Florida Asset Protection Law Blog | Attorney Jon Alper

A civil creditor can execute a money judgment against military pay owed to an active member of the U.S. military. While the creditor would use a “continuing writ of garnishment” to execute upon the earnings of a civil, non-military debtor, federal law provides for a different collection tool against servicemembers. The civil creditor applies to the military for an “Involuntary Allotment” which requires the allotment of up to 25% of the servicemember’s pay to satisfy the judgment.

A Florida resident joins the military and is deployed outside of Florida.  Before joining the military this person was sued by a credit card company resulting in a money judgment. The credit card company applied for an Involuntary Allotment. The debtor supports a spouse who lives in Florida. The issues is whether Florida’s head of household exemption from wage garnishment prohibits an Involuntary Allotment against a servicemember deployed outside of Florida and paid outside of Florida.

 

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This post is about tenants by entireties accounts. Assume two married people living in Florida have a joint financial account. Whether the account is presumed to be an entireties accounts depends upon where the account is maintained. Accounts opened and maintained in Florida are presumed to held by the entireties. Accounts opened and maintained in other states which states to not recognize entireties ownership are not entireties accounts notwithstanding the fact that the account owners live in Florida- Florida residents cannot export entireties protection to accounts set up in other states unless the other state recognizes entireties ownership.

That’s the general rule. One of my clients had retired from IBM. He had invested over the years in a non-tax qualified stock purchase plan where the company would contribute some money to the purchase of IBM stock. He owned approximately $250,000 of IBM. The stock was titled jointly with his wife. We discussed whether the stock was owned as tenants by the entireties. The stock was not held in a brokerage account. The IBM shares have never been issued to the client. The client described his ownership as an accounting entry on IBM books; they owe him the stock.

Because this stock is not held in a financial account I could not tell the client with certainty what state’s entireties laws would apply to ownership and creditor protection. Perhaps the stock is located at the IBM physical corporate offices. Yet IB M has offices in several different states so that it would be difficult the find the stock in the company’s maze of offices. These clients stated that they had the right to request delivery of their IBM stock in physical certificates to their current residence in Florida.

 

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Attorneys must not become agents or participants in their clients' fraudulent transfers. Attorneys should not prepare transfer documents nor handle money to assist a conveyance which might reasonably be challenged as a fraudulent conveyance.

The Eleventh Circuit Court of Appeals issued a decision in December, 2010, in the Harwell case  which decisions  limits the extent to which an attorney can help clients effectuate fraudulent transfers. Naples, Florida attorney David Slenn provides an informative summary of the decision in Leimberg Services newsletter published on January 13, 2011.

Harwell gave his attorney money which the attorney deposited in his trust account. After a creditor got a civil judgment against Harwell the attorney disbursed Harwell's money to third parties including the attorney to pay his legal fees. Harwell filed bankruptcy. The bankruptcy trustee claimed the attorney was liable for the amounts transferred out of his client's trust account because the attorney was a transferee of the client's fraudulent transfers. The bankruptcy court, and the U.S. District Court agreed, that the attorney was not liable because he was a mere conduit of the money without control over the money. The bankruptcy court found that whether the attorney knew the purpose of the transfers was not legally relevant under the law.

The Eleventh Circuit court reached a different conclusion and remanded the case back to the bankruptcy court. The appellate court held that the attorney is excused from liability as a mere conduit of money only if the attorney acted in good faith. The court pointed out that the attorney knew about the civil judgment and the creditors aggressive collection efforts at the time he disbursed money from the trust account. This attorney could be held liable for the money if the bankruptcy court finds his participation in this client's money transfers was in bad faith.

 

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Interesting question from another attorney. The attorney had a client who wanted to form a business entity to hold a valuable piece of unencumbered real estate. The client and attorney are concerned about using a limited liability company, single or multi-member, because of the Ohmstead decision that jeopardizes LLC asset protection. The attorney and client are considering either a limited partnership (LP) with a LLC as the general partner or a limited liability limited partnership (LLLP) with the client acting individually as the general partner. The attorney is not concerned about a creditor attacking the client’s limited partnership share, but he is worried about the creditor trying to levy upon the general partnership interest. The concern is that the general partner owns one percent of the equity and that the general partner controls partnership decisions and management.

I don’t’ see a significant difference between the two options in terms of protecting the client’s general partnership interests if a creditor sues the partnership. An LLLP protects the general partner from personal liability for the partnership’s debts, and if the LP is used, the LLC entity, even a single member LLC, would act as a corporate shield against individual exposure to suits against the partnership.

 

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Man lives in Idaho with his wife. Man borrows money. He can’t pay back the money. He and his wife move to Florida where they buy a house and open a joint bank account. The man files Chapter 7 bankruptcy. Is the bank account exempt as tenant’s by entireties property?

The general rule in Florida is that bank accounts owned jointly by the bankruptcy debtor and his non-filing spouse are exempt as tenants by entireties property. The above fact situation is complicated by the fact that Idaho is a community property state.  In most community property states the law provides for co-equal management of community assets and that when either spouse incurs a debt for the benefit of the marital community the creditor may seek satisfaction of his unpaid debt from all community property; the rule is the opposite of our tenancy by entireties concept of marital property.

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