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

 A client maintains a self-directed IRA which has purchased rental real estate. The real estate is titled in the name of the IRA. The IRA owns several properties as well as financial assets. A tenant filed a lawsuit. The client asked me to reaffirm his understanding that if he lost the lawsuit the tenant/plaintiff could not satisfy the judgment against the other real estate and financial assets because IRAs are exempt from creditors under Florida law.

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Judgment debtors frequently maintain multiple bank accounts at particular banks. Some accounts may be in the debtor’s individual name and subject to the creditor’s writ of garnishment. Other accounts may be exempt joint accounts, wage accounts, or even accounts in the name of a separate, non-debtor  business entity for which the debtor has signature authority. Many of my clients find that their judgment creditors cause the bank to freeze all accounts at their bank including the exempt accounts and accounts of separate entities which are not involved in the lawsuit.

My clients ask me why did their creditor garnish a joint account which is obviously an exempt entireties account, or how could the creditor garnish the business account when the business does not owe the creditor any money. The answer is that the creditor served a writ of garnishment on the bank; the creditor did not serve a writ of garnishment on any particular account. The bank is the party which chose what accounts to freeze subject to resolution of the garnishment. Most banks will freeze any and all accounts which have the debtor’s name on the title or accounts for which the debtor has signature authority.  Florida law protects banks from liability from freezing an account later determined to be exempt or not subject to the debt. Banks may be liable for not freezing an account which should be covered by the writ.

 

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A reader emailed me to following question: “Can a married couple both claim head of household exemption from wage garnishment if they life together, but where each spouse supports different dependents who are children of a previous marriage.”

I have not seen a case on this issue, but I think the answer is that each spouse can claim the exemption from wage garnishment. Head of household does not refer to a physical house as much as it refers to a family unit. A debtor can claim head of household exemption if he supports a dependent who lives a different address. Only one person can claim head of household in each “household.” I think two people can reside in the same property, and be married to one another, but each spouse can still be the head of separate families which relate to their respective prior marriages.
 

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Here is a straight forward, frequent question from one of my asset protection clients. There is a civil judgment against my client in the state of Tennessee. The client moved to Florida where he resides and works at his new job. The creditor attorney in Tennessee sent the client a notice of taking the client’s deposition in Tennessee to discovery his assets. Here, this is called discovery in aid of execution. The client wants to know if the creditor can force him to travel to Tennessee to sit for his deposition there, or if the creditor has to first domesticate the judgment in Florida and take his deposition in the Florida county where he resides.

In my experience, the answer varies depending upon the judge in the case. Some judges in the debtor’s former residence will issue an order requiring attending in the former state given that his court has established jurisdiction over the debtor. Non-compliance with the order would subject the debtor to contempt sanctions. Other judges will refuse to compel the debtor to return to his former residence and instruct the creditor to pursue collection in Florida. If a court does order the debtor to travel to the former residence the debtor might request the creditor pay travel expenses.

If foreign court compels attendance at a post-judgment deposition the debtor should comply whether or not the court permits travel reimbursement. The debtor will eventually have to subject himself to post-judgment asset discover. The debtor’s assets and his answers to the creditors questions should be the same wherever the discovery takes place.

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Many small business loans from banks are secured by the business’s tangible personal property including office furniture, equipment, and inventory. The lender typically records a UCC 1 to give public notice of its lien and security interest in the debtor’s property.

I had a small business client who stated his business was in financial difficulty. He knew the business would have to shut down shortly. He asked whether he could sell the business’s inventory and equipment before he shut the doors. He knew someone in the same business who was willing to buy his property at a reasonable price. He asked whether his creditors could sue the buyer to recover the goods assuming he did not discuss with the buyer  the loan agreement and security agreement.

In the first place, Florida statutes make it a misdemeanor criminal office to sell  personal property subject to a security interest without the secured party’s consent. The offense is punishable regardless of whether the debtor had criminal intent, and the law applies as well to the buyer.
 

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Florida law has a well-established tradition of protecting a beneficiary’s interest in a discretionary  spendthrift trust. A “spendthrift trust” is an trust established for the benefit of another person, the beneficiary, which trust includes a provision that prohibits the beneficiary from voluntarily or involuntarily assigning his interest to a third party including the beneficiary’s creditors. The spendthrift trust is “discretionary” if the trustee of the trust is given the discretion over the timing and amount of distributions he makes to the trust beneficiaries.

