the proceeds remain traceable to disability insurance policies, even though the statute is silent on the protection of proceeds. I am aware of other cases that protect pension and IRA proceeds after distribution to the debtor when the protecting statutes also do not mention protection of distributed proceeds. Florida courts seem to be recognizing a public policy to protect statutorily protected assets in any form so long as they are the debtor's property.
posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida
Great work
Is it true that Florida and Texas provide the same protection from creditors and legal rulings to IRAs as to 401Ks? I want to rollover my 401K into a traditional or Roth IRA but am afraid that some unforeseen circumstance in the future may take away my savings. Thank you.
You write very well.
Keep up the good work.