Florida Asset Protection Law Blog | Attorney Jon Alper

Not all annuities owned by Florida residents are protected from their creditors. Protection does not depend upon the type of annuity or the issuer of the annuity, but asset protection does depend upon the state where the annuity was issued to the debtor. People who purchased annuities in another state before moving to Florida may not be eligible for Florida’s annuity exemption.

Start with the general principal that Florida residents cannot export Florida’s exemptions to another state so that your assets located or sited in a foreign state may not be protected by Florida laws. Annuities are contracts between you and an insurance company providing for financial benefits. Most annuity contracts state that the contract is to be interpreted under the laws of the state where the annuity was issued or where the owner signed the contract. If you resided in Florida when you bought an annuity your annuity was issued in Florida and governed under Florida asset protection law regardless of whether the insurance company has offices in Florida. But, if you lived in another state when you bought your annuity the annuity contract is probably located in the other state and not Florida.

 

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According to an article written by creditor and collection attorney Jorge Abril, thefederal government has issued a new regulation which makes it more difficult for judgment creditors to improperly garnish bank accounts containing government benefits. A variety of government benefits are exempt from creditor garnishment under federal law including, for example, social security, VA benefits, and civil service retirement. Nevertheless, if and when a Florida judgment creditor services a writ of garnishment on the debtor’s bank account the bank is likely to freeze all money in the account regardless of origin. A debtor who is living on social security and other federal payments has to go to court, often at significant expense, to assert his exemptions of his federal benefits and get the garnishment released.

Mr. Abril’s article explains that the new regulations effective May, 2001, requires a bank, upon receipt of a writ of garnishment, to conduct its own inquiry into the source of the funds in the garnished account, and if it determines that the account contains Federal benefit payments, to release the freeze on two months' worth of payments immediately, without any showing by the debtor.

This is welcome protection. Maybe Florida will pass rules requiring banks to likewise investigate whether money in a debtor’s account represents proceeds of assets protected under Florida law such as annuity proceeds or retirement distributions. Unless banks are required to make reasonable inquiry about the source of debtor’s funds some  creditors use bank garnishments against exempt money as an harassment tool as opposed to a legitimate collection tool.
 

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A Florida debtor can protect his primary residence  from creditors so long as either the debtor has an ownership interest in the property and either the debtor or the debtor’s family resides in the property as their principal residence. Even if the debtor moves to a new residence his former residence  is still protected  from his creditors under the Constitutional homestead provision  if a member of his family continues living in the house.

This principal is explained in a recent decision of a Florida appeals court. In this case, a man, his wife, and their child  lived in a Florida home. The couple divorced. The divorce settlement required the husband to deed the home to the wife who, together with the child, would live in the home exclusively. The husband moved out but never signed a deed to the wife. A creditor obtained a judgment against the husband only.

The wife died. After her death, the husband deeded the house to their child who was now an adult and still lived in the home. The judgment creditor sought to foreclose its judgment lien on the house. The creditor argued that after the husband/debtor lost his homestead protection when he left the house following the divorce.


 

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Last month a Florida appellate court issued a homestead decision which held that a spouse’s signature on a standard warranty deed conveying title to the couple’s homestead effectively waives the spouse’s post-death homestead rights. The case is important as it touches on a controversial issue of what constitutes a valid waiver of homestead rights in general.

The facts simplified were that a couple jointly owned a house. The spouses both signed a deed conveying title of the homestead to the wife. The wife’s will left a life estate in the house to the husband and a remainder interest (after the husband’s death) to the wife’s sister. The wife died first. After both spouses died the husband’s estate challenged the remainder interest to the wife’s sister on the grounds that absent a waiver of homestead rights by the husband a devise of less than fee simple interest to the sister would be invalid, and that since the wife had no descendants, the homestead should pass outright to Mitchell upon the wife’s death The wife’s estate argued that the husband waived homestead rights when he deeded the property to the wife during their lifetimes.

The court held that the transfer to the wife validly waived the husband’s homestead rights because of technical legal terminology in a standard warranty deed. Specifically, the warranty deed which referred to “all hereditaments” effected a transfer of all interests in the property capable of being inherited. Therefore, the conveyance of all hereditaments to the wife was a waiver of post-death homestead rights.

 

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A many  called me this past week seeking to hire me to help with a financial problem. The man had already retained one attorney, but the man was upset with his attorney because the attorney would not respond to his legal questions. This man said he had posed legal questions by email to his attorney, and that the attorney had either not replied with an answer.  
 
I understand why the attorney had not replied to the man’s emailed legal questions. I seldom answer legal questions submitted to me by email either from my own clients or from blog readers. Most legal questions have complex answers which cannot be adequately answered in a brief email reply. Answers to legal issues usually depend upon the facts and almost all general legal principals have exceptions. The answer is almost always more complicated than the question itself. Email is not suited to receive legal, or medical, advice.

Second, an attorney’s email answer to your legal question is a written legal opinion for which the attorney may be liable if the written email reply is either incomplete or is misunderstood. Attorneys charge a lot of money for a written legal opinion because of the liability involved. Most attorneys are not going to provide definitive legal opinions for free in the limited space afforded to email replies.

People probably email legal questions to attorneys for any number of reasons. Maybe the attorney does not return phone calls and clients are using emails to get through to the attorney. Maybe clients know attorneys will charge them for a phone conference but expect that email answers are free. Email is useful for some purposes such as requesting a phone call or providing information to the attorney. But, don’t expect to get either good and complete legal advice by email exchanges.
 

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I got a call from a Florida businessman who owned a business Jacksonville which had been sued. The court awarded a judgment against the business, but there is no judgment against the owner personally.  The owner is  considering closing down the debtor business and starting a new company doing similar kinds of things for similar clients. The owner asked me if the creditor could “pierce the veil” of the new business.

The question as phrased points out a subtle distinction between the concepts of piercing the corporate veil and that of attacking a successor corporation under the theory of alter-ego and business continuation. The legal  issue in this caller’s situation is not one of “piercing the veil” but is whether the proposed new business would be considered a continuation of the debtor business and merely the alter ego of the debtor business. When a newly formed business starts off its operations with the assets of a prior business the creditor of the prior business should be able to  execute upon the same assets under the theory that  the new business is alter ego of the prior business. Alter-ego theory would apply  when a  new business has, for example, the same ownership,  physical assets, customers, a similar name, the same location and  phone numbers, and other forms of goodwill transferred from a debtor business.

Piercing the corporate veil theory, on the other hand, typically  applies when a creditor wants to penetrate a corporate shield to obtain a personal judgment against the business owner. It is very difficult to pierce a corporation in Florida and most other states. There are two grounds to pierce the veil. First, a creditor can obtain a personal judgment against an owner who set up a corporation in order to defraud creditors. Second, a creditor can pierce the corporate veil when an owner operates a corporation as a sham and as an alter-ego of the owner. An example is an owner who pays personal expenses such as his mortgage and credit card bills directly out of corporate bank accounts. Such practices would indicate that the owner is treating the corporation monies as his personal funds and is not respecting the corporations separate legal existence.

 

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