One of my clients is the beneficiary of a spendthrift trust established by his parents for the benefit of my client. There are no other beneficiaries. The parents named my client as the trustee of the trust created for his benefits. The trust gives the trustee, the client, discretion over the amount and timing of distributions.

The client has a potential legal problem. He wants to know if his beneficiary interest in his parents’ spendthrift trust is protected from this future creditors even when the client is serving both as the trustee and the sole beneficiary. The client is concerned that his future creditors could ask a court to force my client to exercise his power as trustee to make distributions of trust assets to himself and that the assets could be levied upon once he receives the assets outside of the trust. In other words, does spendthrift protection still apply when the debtor is both beneficiary and discretionary trustee of the trust.

 

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Asset protection can be very complicated when  a husband and wife reside apart in different states. Here is an interesting tenants by entireties issues presented recently by a new client.

Husband and wife lived in Ohio where they had joint bank accounts. The husband’s employer transferred his job to Florida. The wife has a job in Ohio. The husband moved to Florida, purchased a condo, and moved into the condo as his primary residence. He obtained a Florida drivers license and took other steps to establish Florida residency. The husband and wife opened a joint bank account in Florida.

The wife was sued in Ohio on her personal guarantee of a loan made to her Ohio business. They want to know if the money in the joint Florida account is exempt from the wife’s separate creditors.

 

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When you file an LLC in Florida you have to name the person who is serving as manager and indicate if the manager is also an LLC member. I often get asked by clients and blog readers  if there is a benefit to form an LLC in states which do not publish either the owner or managers on the state’s website. You can form an LLC in Delaware, Nevada, Wyoming, and maybe other states without naming the manager or LLC owners. Also, public access to these other  states’ website is more limited than Florida’s website.

 Some people see a “secrecy” advantage in creating LLCs in these states. They believe that their creditors will likely search the public records of Florida and other states to see if the debtor owns or is associated with an LLC formed in these states. If the creditors do not find any business entities associated with the debtor’s name in the public record, the creditors will be less likely to pursue aggressive collection of the debtor-according to the secrecy theory.

In my opinion, this is hogwash. I don’t think creditors search public records in order to decide whether and how aggressively to collect judgment debts. Also, there is no secrecy in debt collection or in asset protection (other than perjury).  Within 45 days after a civil judgment is signed the debtor is usually  required to send the creditor a financial affidavit which lists all of the debtor’s assets. When a creditor takes the debtor’s deposition in aid of execution of the judgment the creditor will ask the debtor to describe his interest in any LLC, partnership, or other business entity. In the course of the creditor’s discovery procedures the debtor’s business  interests will be disclosed and the secrecy advantage of forming the LLC in another state will be lost.

 

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Real estate values are decreasing again, and inquiries about short sales are increasing.  Here are two examples from this week about people who made the wrong decision about short sales. The first client called me today about dealing with the consequences of a short sale contract he had signed.. The client told me he had spoken with two or three mortgage assistance companies about whether he should pursue a short sale of his financially troubled property. He said each of the companies  advised him not to do a short sale, but that he should file bankruptcy instead. Other people have told me they had consulting bankruptcy attorneys who likewise had advised them to file bankruptcy in advance of a foreclosure to wipe out the “possibility” of a deficiency judgment.

Bankruptcy is the last resort to deal with real estate problems. I’ve written previously that first mortgage  deficiency judgments are uncommon. First mortgage lenders who pursue deficiency judgments usually will settle for a small percentage of the total liability. Your protections and exemptions in bankruptcy are less than they are under state law outside of bankruptcy. And, once you get yourself in bankruptcy you cannot get out without cause. Understand that some bankruptcy attorneys see bankruptcy as the only way to deal with financial problems; it is the only legal tool they know. Bankruptcy should be considered only after a lender sues for a deficiency, gets a deficiency judgment, refuses settlement, and is about to garnish wages or levy upon assets.

 

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A client received a lump sum disability insurance settlement and deposited the proceeds in his bank account. I told the client I thought his money is protected from creditors. The Florida statutes exempt proceeds of a disability insurance policy, and there are many judicial decisions which establish the general principal that proceeds of an exempt asset do not lose its exempt status after it is received and deposited in the debtor’s bank account. There are exceptions.

My client wants to invest his money. He asked me if the money would still be protected if he used the disability proceeds to buy publically traded stocks. He contends that as long as he can trace the stock purchase money back to the disability payout the stock still be exempt as proceeds of the disability policy.

