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

Creditors cannot garnish wages of Florida debtors who qualify as head of household. That’s the general rule. I represented a Florida resident who lived with and supported a minor child. The client was in active military duty stationed outside of Florida. The judgment creditor served a writ of garnishment on the military. The debtor responded to the writ claiming the creditor could not garnish her pay because she was a Florida resident and head of household. The military responded that they were still required to hold her pay in response to the writ regardless of Florida’s garnishment exemptions. Here’s why.

The military states that the creditor procedure for military personnel is not a court ordered garnishment, but it is an administrative procedure called “involuntary allotment.” Involuntary allotment is used because military personnel reside all over the country and are constantly being relocated. Involuntary allotment is governed by 32 CFR Part 113. The procedure has no provision for garnishment exemptions based upon state law. Therefore, head of household exemptions do not protect against garnishment of military salary using the administrative procedure of involuntary allotments.

 

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Florida statutes provide unlimited protection against wage garnishment when the debtor is head of household. This protection is very broad and effective, but some states have even better wage protection. Four states- North Carolina, South Carolina, Texas, and Pennsylvania- do not allow wage garnishment to enforce a commercial debt regardless of whether the debtor is head of household. I do not know if courts have carved out any exceptions from what appears to be an unqualified prohibition against wage garnishment in these four states. I do know that many Florida debtors, including most unmarried debtors and some business owners, are vulnerable to continuing wage garnishment up to 25% of their take-home pay.

Many of my clients consider moving to Florida because they believe we have the best debtor protection laws. Those people should thoroughly investigate the exemptions of their home states before deciding to flee to Florida. You may be better off to stay where you are. 
 

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Institutional lenders understand well Florida’s tenants by entireties protections, and they understand that they may not be able to enforce promissory notes against a married borrower unless the note is signed by both the borrower and his spouse. For this reason, most lenders will insist on joint signatures to loans or guarantees of business loans where a single spouse is the primary loan applicant. A common example is a husband who runs and owns a business applies for a commercial loan, and the bank approves the loan conditional upon the wife co-signing a guarantee even though the wife has nothing to do with the business and has no independent income.

A recent Florida appellate case held that banks’s demand joint signatures on loans or guarantees may be illegal when the loan is adequately supported by the applicant spouse’s income and credit score. The court suggested that a bank’s request for the spouse’s signature when the bank is simply trying to defeat entireties ownership may be in violation of the Equal Credit Opportunity Act, 15. U.S.C 1691.

 

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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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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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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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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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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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On occasion I receive calls from people requesting asset protection advice so they can escape legal responsibility to pay their former spouse money owed them as a result of their divorce. Asset protection planning mostly protects against judgments in civil litigation other than family matters. Whether asset protection planning protects against family law liability depends on the nature of the family law obligation; some family law judgements are treated the same as civil money awards and other family law obligations may be enforced with stronger measures including contempt and imprisonment. Asset protection planning, for the most part and with few exceptions, cannot protect you from being held in contempt of court.

The general rule is that family law judgments awarding a property settlement and equitable distribution of marital property is enforceable as a general civil judgments and the recipient has available the same execution tools as any other civil creditor. Asset protection tools can thwart the collection of equitable distribution awards. Family law judgments awarding money for alimony and support of the ex-spouse or children are given higher priority under our law. A former spouse may be held in contempt of court for not paying alimony or support provided he or she has the assets to pay the judgment. Assets exempt from execution of civil judgments and equitable distribution collection are not exempt nor excluded when the court evaluates the defendant’s ability to pay.

Asset protection planning is not designed to help you avoid paying alimony and support judgements.
       
 

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People should be able to protect from their creditors  their life insurance policies and death benefits payable to their heirs. Sometimes people make simple mistakes which expose large amounts of life insurance money.

Florida law protects cash value of life insurance you own on your own life. Upon your death the life insurance proceeds payable to your named beneficiary is also exempt from your creditor. The same death benefits may be exposed to your beneficiary’s creditors, but the proceeds are not exposed to your own creditors.

One of my clients had a $1 million life insurance policy without a named beneficiary. He had named his former spouse as the beneficiary, but they got divorced and the client had not substituted a new life insurance beneficiary. If this person were to die his life insurance would be payable to his probate estate. Probate assets are not exempt from creditors. In effect, unless this client names a beneficiary, or alternatively, transfers his policy to a life insurance trust, he may be paying life insurance premiums for the benefit of his creditors.
 

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A man from southwest Florida  consulted with me about filing Chapter 7 bankruptcy in Ft. Myers, Florida bankruptcy court. The client and his non-debtor spouse lived on their sailboat docketed at the marina. The boat’s motor was broken but the sails worked. The boat was registered on a national boat registry with a federal boat ownership certificate. The ownership was listed as: husband wife. Not husband and wife, not husband or wife, and there was not choice of specifying ownership as tenants by entireties, tenants in common, or even as joint tenants with rights of survivorship. The client wanted to know if his boat was exempt from creditors under Florida law.

