Florida Asset Protection Law Blog | Attorney Jon Alper

An attorney sent me an email question about his client’s possible interest in an irrevocable trust. The client apparently set up the irrevocable trust for the benefit of other family members. He transferred assets irrevocably to fund the trust. The trust was established to “freeze” the value of the trust assets for estate tax planning. The grantor transferred $5 million in to the trust.

The trust agreement provided for an independent trust protector, that is someone who has no beneficial interest under the trust. The trust protector has the discretion to appoint (i.e, give away) trust assets to a defined group of people including the grantor himself. The issue is whether a future creditor of the grantor could levy upon the grantor’s right to receive trust property through appointment by the independent trustee.

 

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You judgment creditor can target automobiles you own free and clear of any lean. Clients often ask me how a creditor goes about taking their cars. A particular concern is about creditors entering the homestead grounds to take a car parked in the debtor’s driveway or the debtor’s garage.

If a creditor identifies a car in your name the creditor can describe the car to the sheriff, including the VIN number, and instruct the sheriff to levy upon the car. An existing lien on the car makes levy unlikely because there typically is insufficient equity to warrant levy, but a creditor still has the right to levy upon a car subject to a lien.

Most times, the sheriff will pick up a debtor’s car when the car is on the public streets or in a public parking lot. However, a creditor can get a court order authorizing the sheriff to enter upon your homestead property to take a car.

Parking a car in your enclosed garage will not stop a levy. I have seen cases where the creditor obtained a court break order authorizing the sheriff to break into the debtor’s garage with force to take a debtor’s car. In this particular case, one of the garaged cars was owned free and clear, and another car was still subject to a purchase lien. The break order expressly authorized the sheriff to “break or remove any lock, outer door, or other hindrance or impediment to entry of the premises.”

Hiding assets, whether money or cars in a garage, is rarely an effective asset protection strategy.
 

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A debtor owned a series of single member Delaware LLCs. Delaware law provides that the charging lien is the exclusive creditor remedy to attack all LLCs regardless of the number of members. Most other states including Florida  provide that a creditor can foreclose the debtor’s interest in a single member LLC.

I recently learned of a case where a judgment was entered in Utah against a debtor who owned single member LLC interests in  Delaware LLCs doing business in Utah. The creditor sought to seize and foreclose the debtor’s LLC interest. The debtor argued that Delaware law applies to the creditor’s charging remedies because the LLCs were Delaware entities.

The Utah court issued an order that Utah law applies to all judgment execution proceeding including the creditor’s foreclosure of the debtor’s interests in limited liability companies whether such LLCs are domestic or foreign.

I previously written on this blog that I thought a Florida court would permit foreclosure of a Florida’s debtor’s LLC interests formed in more protective states such as Delaware, Utah, or Wyoming. This is the first court decision I have seen on the issue. I continue to believe a Florida court would agree with the Utah result. See, 2011 WL 1230074

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All causes of action are subject to a “statute of limitations” which refers to a time limit on lawsuits. The statute of limitations for a creditors’ fraudulent transfer actions is complicated. Most fraudulent transfer actions are subject to a four year statute of limitations (“SOL”). Creditors cannot attack transfers, or conversions, made over four years ago. Some fraudulent transfers are subject to only a one year SOL. The one year SOL applies, for example, to transfers or conversions where the debtor had actual intent to defraud creditors.

Where the creditor can show actual intent to defraud the fraudulent transfer action must be brought one year from the date of the transfer or one year from the time the transfer could reasonably have been discovered by the claimant. The one year SOL addresses transfers which the debtor makes in secret and tries to hide from creditors. A creditor has one year to bring a fraudulent transfer action after the time the debtor discloses the transfer or otherwise removes the veil of secrecy even if the secret transfer is more than four years old.

Most creditors do not discover that a debtor made a fraudulent transfer with intent until after the creditor gets a judgement and engages in discovery of the debtor’s finances in aid of execution through depositions and document review. Assume that a debtor transferred an asset four or more years ago with intent to hide the asset from a particular creditor, and that the transfer was not hidden or made in secret. The creditor did not discover the transfer until after it got a judgment. The creditor had no relationship with the debtor four years ago, and reasonably, it could not have discovered the transfer until after it got the judgment.