I do not think the stocks would be exempt. In my opinion, the exemption attributed to proceeds of exempt assets goes only as far as the cash receipts placed in a financial account. My client’s purchase of stock converts the disability proceeds to a distinct type of asset. Unless the stock has its own exemption the investment of the money would lose end the disability protection. On the other hand, using disability proceeds to purchase an different exempt asset, such as an annuity or stock owned by the entireties, should not be a fraudulent conversion.
 

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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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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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Some of my clients come into my office with tips and tricks they have learned themselves which they believe will protect assets. People think that they can protect cash simply by depositing the money in an offshore account; Swiss bank accounts are the most popular. As I have written previously, I have been told that it has become very difficult for individuals to open accounts at Swiss banks because of pressure applied by US antiterrorism and taxing agencies. Nevertheless, one of my clients this week explained that they had previously traveled to Switzerland, walked into a bank without appointment or introduction, and opened an account with a substantial cash deposit. I told them I was surprised they were able to open the account so easily. This is their explanation.

When my clients had researched procedure for Swiss accounts they learned that the US  political pressure had been exerted against the larger, multinational Swiss banks. Smaller Swiss banks were unaffected, afraid, and were still very receptive to US customers. According to these clients, a US citizen can seek out a small Swiss bank and open a Swiss bank account “just like to old days.”

 

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One of my clients was very concerned about the exemption of 529 plans in Florida. The client’s financial planning involved significant contributions of money each year into 529 plans for his young children. The client established the plans in Illinois where he and his wife had lived before moving to Florida. The 529 plan was sponsored by the State of Illinois. The client had read that Florida law exempts only plans sponsored by the State of Florida. He wanted to know if he had to transfer his Illinois 529 plan to the Florida plan to preserve its protection.

Let’s look at the Statute. Florida Statute 222.22(1) exempts from attachment, levy, garnishment or legal process moneys paid into or out of, ... and the income of any validly existing tuition program under Section 529 of the Internal Revenue Code “including, but not limited to,” the Florida Prepaid College Trust Fund. In other words, any college tuition program authorized by the tax code is exempt for Florida residents. It seems the statute is clear, so what did the client read that made him uncertain. What he read was the old statute. Prior to 2005 the statute exempted, “moneys paid into or out of the Florida Prepaid College Trust Fund.” The prior statute did not reference Section 529 of the tax code and did not exempt any 529 plans other than the Florida plan. Today, all qualifying 529 plans are exempt for Florida residents.
 

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One of my Florida  clients has a joint account with his spouse at an internet bank. The bank has no branches other than its main office in Utah. The husband is facing personal liability from a failed commercial real estate venture. The client asks if the bank account is exempt as a tenants by entireties account.

A bank account is deemed to located where the account was opened. In most cases, a financial account is opened at a branch location. Because internet banks have no branches, I suspect a court may find the account is situated at the bank’s home office. A debtor could argue that in the case of an internet bank without branches the account is opened where the debtors resided at the time they applied for the bank account. The issue could go either way, but I think the better answer is that this account is anchored at the internet bank’s home office in Utah. Utah law does not recognize tenants by entireties ownership. I think the account is not protected as an entireties account.

If I’m right, then Florida debtors may be exposing joint bank accounts at national internet banks where the internet bank home office is in a state without entireties law. 

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Today’s issue is, what do you have to do to transfer ownership of personal property. I recently interviewed an asset protection client who owns a failing business and anticipates possible litigation. The client’s assets are generally either exempt or of small value. He does own one thing of significant market value and enormous sentimental value; a very rare and very old grand piano inherited from his great-grandparents. He stated the piano was worth over $250,000. In 2003, this man had some creditor problems which he was able to resolve. He  decided then to try to protect the piano in the event he ran into similar problems in the future. In 2004, he prepared, signed, and had notarized  a bill of sale conveying this piano to his son who lives up north. He asked if the bill of sale would protect his piano from future creditor attacks.

The client is beyond the four year statute of limitations for fraudulent transfer because the bill of sale was executed in 2004. The creditor cannot reverse the transfer even if the client admits he transferred title to protect the piano from creditors. I think the client’s problem is his retained possession of the piano. A court may not recognize the son’s ownership because the son never had physical possession of the piano.