There are two possible exempts applicable to this boat: homestead and tenancy by entireties. A boat can be a homestead so long as the boat is permanently docket and is not suitable for transportation. A seaworthy  boat is more like a “boat” than a “home.” This client’s boat could sail. However, the client explained that the boat could not reach open water without navigating though the docks and other docked boats which it could only do with a working motor. The client stated his boat could not sail away from its docket location without a motor.

In my opinion, this sailboat is currently not seaworthy. The client is using the boat more as a “home” than as transportation. I think this  boat would be exempt homestead. However, if the boat’s motor is easily repairable a court could find that the asset is primarily a “boat” which is only temporarily immobile.

 

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Exempting wages from garnishment under Florida’s head of household exemption is difficult for self-employed debtors. Business owners of sub-S corporations typically compensate themselves as employees and as owners. The owner pays himself salary as well as profit distributions. Self-employed business owners limit salary in order to minimize employment taxation, and instead, pay themselves mostly through profit distributions. This compensation arrangement raises issues when the self-employed owner tries to exempt his salary under Florida Statute 222.11 which exempts earnings paid to debtors who are head of household.

Many years ago, in the mid-90s, some bankruptcy courts denied the earnings exemption to self-employed business owners on the grounds that they did not pay themselves in a manner consistent with an employer-employee relationship. The issue just recently was addressed by a bankruptcy court in Florida’s middled district. (In re McDermott, 425 R.R. 848). At issue was an exemption of the debtor’s money in a self-described wage account funded with money received from the debtor’s wholly owned business.

The bankruptcy court denied this debtor an exemption for money in a bank account which the debtor had claimed as exempt wages. The court said the debtor’s compensation history and practice was inconsistent with that of an arms-length employee and employer relationship. The record showed significant variation in the timing and amount of the debtor’s claimed wages. The debtor substantially increased his wages in the months leading up to his bankruptcy in an apparent effort to exempt the money in a wage account. The pre-bankruptcy wages were almost twice the amount he received total in the prior two years. The debtor had complete control over distributions from his business and had no written employment agreement with his corporation.

The court held that, "A debtor who owns and runs his own business, without an arms-lenght employment agreement, and who has almost complete control and discretion over the timing and amount of his own compensation cannot rely on Section 222 (wage exemption statute) to exempt the funds."

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I often receive phone calls from out of state resigned that they cannot achieve any of Florida's asset protection benefits because they do not reside in Florida- not exactly. While it is true that Florida's statutory creditor protections are specifically limited to Florida residents and Florida homestead presume permanent Florida residence in the house, Florida law does include asset protection available to non-residents, and even to people who have never set foot in Florida.

I’m referring to tenants by entireties protection available to a single debtor of a married couple.. Tenants by entireties protection from individual creditors is based on Florida common law defining Florida property. The concept applies to Florida property regardless of the owners’ residence. I wrote a post on this topic last year, but its worth repeating for current readers because most callers from outside Florida still think they have to move into their Florida house as a homestead in order to protect the house from judgments.

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Florida statutes state that earnings of the "head of household", including wages, salary, and commissions, are exempt from garnishment. This statutory exemption will not protect Florida debtors if they owe money to a federal government agency. Federal agencies can garnish up to 15% of your earnings even if you are exempt from garnishment under Florida law. Most people are aware that the IRS has extraordinary collection tools, but this super wage garnishment powers are available to the federal government to collect all non-tax debts.

A federal agency may, without court order, order an employer to withhold 15% of your salary or, garnish distributions from your own business to satisfy a non-tax debt even if state law does not permit wage garnishment. However, a federal agency may not garnish your wages if you have not been in your current job for at least 12 months and you were involuntarily separated from your previous job.

I learned about the federal government's wage garnishment rights in the course of defending a client against a federal agency's judgment. The client is being represented in court by a south Florida attorney named Peter Homer. Mr. Homer specializes in defending business people  against federal agency civil lawsuits. He is an expert in the federal government's debt collection powers and its collection practices.

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Retirement plans are protected from creditors in Florida, except when the "retirement plan" is not a retirement plan. Consider, for example, a client who told me about his "Senior Executive Retirement Plan (SERP)." Initially, I told him his plan is protected from creditors as a retirement or pension plan. Upon further review, it turned out that this employer benefit plan is not protected by Florida law.

Florida Statute 222.21 protects tax deferred retirement and pension plans including most IRAs. The statute refers to specific IRS Code sections, and the debtor's benefit plan must fit under one of the listed Code sections. After our initial meeting, this client sent me written information about his SERP. It turned out that the Senior Executive Retirement Plan was actually a deferred compensation plan. The employer withheld parts of the client's salary until after retirement. The company's plan did not fall under any of the IRS deferred taxation retirement plans listed in the applicable Florida Statute 222.21. The client suggested that his deferred compensation might be protected under Florida Statute 222.11 which protects from garnishment wages of a head of household. His current compensation consist of wages, and therefore, he argued that the same compensation paid after his retirement is also a form of protected wages.

