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

A client recently withdrew large sums of money from his 401 k plan to pay living expenses. He deposited the money in his bank account. The client wants to know if the money is protected from creditors after it has been deposited in his bank account. The Florida statutes exempt many specific assets including retirement proceed and annuities. The annuity statute specifically exempts not only the annuity but the proceeds of the annuity. The statute protecting retirement funds does not address proceeds paid from retirement funds.

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A lady residing in Texas emailed me about a judgment entered in a Texas court over 10 years ago. She works in Texas for an employer which has its main corporate office in Florida. The Texas creditor domesticated its judgment in Florida. The creditor had the Florida court issue a wage garnishment which the creditor served on the employer at its corporate office in Florida. The lady said that she is head of household as she is divorced and supports her minor child. She asked whether the creditor can garnish her wages in Florida as opposed to Texas where she resides, and whether she can take advantage of Florida laws preventing garnishment of head of household.

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The well-known case of Havoco v. Hill decided by the Florida Supreme Court in 2001 is the basis upon which debtors can protect non-exempt assets from existing creditors by converting the assets for the purchase or improvement of Florida homestead. The Havoco case permitted an exception to homestead protection where funds invested from the property came from fraud or other egregious circumstances. In such cases, the Supreme Court stated that the aggrieved creditor could get an equitable lien on the homestead although the creditor still could not force the sale of the house. The "fraud exception" in Havoco has lead to some court decisions in the past few years which have clarified the exception to fraudulent transfers into the homestead shelter. Some creditors believed, or at least have argued, that blatant fraudulent transfers, where the fraudulent conversion of money to the homestead is obvious and timed solely to avoid debts, are sufficiently "fraudulent" or "egregious" so as to warrant an equitable lien on homestead property.

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Florida residency is based on intent. A person is a Florida resident if and so long as he intends to make Florida his permanent home. I recently spoke with a client who wanted to know if he qualified for homestead protection as a Florida resident under the following fact situation. The client lived in Denver for 13 years where he was a company employee. The company relocated him to Florida. The client bought a home in Florida and moved into the home as his permanent residence. Six months later the employer relocated him back to Denver where he has been working for the past nine months. The client rents an apartment in Denver. He still owns his Florida house which is vacant. He keeps most of his furniture in Florida. The employer is paying his Florida mortgage. The client did not yet file a claim for homestead tax exemption. The employer does not know, and the client does not know, if an when he will be relocated in Florida, although the client would like to move back to Florida. The client has a Colorado drivers license and is not registered to vote in either Florida or Colorado. Some mail is addressed to Colorado, and other mail is addressed to Florida and forwarded to the current address in Colorado.

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Many clients believe that their family members and friends can be part of their asset protection plan. This week one of my clients consulted with me about whether his interest in a wholly owned limited liability company business would be an effective defense against a possible civil judgment against the client for actions unrelated to the operation of the business. The client understood that the creditors's collection remedy against his interest in the LLC would be limited to a charging lien on distributions from the LLC to the client/owner. However, the client was concerned about not being able to receive money earned by the LLC which the client had relied upon to pay personal expenses. The client made several proposals and suggestions about how his friends and family could help him receive money from his limited liability company. These suggestions included, for example, the LLC paying salary to a friend and having the friend pay his personal bills; borrowing money from a family member secured by a lien on LLC distributions but then paying back the loan in cash; selling his LLC interest to a friend for nominal consideration with an unwritten understanding that the client was entitled to profits and loans from the LLC etc, etc.

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More and more calls and emails are coming from people in trouble with investment real estate. The typical person is concerned about his personal liability and vulnerability of assets in the event one or more of his real estate investments is foreclosed by mortgage lenders. A deficiency judgment refers to a lender's judgment against the borrower for the difference between the outstanding balance of the mortgage note, plus costs and attorneys fees, and the value of the property foreclosed. The property value is determined on the date of the foreclosure sale. In Florida, a foreclosure does not automatically result in a deficient judgment. The mortgage lender has to file a motion for a deficiency after the foreclosure sale, and the court holds a separate hearing on the lender's request for deficiency liability.

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Many real estate investors have serious financial problems due to declining real estate values and credit problems. During the past few months a large portion of my banrkuptcy and asset protection inquiries are from people who find themselves unable to pay mortgages they used to buy investment real estate near the end of the housing bubble. Several of my callers, and people who have become clients, have asked me about the consequences of giving a bank a deed in lieu of foreclosure or selling the property for less than full mortgage balance as part of an agreed "short sale." (A "short sale" is where the bank agrees to accept less than the mortgage balance to release the mortgage in order to facilitate a sale and partial recovery of the loan). One issue that frequently is discussed is the income tax consequences for the borrower from a short sale of deed in lieu as opposed to letting the bank foreclose. Income tax may be imposed for a cancellation of a debt. ("COD") I am not an income tax professional. Recently, I posed the question to my personal CPA, Mr. Lonnie Young of Lake Mary, Florida, and asked him to explain the income tax consequences of giving property back to a mortgage lender.

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Valuable personal property owned free and clear is difficult to protect from creditors. Consider, for example, my client who owned outright a private airplane. The client was unmarried and owned all assets in his individual name. The client had imminent legal problems so that any transfer of the airplane title would probably be deemed a fraudulent conveyance. One option was for the client to pledge the airplane for a bank loan. That option had two problems. First, my client did not have good credit and a loan secured by the airplane alone would be difficult and expensive. Secondly, he did not want to pay interest on a personal property loan and he had no place to shelter the loan proceeds if he did get the loan.

His main asset protection tool was to be the purchase of a new homestead and getting a home equity line of credit to borrow money for living expenses.

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Money from the sale of a homestead, if not invested in a new homestead, can still be protected after the sale if invested directly from the closing in otherwise exempt assets. There is no fraudulent conveyance or fraudulent conversion if exempt money is invested or transferred directly to protected assets or third party ownership. Consider a client who told me last week that he had moved from his former homestead into a new house and had put the old house up for sale. The new home was titled in the name of a limited liability company rather than in the individual names of the client and his spouse. The client had concerns about liability and potential litigation from a real estate investment. His question was how he could maximize homestead protection between the two properties given he was willing to reside in either house.

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An attorney called me last week about his foreign client who owned Florida jointly with his wife. Neither the client nor his wife had a green card, although both had visitor visas entitling them to be in the United States and Florida for a limited time. The attorney represented the husband as a defendant in a civil lawsuit in Florida court. The attorney asked me if the real property was exempt from his client's individual creditors as tenants by entireties property. The issue is whether a temporary visitor to Florida can qualify for Florida's tenancy by entireties protections.

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