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Often, parents will put their children on titled to their homestead to facilitate title transfer upon the parent’s death as part of “do it yourself” estate plan. Sometimes the parents add children on the title as joint tenants with rights of survivorship. Other parents transfer the title of their residence to their child’s name and reserve a life estate so the parent can remain in the home as long as they are alive. In the latter case, the parent holds the life estate, and the child owns what is known legally as a “remainder interest” in the house, that is, the child owns what “remains” after the life of the parent. A few days ago a clients asked me if his remainder interest in his parents homestead was exempt from the client’s own judgment creditors under Florida’s homestead exemption.

The answer depends upon whether the child/debtor occupies the house with the parent. The Florida Supreme Court held that a creditor’s judgment attaches as a lien to a child’s remainder interest in the parent’s homestead where the child does not live in the house until after the expiration of the parent’s life estate and where the child’s creditor gets a judgment while the parent is alive. The Supreme Court said that a debtor with nothing more than a remainder interest subject to his parent’s life estate lacks the right of possession necessary for the Constitution’s homestead exemption.

 

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A client asks: " doesn’t the creditor have to find out if I’m head of household before they garnish my wages." In other words, is your creditor obligated to check out your exemptions before taking action to collect a judgment? The general answer is: "no."

Florida law does not require a judgment creditor to investigate and negate possible exemptions prior to making attempts to execute upon their judgment. In this clients case the creditor legally can serve a wage garnishment on the employer. The debtor has the burden of asserting head of household exemption and dissolving the garnishment in court. The same rule applies to garnishment of an exempt entireties account. The creditors writ of garnishment will freeze the account until the debtor takes action to dissolve the garnishment. In most cases, the debtor will need to pay an attorney if he wants the garnishment of an exempt asset removed quickly.

Florida law provides valuable exemptions; the law does not guarantee that the exemptions are self-executing or free.

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A reader asked me about using a long term care insurance product as an asset protection tool. The reader says that an insurance agent told him about long term care insurance that can be paid up front in a single premium payment. The insured makes a lump sum payment to the insurance company in return for long term care policy for the rest of his life. The age and health of the insured determines the amount of the lump sum payment.

Built up cash value in life insurance policies is exempt from creditors and bankruptcy trustees under Florida statutes. The statutes do not exempt cash value of any other insurance. Other insurance, such as health insurance and property insurance, if paid up to date is not an asset subject to creditors because no money is owed to the debtor prior to the event covered by the insurance (medical expense or property loss). Money spent to buy expensive insurance generally is not a fraudulent conversion because most people buy insurance for reasons other than asset protection. .

I have never seen a fraudulent transfer case dealing with the debtor’s single premium long term care insurance. In my opinion, the answer depends on whether the debtor/insured retains any right to cancel the policy and receive a refund. If the single premium is irrevocable with no right to cancel if the debtor changes his mind then I think the debtor has protected the money from his creditors. On the other hand, if the debtor is entitled to a refund or to borrow unused future premiums then I thank a creditor could levy upon the money. The creditor cannot attach any more than the creditor can get for himself.

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I’ll address two similar client questions in a single blog post. One caller told me he had lost his job and that credit cards had already sued him. He cannot afford an attorney to defend the lawsuits or to negotiate on his behalf with the credit card companies. He is concerned that after they get a judgment the credit card companies will garnish his unemployment check. This person is head of household.

A second person sent me an email recently because he was concerned a judgment creditor could garnish alimony payments from her ex-husband. She said she needs all of the alimony to survive financially including support of her child.

The Florida statutes exempt from garnishment earned income including wages, salary, and commissions. It appears that the legislature is protecting from creditors money the debtor earns from his or her job. Unemployment compensation is paid for "not working" and is not earnings from employment. Alimony is taxable income, but it too is not earnings from employment. Does Florida’s wage garnishment protection exempt unemployment compensation and alimony. The answer is: "no, but its ok."

Unemployment compensation and alimony are not protected from creditors by virtue of Florida’s statutory protection against garnishment of earnings of the head of household debtors. However, unemployment compensation and alimony is exempt from garnishment. There is a separate Florida statute which exempts all unemployment compensation from creditor claims, and Florida appellate courts have protected alimony from garnishment as a matter of good public policy.

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Creditors cannot garnish wages of Florida resident who is head of household. Wages earned by the spouse who is not head of household is subject to garnishment. Sometimes clients ask me what compensation is included in the definition of "wages" which are either exempt or are subject to garnishment.