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Tenancy by entireties ownership requires certain characteristics. One requirement is that husband and wife must acquire their interest in the entireties asset simultaneously. For instance, suppose a single man has a bank account. He gets married, and after marriage he adds his wife's name to the account as a co-owner (not just an authorized signer). The account is not an entireties account because the husband and wife acquired their interests in the account at a different time and the man opened the account before being married. This week I encountered an exception to the rule about simultaneous ownership of entireties property. In this instance, my client purchased primary residence when he was single. After marriage deeded the property from his name to him and his wife jointly. The property exceeded ½ acre within a city so did not qualify for homestead protection. The issue was whether the residence could be considered a tenancy by entireties asset when the husband and wife did not acquire their interest at the same time in the same deed.

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"Assets owned jointly by married Florida residents is exempt from the individual judgment creditors of either spouse because the joint assets are owned tenants by the entireties." Most people consider the foregoing sentence to be a correct principal of Florida law. The sentence is true, but it is also misleading. The issue is that the quote suggests that tenancy by entireties is an "exemption" applicable to "Florida residents" and the quote does not consider the nature or location of property in question. Actually, tenants by entireties is not a Florida creditor "exemption." Florida exemptions from creditor levy and in bankruptcy proceedings are set forth in Chapter 222 of Florida statutes. These statutory exemptions are applicable only to Florida residents. Tenancy by the entireties is not a statutory exemption; is a principal established by the traditions of Florida case law. Florida residency is not a prerequisite for tenants by entireties protection. More specifically, you do not have to be a Florida resident to enjoy the protection of jointly owned real property (land) or tangible personal property under the entireties umbrella if the same assets are situated in the state of Florida.

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"Every dog is entitled to one bite." This saying refers to a legal tradition that a dog owner cannot foresee his dog is dangerous before the dog has actually bitten someone. The first dog bite puts the dog's owner on notice to protect the public from his dog. Prior to the dog's first bite, the tradition is that the dog's owner cannot be held liable to foresee his dog's poor behavior. Many people discount legal risk from their dog because they see their own dog as peaceful and well-behaved. People do not contemplate that their well-behaved dog could ever get them in legal problem prior to that "first bite." In Florida, the law is different. There are Florida statutes on dog liability that holds owners liable prior to the dog's first bite.

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Tenants by the entireties protection from creditors is not the same in all states. Some states do not recognize the concept of tenancy by entireties ownership between married couples. Some states recognize entireties ownership of real property but not personal property. A client today claimed that a parcel of real property he owned in another state was protected from his individual creditors because the deed said it was owned as tenants by entireties. When I researched the laws of the state in question I found that the state laws did recognize entireties ownership of real property. However, the ownership had asset protection consequences different from Florida law.

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Another attorney told me about a hearing where his client, a judgment debtor, lost $4,000 he had held in a tenants by entireties account because the debtor failed to verify all the documents which were signed when he and his wife opened the bank account. The debtor and his wife together went to their bank to open a tenants by entireties checking account . They signed bank forms. Subsequently, they received written bank statements which were titled as husband and wife, tenants by entireties. A judgment was entered against the husband. The husband's judgment creditor garnished the joint account, and the creditor issued a subpoena of all bank records regarding the account. The debtor's attorney filed a motion to dissolve the writ of garnishment on the grounds that it was clearly titled as a tenants by entireties account. The court denied the motion and sustained the creditor's writ of garnishment.

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Many real estate professionals have large commercial development loans which they are having difficulty repaying in today's real estate environment. One such client and his wife are planning to move to Florida to protect their wealth in the likely event that the bank calls a large commercial loan personally guaranteed by the husband. The non-debtor wife has already moved to Florida and purchased a home with her husband where the wife now resides with her children. She and her children travel up north each weekend to visit her husband The wife has a Florida drivers license and other indices of Florida residency. The debtor husband remains "up north" where he is trying to salvage his company's loans and sell the couples' jointly owned real estate. The couple wanted to know how they can safely finish liquidating their home-state property and protect their money in Florida.

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I received an email from a Blog reader who asked me to post and answer the following question. Although I do not often post questions (usually because they are too long) this one is precise and interesting:

"My son (John) lives with and supports a woman (Mary) and their young children in Florida. Recently, SunTrust setoff $8000 from a bank account they jointly own for an old deficiency amount debt on a car loan in Mary's name alone. The monies in the account are from John's earnings. I know they cannot rely on tenants-by-entirety protection. Does the Head of Household prevent this set-off like it would a garnishment?"

The reader correctly points out that the bank account is not tenants by entireties because her son and Mary are not married; only married people can have entireties property. The money in the account may be protected from John's creditors as John's earnings because the question states that John supports Mary and their children. John is head of household, and earnings of a head of household are protected by Florida statute even after deposited in a bank account. However, John's earnings in the account are protected only from own John's creditors under the Florida statute earnings exemption. The earnings have no exemption from Mary's creditors.