 

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Some time ago I wrote a post about Florida residents who purchased an annuity for his own benefit before moving to Florida in a foreign state which did not recognize annuities as exempt from creditor execution. I assumed, for the question, that the annuity company was in the same state and that the annuity contract provided that the law applicable to the annuity is the law of the state where the debtor resided when he purchased the annuity. The post discussed whether the annuity would become an exempt asset when the debtor moved to Florida.

A few of my clients have mentioned the post, and have said they were concerned about their own annuities purchased in another state. The client asked me to do further research. I found bankruptcy cases which held that a debtor’s beneficial interest in an annuity is exempt regardless of where the annuity company or its owner are, or were, located.

The courts interpret the annuity exemption as applying to the debtor’s beneficial interest because the statute (222.14) exempts annuity proceeds. The court rulings imply that a debtor’s beneficial interest follows the debtor to Florida, and that when the debtor becomes a Florida resident his beneficial interest in the annuity is exempt regardless of where the annuity owner or the annuity company is located now or in the past.

An annuity contract may have a provision applying another state’s law to the interpretation of the annuity. I think the most reasonable application of that provision is to apply the other state’s law where there is a dispute regarding the contract’s interpretation and application, but that the same provision does not define the exemption of the beneficiary’s interest.

The distinction is similar to the issue of whether a Florida  debtor can use a single member LLC for asset protection if the debtor forms the LLC in a foreign state whose laws provide that a charging lien is the sole remedy against all LLCs, including single member LLCs. I’ve said that the creditor’s rights to execute upon the Florida debtor’s LLC interest would be determined by Florida law if the debtor lived in Florida regardless of what state law applied to disputes among the parties to the LLC. I think the analysis is the same for the annuity exemption; the law applicable to exemptions and creditor rights depends upon the law of the Debtor’s residence.
 

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Generally, Florida’s creditor exemptions are expressed in Chapter 222 of the Florida Statutes. The Chapter’s sections list Florida’s premier asset protection exemptions including the exemptions afforded wages, retirement funds and annuities. Sometimes the legislature makes important asset protection changes in various other parts of the Statutes.

A few years ago Florida changed part of its banking law statutes making it easier to for individual debtors to protect tenants by entireties bank accounts. Section 655.79 (1) provides that any joint bank account, including a CD, owned by husband and wife is a tenants by entireties account.

It does not matter any more whether your bank offers tenants by entireties account labels or even if the bank understands entireties accounts. It does not matter whether the spouses were married when they opened their joint account, or whether one spouse opened the account before marriage and added their spouse to the same account after the wedding. It does not matter if your account title is owned husband OR wife versus husband AND wife. None of these types of issues  matters according to a reasonable interpretation of this statute.

The bank account will not be an entireties account if the debtor and spouse indicated somewhere in writing that they want a different type of account. Also, the strong presumption of entireties ownership applicable to bank accounts does not apply to personal property such as brokerage accounts and vehicles. Other than marital bank accounts there are many technical traps in establishing entireties ownership of personal property.  

 

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I received an email from an attorney outside of Florida asking whether homestead protection shields a debtor from a lien placed on his homestead for unpaid golf association dues? The answer is probably “no.”

The homeowner probably signed documents to join the golf association, or the association membership was required by previous deed restrictions. If the golf associate has filed a lien on the house I assume it had the legal right to do so based on the association documents.

Community association liens are a type of consensual lien. The homeowner agrees or otherwise consents to the right of the association to put a lien on his homestead for unpaid dues or assessments. Mortgages are another form of consensual lien. A golf association or homeowner association has the right to foreclose its lien.

In a Chapter 7 bankruptcy, association liens are secured debts. Unpaid association dues accrued prior to filing and not secured by a lien can be discharged. The debtor is personally liable for association due which become due in the months after the bankruptcy filing.

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