This week I met with a married joint debtors. The husband debtor had a job and his income supported the family. The wife debtor has lost her job and was receiving unemployment compensation from the government. The couple understood that the husband’s wages were exempt, but he wanted to know if the joint creditor could garnish unemployment benefits paid the wife debtor. If unemployment income is a form of wages then it logically could be garnished.

Unemployment benefits may be income for tax purposes but the payments are not wages subject to garnishment. Florida Statute 443.051 states that any unemployment compensation payable under state law may not be assigned and are exempt from all creditor claims.

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One of my asset protection clients recently moved to Florida from Arizona with his family. The client is being sued in Arizona, but his wife is not a defendant. They jointly own a house in Arizona which they have rented. The house has no equity currently. However, the house is fully furnished with furniture purchased during their marriage. The client understands the plaintiff and potential creditor will have a lien on the Arizona house if the plaintiff wins the lawsuit. The client asked me if the furniture in the house is exempt as tenants by entireties property because he and his wife are now Florida residents.

The general rule is that a judgment creditor levies upon real property in the state where it is located. The rule regarding personal property is more complicated. A judgment creditor is not limited to any one state in pursuit of a debtor’s personal property. A creditor can levy upon property wherever he can find it. If this creditor and his wife buy furniture for their Florida home the furniture would be exempt as tenants by entireties property. However, Florida debtors cannot export exemptions to other states. Arizona is a community property state that does not recognize tenancy by entireties ownership. The debtor cannot assert entireties protection for his Arizona furniture, and a judgment creditor could levy upon the debtor’s interest in all personal property the creditor finds in the previous home or anywhere else in Arizona.

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A few days ago I wrote a blog post comparing the asset protection of Totten trusts and UTMA("uniform gift to minors") financial accounts. I explained that the Totten trusts were not protected from creditors because the accounts could be revoked or invaded by the parent, whereas the UTMA accounts were protected because deposits made to these accounts are legally irrevocable. The asset protection of the UTMA account presumes that the parent follows the law.

A caller from Miami had read the UTMA blog posts and wanted to confirm the protected status of his child’s account. The story is told that a few years ago when the caller was "rich" he made a six figure deposit into his only child’s UTMA bank account. His intent was to set aside some money for his child’s college education. Then, the recession. The caller lost over a year ago. He spent his savings supporting his family. In his last effort to keep his house he began paying his mortgage from his child’s UTMA account. He called me because he just wants to make sure that his increasingly angry creditors cannot get the UTMA account so he’ll be able to keep the house until he finds work.

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I received an interesting email question about wage garnishment issued outside of Florida against a Florida resident. The questioner resides in Florida and works for a Georgia company at its Florida office. The questioner has a civil judgment entered against him in Florida. The questioner’s pay check is issued by the employer’s payroll office located in Georgia. He is married and is head of household under Florida law. He asks whether his wages would be garnished if the creditor domesticates the judgment in Georgia and serves a writ of garnishment against his employer at the Georgia headquarters.

This debtor is entitled to Florida’s exemption against wage garnishment as long as he permanently resides in Florida. If the employer has a Florida office, which question implies it does, then the creditor will cause the Florida court which issued the judgment to serve the employer at its Florida office. A Florida court should dissolve the garnishment. If the employer did not have a Florida office then the creditor might transfer the judgment to Georgia and serve the writ in Georgia. The debtor could assert his Florida exemption in a Georgia court.

The debtor’s wage garnishment protection is determined by his residence and not where the creditor serves the writ of garnishment on the employer.

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A husband and his wife are jointly liable on a real estate bank loan and could not afford to continue payments. After they stopped making monthly payments the bank  sued both spouses to collect the full loan balance. Both spouses worked and were concerned that the bank would garnish their wages after getting a judgment.

In Florida, a judgment creditor cannot garnish wages of a debtor who is head of household. In a traditional family setting only one spouse can be head of household where there are minor children. The general rule is that the higher earning spouse provides the majority of support for the children and is head of household, and the lesser earning spouse is vulnerable to wage garnishment. In this particular case, both spouses thought they were head of household in their family.

The facts in this case were unusual. Theirs was a second marriage. Each spouse had children from a prior marriage. Because they worked at jobs in different Florida  cities each spouse lived in their own house  with one or more of their own children. Each spouse supported their respective children in their homes. Each spouse owned their own home individually. Each spouse contended that they should be head of household and exempt from wage garnishment. Can there be two heads of household, exempt from wage garnishment, in the same family?