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A frequent question concerns protection of a debtor's furniture, cloths, and other property located in the debtor's primary residence. Personal property located within the homestead is not protected by Florida's homestead laws which pertain only to real property. Built-in household appliances are usually considered part of the real property and are protected by homestead law. Furniture, electronics, artwork and other moveable tangible personal property is not under the umbrella of homestead protection. Personal property owned by a husband and wife may be tenants by entireties property, and if so, it is protected from the creditors of either spouse but not joint creditors. Household furnishings are not "titled" and their ownership is not registered with the government as is real estate and motor vehicles. The issue I am often asked is what does the individual debtor need to show a court to prove that his household tangible property is owned by the debtor and spouse as tenants by the entireties.

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I consulted today with a client who is the beneficiary of a workers' compensation award. He currently receives monthly workers' comp payments, and he expects an additional lump sum settlement in the near future. A creditor recently received a large court judgment against this client. The client wanted to know if the judgment creditor could garnish monthly workers' comp payments or could levy upon the lump sum settlement after it is received and deposited in the debtor's bank account.

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Once again I address the issue of whether a debtor's asset, not exempt where he currently resides, becomes exempt by virtue of Florida residency. Or, if an asset is not exempt in another state can it become exempt by a debtor moving to Florida? In answering this question for a client I came upon an old bankruptcy case where an Arizona resident owned an annuity comprising lottery winning. This debtor encountered financial problems, moved to Florida, and filed bankruptcy shortly thereafter. The issue was whether the annuity issued in Arizona was exempt in the Florida bankruptcy.

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Although I have previously addressed the issue, I still receive questions about adding a spouse to the title of a currently owned checking account or vehicle to have the asset protected as tenants by the entireties. It doesn't work. Tenants by entireties ownership requires that the spouses acquire their interest at the same time during the marriage. When one spouse is added to title after the first spouse bought the asset, or opened the account, there is no tenancy by the entireties and the creditor of either spouse can levy on the property. The creditor of either spouse could reach only the interest of the debtor spouse which is most cases is fifty percent of the value. Alternatively, the creditor of the original owner could allege a fraudulent conveyance of fifty percent of the value to the second spouse acquiring an interest subsequent to the purchase.

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A caller stated he owned a piece of investment real estate in Florida when he was single. A creditor got a civil judgment against the caller and recorded the judgment in the county where the real estate was located. A title search showed the judgment as a lien on the property. The caller stated that he was about to get married and put his new wife's name on the title. He wanted to know if he could thereafter protect the property as tenants by entireties property.

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Florida statutes exempt disability payments from creditor levy. A caller asked if a lump sum disability payment is protected once deposited into the debtor's bank account. The Florida protection of disability payments most often is applied to exempt from garnishment continuous periodic payments under a disability income policy. The express language in Florida statutes does not protect proceeds of disability policies after receipt. I do not think that a lump sum disability payments would be protected after having been deposited in the debtor's bank account

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A husband purchased a large life insurance policy naming his wife as beneficiary. The policy accumulated cash value. The husband and wife had joint creditors. The husband died and the insurance company paid the policy proceeds to the surviving spouse. The surviving wife asked me if the creditors can go after the life insurance proceeds

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Prior to a judgment being entered against him a judgment debtor owned financial accounts jointly with his wife. He and his wife created a joint living trust for estate planning purposes. They transferred title of the financial account to their joint trust. Property owned jointly by the debtor and his wife is exempt from the judgment against the husband/debtor because the property is deemed to be owned as "tenants by entireties." The issue is whether the same financial account is tenants by entireties property after it was titled in a joint living trust.

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A client presented an interesting question about tenants by entireties ownership. Client was married with children. His wife and children lived in New York. The client lived primarily in Florida where he ran his business. The client had a Florida drivers license, used Florida as his primary address, and appeared to qualify as a Florida resident. Before getting married, the client and his then girlfriend opened a joint stock account at the New York office of a national brokerage. The client is being sued and wants to know if his brokerage account is protected as tenants by entireties property.

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Florida statutes protect from creditors annuities and annuity proceeds. Courts have liberally applied the protection of annuity proceeds to any money in a debtor's financial accounts traceable to an annuity. The term "annuity" is not defined in Florida statutes. What is and what is not an annuity can be confusing. For example, this past week I evaluated a client's severance package from a national financial firm. The firm agreed in writing to pay the retired client $65,000 each year in monthly installments for the balance of his lifetime. The client asked me whether these payments could be protected under Florida's exemption statutes.

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A client recently withdrew large sums of money from his 401 k plan to pay living expenses. He deposited the money in his bank account. The client wants to know if the money is protected from creditors after it has been deposited in his bank account. The Florida statutes exempt many specific assets including retirement proceed and annuities. The annuity statute specifically exempts not only the annuity but the proceeds of the annuity. The statute protecting retirement funds does not address proceeds paid from retirement funds.

