Florida Asset Protection Law Blog | Attorney Jon Alper

Bills have been introduced in the Florida legislature to enhance the asset protection of multi-member LLCs. The Olmstead decision, which concerned directly only single member LLCs, suggested that creditors could use remedies other than charging liens to execute judgments against a debtor's interests in multi-member LLCs as  well. The proposed legislation makes it very clear that charging liens are the only remedy applicable to a debtor's membership interest in multi-member LLCs. The bills also enhance creditor's rights to foreclose the debtor's interest in an LLC that has "only one member."

Identical bills have been introduced in the Florida Senate SB1152 and the Florida House HB 253. The bills are making their way through the committee and review process. I do not want to comment further on the legislation or its impact upon asset protection planning unless and  until the bills become law.

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Asset protection is not about hiding assets; there is no secrecy in asset protection. I have made this comment many times previously on this blog. Debtor’s who don’t understand this principal can get themselves into serious trouble during the post-judgment discovery process when the judgment creditor examines the debtor and inspects the debtor’s financial documents in their attempt to find non-exempt assets. Since there should be nothing to hide, answer the debtor’s questions and don’t intentionally obstruct the creditor’s discovery process. In other words, “don’t play games.” Evading the creditor’s questions and providing incomplete documents makes it look like you are hiding assets even if you really have no reason to hide assets.

I have seen several debtors get themselves into trouble with a judge because the judge felt the debtor was evading a creditor’s discovery of assets. If a judge believes you are not fully and truthfully responding to asset discovery you will lose credibility.(judge won’t like you). In the worst cases, a judge can hold a non-cooperative debtor in contempt- I”ve seen it happen. If a judge forms a bad opinion about your truthfulness and lack of good faith in the judicial process you will be at a significant disadvantage when your attorneys appears in court to defend your asset protection planning. I have had several clients who were forced to make large debt settlements because their creditors seemed to have convinced the judge they were hiding assets only because the debtor fought and resisted reasonable post-judgment discovery.

 

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Occasionally, a client will state their understanding that they have to live in  in Florida for at least six months to be eligible for Florida asset protection laws. I have stated several times on this blog that there is no waiting period for a Florida resident to qualify for homestead protection as well as Florida’s other asset protection laws. So, why do so many people think they have to be here six months. I think people are confusing asset protection and state income tax issues.

Florida has no state income tax and no state inheritance tax  whereas many other states, particularly in the northeast, have substantial income tax and inheritance tax. If a person has a residence in Florida and other state the issue is what is his residence for the purpose of state income tax. I am not a tax attorney, but I believe that if a person lives in Florida more than six months during the year he is taxed under Florida’s rules. I think this is the “six month rule” and it has nothing to do with qualifying as a Florida resident for either asset protection or bankruptcy law.

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I was asked by a client this week- as I have been asked many times over the years- whether a new Florida resident has to file something with their county court in order to register their homestead as being exempt from civil creditors. Sections

and

of the Florida Statutes provide means by which a Florida resident  may claim homestead exemption and notify judgment creditors of the property’s exempt status either before or after a judgment has been entered against the them.  The question was whether these statutory procedures are required to exempt homestead from creditors.

The answer is no. Florida courts have held that no declaration or any other act of a property owner is required to make the owner’s primary Florida residence an exempt asset if the facts otherwise indicate that the property is the owner’s domicile. I know of no case in either state court or bankruptcy court which has held that failure to use the procedures of Sections 222.01 or 222.02 disqualified a debtor’s homestead exemption. The statutory procedures are expressly option: they state that people “may” use these procedures. In a court case, if you show that a particular Florida property is your primary residence you will be afforded homestead protection. I am not stating that using the declarations and procedures in these statutes will harm your position; but, they are not required and are not as a practical matter given substantial weight in court.

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There have been several court decisions in the past few years confirming homestead exemption of debtor’s primary residences owned in the debtor’s testamentary living trust. The Florida Constitution gives homestead protection to “natural persons, ” and the courts addressed the issue of whether a living trust is a “natural person” for purposes of the homestead exemption. One of the main reasons why a living trust maintained the homestead protection was the trustmaker’s retained power to revoke the trust during the trustmaker’s lifetime. The trustmaker had the ability always to take to house out of the trust and deed it to himself, individually.

When the same trustmaker dies, most living trusts become irrevocable. Assets are usually conveyed into irrevocable sub-trusts for the benefit of a surviving spouse and other family members. If a beneficiary occupies the same home which is now owed by an irrevocable trust does the homestead retain homestead protection in light of the Constitutional grant of protection to only natural persons.

 

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A continuing writ of wage  garnishment is a powerful collection tool because a creditor can serve a single writ of garnishment on the employer which garnishes all future wages whenever payable into the future. The continuing writ has been used to garnish debtor employees who  receive the same paycheck on a periodic basis. It is unclear whether a continuing writ of garnishment is applicable to a debtor paid only by commissions. That debtor may or may not be entitled to any commission at any given time. Commissions may not be the type of “wages” subject to a continuing writ in which case the creditor would have to serve a separate writ of garnishment any time the creditor believes the debtor is entitled to a sales commission. It is difficult for a creditor to know when a commission may be payable and to serve a writ of garnishment in time to intercept the commission.

I read a post in the Florida Collection Law Blog about an appeals court case which addressed the applicability of continuing writ of garnishments to commission compensation. The court held that commissions are 'wages,' for purposes of Section 77.0305, Florida Statutes, and are therefore subject to a continuing writ of garnishment. The court found that commissions paid for labor or services are within the definition of “wages” and therefore are subject to a continuing writ of garnishment. Baker v. Storfer 2011 WL 222324. Of course, if the debtor is head of household his commissions are exempt from any garnishment pursuant to Florida’s wage exemption.
 

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An attorney sent me a question regarding the exemption of money his client received from the sale of his Florida homestead. The client deposited the homestead proceeds in a separate and segregated bank account. The client began searching for a new home in Florida. Florida courts have protected homestead sale proceeds for a “reasonable time” while debtors seek a new home to live in. In this case, the debtor’s employer notified him that his job was being transferred to another state. The debtor will have to move out of Florida. As a result, the debtor has stopped looking for a new home in Florida, and the debtor no longer intends to reside in the state. The issue is whether the debtor loses protection of his “homestead account” once he changes his future plans. There are no court decisions on this point.

There are bankruptcy court decisions which make clear that a debtor may spend money from a homestead account on things other than the purchase of a homestead while the homestead search in ongoing. Therefore, it would seem that debtor could transfer or convert part of his homestead proceeds to an alternative protected asset or to another person during the time the debtor is, or was, searching for a new Florida homestead. It will be difficult for either the creditor or debtor to prove if and when this debtor abandoned plans to live in Florida. It is possible the debtor may have anticipated the employer’s decision to move him out of the state long before he received written notification.

 

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