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Here's a couple short questions and answers I dealt with during the past few days. First questioner states that he owns an investment property through his self-directed IRA. Payments are late and the bank started foreclosure. He knows that IRA assets are exempt from creditors. He asks if his IRA property ownership provides any foreclosure protection. I think not. The IRA has entered into a contractual agreement to pay back a loan and has voluntarily granted the lender a mortgage as security.

There is no statutory exemption against mortgages voluntarily entered into by the IRA to secure a money loan. If the debtor had another judgment from a third party, the IRA and the assets it owns would be exempt from the third party's judgment.

Another reader from New Jersey states that he owns a Florida condo subject to a first mortgage with a New Jersey lender. Payments are in arrears. The New Jersey bank has sued the owner in New Jersey based on the underlying mortgage note. The lender has not instituted a foreclosure action in Florida. He asked whether the lender can sue on the note rather than foreclosing and thereafter seeking a deficiency. I think the lender is properly electing the sue on the note in New Jersey.

Any mortgage lender may sue to collect an unpaid mortgage note in lieu of foreclosure.

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An attorney emailed me with a question about a prospective bankruptcy client who is in the real estate sales business. The real estate salesman has a few contracts in the pipeline- sales contracts are signed subject to financing contingency and other conditions. If the sales close the realtor will earn a commissions. The question is whether the salesman has to value and report these future earnings on a Chapter 7 bankruptcy petition either as an asset or as income. The attorney wonders whether the debtor should discount the present value of the future commissions based on their probability and timing.

There have been many blog posts dealing with tenancy by entireties bank accounts. I have often explained that accounts opened by married couples as joint tenants with rights of survivorship are presumed to be owned tenants by entireties under Florida law. I advise clients to open accounts specifically titled as tenants by entireties so they don't have to rely on the legal presumption that creditors can overcome and rebut under some circumstances. There is nothing to rebut or overcome if the account is titled as an entireties accounts.

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The Florida statutes exempt retirement pensions from creditor claims. Courts have protected pension distributions after they were deposited in financial accounts. This week a Florida resident with an English accent called me with asset protection questions. On of his assets is a pension from an English company which he earned while working for many years in England. He assumed that his English pension is safe from creditors. I told him I disagreed, and that I think his creditors could garnish the pension ( they may have to go to England to do so), or his creditors could levy upon pension payments after they were deposited in a U.S. checking account. Why is an English pension not a protected pension?

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One of my asset protection consultations this week was with a military attorney. Hisjob is traveling around to military sites, both domestic and in combat areas, to advise soldiers about their V.A. benefits. Interesting job. In any event, my client had some civil creditor problems. Hispersonal assets included a "Thrift Savings Plan" with the government and a stream of disability payments from a V.A. disability insurance policy. Neither of these assets are not clearly exempted in the Florida statutes.

The client's V.A. disability policy could be exempt under Florida Statute 222.18 which protects, "disability income benefits under any policy or contract of life, health, accident, or other insurance.... I think a creditor attorney could argue that V.A. benefits are not protected by this statute because they are not due pursuant to a disability "policy or contract" as they are automatic benefits given to all military employees by virtue of their service. I think most courts would reject that distinction. Nevertheless, the providing to V.A. disability to our soldiers provides independent protection. The federal V.A. laws provide that benefits administered by the V.A. are exempt from claims of creditors before or after receipt.

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During this past week I met with a new client who had recently been subject to a money judgment from a credit card company. The client, retired, had a reverse mortgage on his homestead which money he used to pay his basic living expense. As most know, a reverse mortgage involves a bank providing a guaranteed monthly payment for the owner's life in exchange for the house title upon the owner's death. The retired client was concerned that his creditor could garnish his monthly reverse mortgage payments. I don't think a court would permit garnishment of reverse mortgage payments if the mortgaged property were currently the debtor's homestead. Protecting money received and deposited in the debtor's bank account is more difficult.

Lets start with the general rule that although your homestead is creditor exempt once you convert the homestead equity to cash by mortgage or sale the money is no longer protected by the constitutional homestead protection- the one exception is the continued exemption of sale proceeds intended to purchase a replacement homestead. Application of this general principal would lead to the conclusion that proceeds payable or paid from a reverse mortgage are not protected. I think a court would not permit the garnishment for two reasons. In my opinion there is a strong public policy protecting the money people rely upon for retirement, and in most cases, reverse mortgages are used to fund retirement of seniors who have managed to pay off their mortgage. A brief legal research session revealed no Florida cases on this issue.