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An attorney called me last week about his foreign client who owned Florida jointly with his wife. Neither the client nor his wife had a green card, although both had visitor visas entitling them to be in the United States and Florida for a limited time. The attorney represented the husband as a defendant in a civil lawsuit in Florida court. The attorney asked me if the real property was exempt from his client's individual creditors as tenants by entireties property. The issue is whether a temporary visitor to Florida can qualify for Florida's tenancy by entireties protections.

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I attended a luncheon where the speaker was a local circuit court judge who spoke about bankruptcy and exemption issues in State court proceedings. One of the attorneys asked whether a husband and wife who both worked and together supported two or more children can both claim head of household status to exempt their wages from garnishment. I have always believed and told clients that a family unit may only exempt wages of one person who is the head of household. The judge believed the issue was not decided.

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A client asked whether tax elections by an LLC effect the LLC's asset protection benefits. An LLC is often employed as an asset protection tool because Florida statutes restrict creditors' ability to collect money from a debtor's LLC to a lien on distributions made by the LLC to the member/debtor. If the LLC manager makes no distributions to the debtor then the creditor is not entitled to any money from the LLC. For tax purposes, an LLC may elect to be taxed as a partnership, a corporation, or in the case of a single member LLC, a disregarded tax entity.

A corporation has no asset protection benefits. A creditor can levy upon the debtor's stock in a corporation. The client asked if he forfeits the asset protection protections of an LLC if he tells the IRS to tax his business as a corporation rather than as a partnership or disregarded entity.

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Florida asset protection law sometimes make important distinctions between protected assets and the proceeds of those assets in the debtor's hands. For instance, Florida Statute 222.14 expressly protects both annuity contract and annuity proceeds. Other laws protecting assets do not deal with proceeds therefrom. Today, a caller inquired whether disability proceeds and proceeds from the refinance of a homestead remain protected in his bank account. Florida Statute 222.18 protects disability income benefits under any insurance contract, but the Statute makes no mention of disability proceeds. Similarly, Florida's Constitutional homestead provision does not address proceeds from the sale or refinance of homestead property.

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A debtor has long-established bank accounts in Florida titled jointly with his spouse. The accounts are protected from creditors as tenants by entireties property. The debtor and his family then move out of Florida to Texas. Texas is a community property state which does not recognized the concept, or exemption, of tenancy by the entireties. The debtor asks me whether his Florida bank accounts are protected after he moves to Texas.

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Florida Statute 222.14 protects from creditors annuities and the proceeds of an annuity. A client posed an interesting question about what happens when annuity proceeds are invested in a different type of asset which other asset is not asset protected. The issue is when do annuity proceeds turn into another type of asset. For example, suppose a Florida resident uses annuity proceeds to purchase a CD or stock, is the CD or stock protected if it is purchased solely with annuity proceeds? Does it make a difference if the annuity was held in a brokerage account and the CD or stock is purchased within the same account?

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Reverse mortgages tap into home equity by providing a lifetime income stream in exchange for a mortgage on your residence. A caller asked this week whether proceeds from a reverse mortgage on his homestead would be exempt from future creditors. Specifically, the caller was considering placing the reverse mortgage, moving from the property into a new homestead, and renting the initial homestead subject to the reverse mortgage

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reader asked about the protection of annuity proceeds. Florida statutes protects both annuities and the proceeds of an annuity. The reader said he deposited annuity proceeds in a normal checking account and then moved the money to a separate money market account. The funds in both accounts, he said, are traceable to the annuity

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Florida Statute 222.11 protects from creditors' garnishment earnings of a debtor who is a head of household. The wages are protected for six months after they deposited in the debtor's financial account. Some people set up financial accounts where nothing but wages are deposited. These so-called wage accounts are used to clearly isolate and trace protected wages after they are deposited. A reader asked me whether a Florida resident can establish a "wage account" at an internet bank or an out-of-state bank with no Florida branches.

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A divorced man has two children. One child is a financially independent adult. The other child, a minor, lives with his ex-wife. The man lives alone. The man pay child support to the ex-wife. The child support covers most of the minor child's living and education expenses. The ex-wife works and supports herself. The man asked whether a judgment creditor can garnish his wages.

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Wages of a head of household cannot be garnished in Florida pursuant to a Florida statute. A caller stated that he agreed to sign a non-compete agreement with his current employer, and that under the agreement the employer was paying him an amount monthly in consideration for the non-compete. The caller asked whether a creditor could garnish payment owned him under the non-compete clause. He believed that the non-compete payments from his employer were not subject to garnishment under the wage exemption statute assuming he was head of household.

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I received an interesting question about whether Florida Statute 222.25(3) exempts all income tax refunds. The statute exempts a debtor's interest in a refund or a credit from a financial institution pursuant to s. 32 of the Internal Revenue Code. I looked up Section 32 of the Revenue Code and found that it applies to the earned income tax credit. Earned income tax credits are exempt from creditors, and in bankruptcy, any portion of a debtor's tax refund which comes from the earned income credit is not part of the bankruptcy estate. All other income tax refunds are non-exempt and are subject to levy by general judgment creditors and bankruptcy trustees.

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I would appreciate anyone's thoughts on the following questions posed by a bankruptcy attorney in Kentucky. The attorney represented prospective bankruptcy debtors who moved to Kentucky from Florida within the past two years. Under the new bankruptcy law, they are ineligible to use Kentucky exemptions because they had not resided in that state for two years. The last state where they lived for two years was Florida. The attorney concluded that Florida exemptions would apply to his Kentucky case, except for one issue. He asked me whether a person has to be a resident of Florida to be eligible for Florida's exemption under a Florida statute or the Florida constitution. If so, his clients, now Kentucky residents, could not use Florida exemptions and would file bankruptcy under federal default exemptions.

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Wages paid to the head of household are exempt from creditors, and the wages remain exempt for six month when deposited in a bank account. Many potential debtors set up separate bank accounts which they title as a "wage account" in which they deposit their wages and salary and no other money. The purpose of the wage account is to segregate protected wages and not commingle wages in accounts with money from other sources. The concern is that if the head of household deposit wages in a checking account owed jointly with the spouse or owned by another entity, such as a living trust, the wage protection would be lost. But, are separate wage accounts always necessary?

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One of my clients last week reminded me of an infrequently mentioned financial asset protection tool: the "hurricane account." Hurricane accounts were established to encourage people to save money to cover uninsured losses from Florida hurricanes. The statute provides that a property owner can set up a segregated financial account to cover insurance deductibles and other uninsured risks of windstorm and flood losses. Deposits into the account are protected up to twice the amount of the insurance deductible. The statute also protects income from the account.

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Two people asked me similar questions today about "wage accounts" The first question was whether you have to have a separate account titled "wage account" to have your salary or commissions protected after they are deposited in a bank account. The answer is no. However, whatever the account is titled it makes the wages easier to defend if only wages are deposited. You could deposit wages in a tenancy by entireties account and still qualify for the protection. The statute that protects wages of the head of household does not require segregating the wages in a distinct account.

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The June 1, 2006, Wall Street Journal had an article on "private annuity trusts" in its Personal Finance Section. I have already received inquiries about using private annuity trusts as an asset protection tool in Florida inasmuch as Florida statutes protect annuities from creditors claims. A reader asked if he could protect non-exempt money by funding a private annuity trust. The article described private annuity trusts as a tool to defer capital gains from capital assets such as real estate. The owner creates a trust and then transfers the appreciated asset to the trust in exchange for a annuity.

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I am involved in two cases which present an interesting issue about tenants by entireties bank accounts. Property owned by married couples as tenants by the entireties is exempt from the creditors of either individual spouse, but not from joint creditors. The Florida Supreme Court said that in most cases bank accounts owned jointly by spouses are presumed to be owned as tenants by the entireties. The Supreme Court, and previously other appellate courts, pointed out that there are facts which must be established in order for any property to be owned as tenants by the entireties. One such requirement is that the spouses must take title to the property simultaneously during their marriage in order to establish a tenancy by the entireties.. This requirement raises an interesting issue in certain instances.

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A Florida debtor emailed me a question about tenancy by entireties protection. He said that a collection agency was threatening wage garnishment and a judgment for old credit card debt. This debtor he lives with and supports his girlfriend and their three dependant children. He asks whether his joint bank accounts are protected as tenancy by entireties accounts where the debts are his only. I do not think this debtor can invoke tenancy by entireties protection because he is not legally married. The case law is clear that tenancy by entireties applies to lawfully married couples. I do think that this debtor can defeat wage garnishment because his support of his children probably qualifies him as the head of a household. In most situations, Florida statutes prohibit a creditor from garnishing wages and other compensation paid to a Florida resident who is head of household .

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I received an email from Florida attorney Tye Klosster concerning asset protection of a trust established for the benefit of a Florida debtor where the trust agreement names the same debtor/beneficiary as trustee and also includes standard spendthrift protection. Such trust arrangements are often set up by parents' living trusts for the benefit of their children as part of the parents' estate planning. Otherwise stated, the question is whether trust beneficiary enjoys protection from standard "spendthrift provisions" where the beneficiary serves as trustee with discretion to make distributions to himself.

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Florida statutes exempt from creditors wages, salary, and other compensation for services earned by the head of household. A head of household is the person who provides more than 50% of the support for a dependent. Florida courts have held that the "dependent" does not have to be a dependent for income tax purposes and does not have to reside in the household. There must be a legal or strong moral obligation to provide economic support.

A email asked if a debtor could be head of household if the debtor lives with and financially supports a same sex partner. Although there arguably is a moral obligation of support in this situation, in my opinion, that obligation is too far removed from the intent of the statute. Debtors who asserted head of household based on moral support obligations have done so in the context of a traditional family. For instance, a debtor may have a moral support obligation toward an adult child residing in a separate dwelling or toward an elderly parent. Even though a debtor may feel morally obligated to support a live in boyfriend or girlfriend, I do not think that obligation to a non-family member would be strong enough for the debtor to be entitled to wage exemption as the head of a household.