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From time to time people call me and state that a title search discovered a judgment lien on their homestead. They ask how a judgment can encumber their homestead property if homestead is exempt from creditors.

A title search does not answer the question of whether there are enforceable judgment liens on your homestead. The search will tell only what filing appear on the public record. Any civil judgment against you will appear when you do a title search of any property in your name. Whether a recorded judgment acts as a lien on your homestead is a separate legal issue that takes into account the Constitutional homestead exemption.

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Everyone knows that it is very hard to negotiate with a bank to modify a bank loan. Banks are difficult creditors to deal with. Yet, after a bank which has already sued and has a judgment against you is a relatively easy creditor. Banks tend to accept very low settlements of judgment debts whether the debt is related to a mortgage, a credit card, or a commercial loan. I never understood why banks tend to settle for "pennies on the dollar", although I assumed they had good reasons to resolve their claims quickly and cheaply. This past week I discussed bank settlement policies with a new client from Chicago who had worked there for the FDIC for many years. He was quite familiar with the internal workings and thinking of commercial banks.

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Money received from the sale of a homestead is exempt from creditors so long as you are holding the money to buy a replacement homestead and as long as the sales proceeds are segregated. If you decide to downsize your homestead and use only part of the money to buy a house, can you use the rest of the sales proceeds to buy a protected annuity? The general rule is that using exempt assets (homestead proceeds) to buy another type of exempt asset (annuity) is not a fraudulent conversion. Because the homestead sales proceeds are exempt when you intend originally to reinvest all into a new house it may seem that you can safely use any portion of a homestead account to buy any other exempt asset. Or, do homestead proceeds lose their protection when invested in anything other than a new homestead.

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A client asked me two homestead questions which questions I have previously heard from other clients or email inquiries. This client owned a homestead with significant equity within a municipality. Homestead properties within a city up to ½ acre in lot size are protected under the Florida Constitution. The client said he intended to buy a ½ acre lot adjoining this existing homestead as an investment, and he wanted to know if the lot would be protected from creditors. My opinion is that the lot purchase would jeopardize the homestead protection of his existing house. Homestead includes the property upon which your residence is located as well as all contiguous land. If the client purchased the adjoining lot and took title in his own name the adjoining lot would be incorporated into his homestead and the size of his entire homestead would increase from ½ acre to a full acre. Thereafter, only 50% of the total homestead would be protected within the city limits. The client could not apportion protection to the original lot on which the house is situated. The purchase of the contiguous lot in his own name would forfeit protection of 50% of his house value. A better strategy would be to form a limited liability company and have the LLC purchase the adjoining lot. Because the client does not personally own the new lot it would not add to the size of his homestead. Land owned by entities, as opposed to natural persons, cannot be homestead property. The LLC would give some, although imperfect, asset protection.

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Limited liability companies are generally better asset protection entities than corporation. A judgment debtor can levy upon the debtor's stock in a corporation and in the case of a small corporation possibly stop the corporation business and liquidate corporate assets. In the case of a debtor's limited liability company interest the judgment creditor's remedy is limited to a lien on distributions, if any, and the creditor cannot stop the LLC operations or force the sale of the LLC's assets. In the past, the corporation, and particularly Sub-S corporations, were the most common business entity for closely held small business. When owners of small corporations become concerned about asset protection they often want to convert their S corporations to LLCs, possibly LLCs taxed as S corporations for tax purposes.

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I dealt with an interesting question today about alimony and support questions. Sometimes people ask me if there are asset protection tools to guard against awards for payment of alimony or support (generally, the answer is "no") or what types of assets are vulnerable to enforce family court judgments. Today's issue was different. A divorced woman was facing a large civil judgment. The divorce court awarded the woman alimony, and her ex-husband sent her monthly alimony checks. The woman depended upon the alimony to pay her basic costs of living. She wanted to know if a judgment creditor could garnish the alimony payments from the ex-husband.

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People facing foreclosures on investment property usually hope their lender will not pursue a deficiency judgment and will forgive balances due under their mortgage note. If the investor is fortunate enough to avoid a deficiency lawsuit he still faces income tax issues because of the general rule that forgiveness of a debt results in imputed taxable income. There is no imputed income if the real estate owner files bankruptcy or if he is insolvent at the time of the foreclosure. CPAs are dealing with foreclosure taxation issues for many of their clients during this tax season. I recently discussed with an experienced CPA the tax issues associated with foreclosure for those taxpayers not exempt from imputed income by reason of bankruptcy or insolvency.