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The proceeds from an annuity are exempt from creditors under the Florida statutes. The statute protects from legal process the annuity interest of the beneficiary of the annuity. In almost all cases, the same individual purchases and owns the annuity and makes himself the annuity's primary beneficiary. The statute protects from creditors all of the beneficiary's interest in the annuity.

A different result may occur when the owner and the beneficiary are different individuals. For instance, suppose an individual purchases an annuity, makes himself owner and annuitant, and names another family member as primary beneficiary. The beneficiary's interest is protected from the beneficiary's creditors. Its not clear that the interest of the purchaser and owner is protected from the owner's creditors. An attorney called me this past week to discuss a bankruptcy proceeding where the debtor purchased and owned an annuity that named another family member as primary beneficiary. The question was whether the bankruptcy trustee could assert an interest in the annuity.

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This year the Florida legislature passed a new limited partnership act known as the Florida Revised Uniform Limited Partnership Act of 2005, as amended. The new law increases protection of limited partnership interest against judgment creditors. Until this point there had been some question whether the charging lien against distributions to a partner was the exclusive remedy available to a creditor, or whether a creditor could also foreclose the debtor's partnership interest or ask the court for other collection remedies. Section 620.1703 of the new partnership law states that the charging lien is the exclusive remedy of a judgment creditor of a partner. As stated previously on this blog, the term "partner" is defined by the new law to cover both a limited partner and a general partner.

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A client asked an interesting question about Florida's salary exemption. Florida Statute 222.11 exempts from creditors an unlimited amount of salary earned by a debtor who is head of household. A Florida resident is head of household if he provides more than 50% of the support for a dependent. The question was whether in determining the 50% support requirement all of the money used to support the dependent must come from salary earned by the debtor. Otherwise stated, if a debtor uses a combination of salary and investment income to provide 50% of a dependent's support is the salary itself still protected from creditor garnishment.

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Florida's most important statutory exemptions, such as salary for head of household, annuities, and retirement funds, have been in place for a long time. From time to time the legislature adds additional, relatively small, categories of protected assets. A recent addition to Florida's list of assets protected from creditors are "hurricane savings accounts" now protected under Florida statute 222.22 4 (b). The statute defines a hurricane savings account as an account owned by the owner of homestead property up to twice the amount of an insurance deductible or other uninsured portion of the risk of loss from a hurricane, windstorm, or flood. The statutory protection is available only when the federal government provides tax-exempt or tax-deferred status to such accounts.

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A husband and wife who were jointly liable to a creditor emailed the following question: where a family owns one car free and clear in the name of one spouse, can both spouses claim $1,000 car exemption allowed by Florida statutes for motor vehicles. The couple was trying to exempt a total of $2,000 of their car equity from their joint creditor.

The statutory car exemption is only available to car owners. The spouse of an owner has no right to the exemption. In this case, the couple can exempt only $1,000 exempt equity in the car.

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Does an elderly person lose homestead protection when they move out of their house and in to a nursing home? I received a phone call from a lady whose father had moved into a nursing home when there already was a judgment for unpaid alimony owed to his ex-wife. The daughter asked if the father's home was still protected from the judgment, and if not, could the father deed the home to the daughter and her brother.

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A reader sent me an email asking if proceeds from the sale of a homestead property would be protected in a bank account if the money were being saved to repair and improve a new property that the reader intended to occupy as homestead when repaired. The property presently was not in liveable condition

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A called asked about protection whether proceeds withdrawn from tax qualified retirement plans remain protected afer the money is out of the retirement plan. Florida statutes protect IRAs, 401k plans, and other tax qualified plans. If the retiree has a judgment against him the creditor cannot reach money so long as it is held within the plan. In most cases, withdrawals from these plans are deposited in the retiree's personal bank accounts. While proceeds withdrawn from annuities remain protected so long as they are traceable, the same may not be true for retirement proceeds. An good argument can be made that retirement money is protected after withdrawal, but the case law is inconclusive. Presently, retirees concerned about continued asset protection of retirement benefits should develop an asset protection plan which includes a financial account or legal entity to safeguard retirement withdrawal. Conveyance of retirement money directly to another entity should not be vulnerable to fraudulent conveyance attack as long as the retiree does not hold title individually after withdrawal and before the conveyance.

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A married couple are both Canadian citizens, but they reside in Florida during six months of the year. They asked me whether their Florida home would be protected by Florida's homestead laws in the event they were sued and the creditor recorded a Florida judgment.

Protection of a Florida house requires not only that you reside in the house, but that you intend to make the house your permanent residence and Florida your place of domicile. As long as the Canadians remain citizens of Canada and do not obtain at least a green card entitling them to permanently remain in the U.S. they probably could not claim Florida as their permanent residence as they do not have the legal right to live here on a permanent basis.