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Bank accounts owned jointly by a husband and wife are exempt from the individual creditors of either spouse as tenants by entireties property. Today, one of may clients described a joint bank account that was titled in the name of their respective living trusts. The account was owned by the Husband, as trustee of husband's living trust and Wife, as trustee of wife's living trust. We discussed the issue of whether a bank account owned by spouse's living trusts, rather than the spouses' individual names, is a protected entireties accounts.

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Most families want simple estate plans. Sometimes the simple plan, a will leaving our money to our children equally and immediately upon our deaths, is a really bad estate plan in the event any of our children have legal problems after our deaths. A better plan, for asset protection, is an estate plan that holds the childrens' inheritance in a continuing trust where it remains protected from our childrens' creditors as long as they keep the trust in effect. A caller this past week told me his parents, recently deceased, had made a living trust which provided for the immediate distribution of his inheritance. The parents' trust was in the process of administration. The caller was concerned because he had a large potential judgment creditor. I explained that a judgment creditor could levy upon his share of the inheritance. The creditor could garnish the money payable to the debtor from the living trust.

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Florida Statute 222.11 protect from garnishment wages and other compensation earned by a head of household, and it further exempts wages deposited in the debtor's bank accounts. . A client asked me this week if workers' compensation payments were exempt under the wage exemption statute. The client thought that if the law protects wages paid to an employee the law should also exempt money paid on account of injuries incurred during employment. I found that the wage exemption statute, 222.11, does not exempt workers' compensation, but that other Florida Statutes provide an exemption from creditor garnishment.

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Business arrangements among family members are usually informal without full legal documentation. Casual business dealings among family members work fine between the family members themselves as long as the family relationships are on good terms. But, when the same family members have creditor problems an informal family business dealing can lead to problems when proper documentation is lacking. Consider a caller who described a property he purchased with his parents. The deed showed the parents and a child each had an undivided 50% interest in the property as tenants in common. This means that each 50% interest is separate from the other 50% interest. The parents paid cash for their interest. The child borrowed 50% of the purchase price to pay his part of the purchase. The child made all the mortgage payments by himself. The bank demanded a mortgage on the entire property, not just the child's half, to secure the loan. The property has not changed value since the purchase.

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A homeowner may incur income tax liability for debt forgiveness when a bank forgives a portion of a mortgage either by taking a deed in lieu of foreclosure, through a short sale for part of the mortgage balance, or by relinquishing rights to a deficiency judgment after foreclosure sale. Owner occupants are exempt from imputed income. A caller this past week asked me about income tax treatment from a mortgage modification. In this case, the mortgage lender had proposed forgiveness of past-due interest and late fees. The accounting question is whether the modification has the same income tax effect as forgiveness.

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A reader posed an interesting question about tenants by entireties protection. The reader, a man, is a U.S. citizen married to a non-citizen wife. The reader stated that he currently resided in a foreign country with his new wife. Three years ago he lived in Florida. He intends to return to Florida with his wife and establish their primary residence in Florida. He has substantial debts and some of which have already resulted in Florida judgments. He asked whether he and his non-citizen, non-resident wife can maintain money and securities in protected joint financial accounts opened in Florida.

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People trying to avoid judgment creditors often try to convert assets to cash and plan to hide the cash from discovery. Clients have told me from time to time about very creative strategies to hold and spend cash off the books. One client recently explained that he could convert available cash to a Visa debit card at certain stores around town. There is no limit on the balance he can buy on his Visa card. The store charges a 3% sales commission. The client says that the store does not ask for any form of personal identification including no drivers license and no social security number. Alternatively, many department stores will sell unlimited amounts of credit cards to by used at their own stores with no fee. My client told me that such store cards are sold at establishments such as Walmart and Sams.

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A lady contacted me about with a question about garnishment of her paycheck by the federal government because of defaulted student loan. The caller said the government told her they could garnish 10% of her take home pay even though she supported a child, and that Florida Statute 222.11, which exempts from garnishment all wages of a head of household, did not stop the government's garnishment for student loan default. The government cited their authority under 20 U.S.C. 1095(a) which is quoted, in part below.

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