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There is confusion among clients and attorneys regarding asset protection of a general partnership interest. A limited partner's interest in a limited partnership is shielded from creditors by virtue of the limited creditor remedy afforded by Florida statutes. The statutes provide that the creditor of a limited partner can get only a charging lien against distributions of cash, if any, which the general partner makes to the limited partners. There is widespread agreement and understanding that in a general partnership, where all partners are general partners and equally liable for partnership debts, the charging lien restriction does not apply. The Florida statutes do not limit a creditor of a partner in a general partnership to a charging lien, and court decisions have permitted a creditor to seize and foreclose a partner's interest in a general partner. What seems to be misunderstood and subject of disagreement is the right of a creditor of the general partner in a limited partnership. Is this interest treated as a general partnership interest or a limited partnerships interest with charging lien protection. Upon researching the issue, I believe that the interest of a general partner in a limited partnership enjoys the same protection afforded to the interest of the limited partners, that is, the charging lien is the creditors only collection remedy. Here's why:

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I received an email question concerning protection of IRAs from judgments. The questioner asked whether Florida law protected an IRA owned by a Florida resident that was administered in a financial account opened and maintained by the office of a financial institution located in a state other than Florida. My first reaction was that the IRA was protected because the applicable Florida statute does not require that the IRA account be maintained in Florida or that IRA assets be situated in Florida. Also, I know of know case which required that Florida residents maintain their IRA in Florida in order that the IRA be protected from creditors. To be sure, I check with "Professor" Alan Gassman, Esq., who is the premier scholar on Florida asset protection law, and Alan agrees we me. Therefore, I can believe I can state with reasonable certainty that an IRA owned by a Florida resident is an exempt asset regardless of where the IRA account is opened

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Interesting question from a client today about salary exemption. Florida statutes exempt from creditor claims salary and other compensation from services of the head of household. To be head of household you have to be providing more than 50% of the support of another person for whom there is a moral support obligation. The supported person does not have to be a child or spouse, and there is no age limitation. Supporting an elderly parent may qualify you as head of household.

This particular client said he paid his father's ongoing living expenses including medical and other personal care. His father, however, also had substantial liquid assets which if liquidated would more than pay for his own care. The client supported the father on an ongoing basis because the client had far more assets and income. The issue was whether the client could be head of household by virtue of his support of this father when his father had no income but had sufficient assets.

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I researched an interesting homestead issue today for a client who is considering selling his current single family home and using the proceeds to buy an expensive recreational vehicle which would become his principal residence. The question is whether a recreational vehicle can qualify as a protected homestead under Florida statutes and case law.

There is a Florida Statute (222.05) which discusses what may constitute a dwelling for homestead pruposes. Pursuant to the Statute the term dwelling includes a mobile home. Chapter 320 of the Florida Statutes pertains to motor homes. The Florida Statues do not address the issue of whether a recreational vehicle which has the facilities for residence, such as cooking and toilet, can be considered a "mobile home" for purposes of Section 222.05 and thus eligible for homestead designation.

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What type of legal interest in a house qualifies for homestead protection? For example, a caller asked about a situation where a parent was living with a child and paying some of the household expenses as a form of rent. The parent was being chased by their creditors. The caller was concerned that if a creditor claimed the parent was renting the house the creditor could levy upon the parent's leasehold interest and cause the parent to be evicted. He suggested that he give the parent a life estate interest in the house by quit claim deed.

I think that the parent's right to stay in the house would be protected from the parent's creditors if the parent had a recorded life estate and continued to reside in the house. Homestead protection is broadly construed to protect Florida residents, and a partial ownership interest should qualify as a legal interest protected by homestead. On the other hand, it is unlikely, though possible, that the parent's right to reside in the house with the child's permission would be taken by a creditor because the leasehold would also probably be protected under homestead law. I haven't researched the protection of either type of legal interest so my opinion is an educated guess.

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What happens to homestead protection if a Florida debtor moves out of their home and then demolishes the entire structure? A client presented that question about Florida homestead protection. After leveling the home, the debtor rented an apartment and hired a builder to build a new and bigger home on the same lot. Courts have often refused homestead protection to a property while the owner is building a residence on a vacant lot prior to the time when the completed home is livable and the debtor actually occupies the house. On the other hand, courts have also extended homestead protection when an owner temporarily moves out of their homestead with the intent to one day return to the home as a permanent residence. The question I found in this case is whether the debtor could intend to return to a house that no longer existed even though a replacement was being built. Are these facts most similar to non-protected construction of a home on a vacant lot or the protected temporary relocation with provable intent to return? I am not aware of any court decision on this fact situation.

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I received a phone call from an attorney in California who works for the dark side of the force. He is trying to collect a large judgment from a Florida debtor. The debtor, who is married, owns an expensive building lot jointly with his spouse. The property is not homestead property at this time because the house is unoccupied. His spouse purchased the lot over four years ago which is beyond the statute of limitations for fraudulent conveyance. Recently, the spouse conveyed title to herself and her debtor/husband jointly. They are building their future residence on the lot. The attorney levied on the lot, but the sheriff returned the writ unsatisfied for the reason that the lot is owned jointly as tenants by entireties.

All property owned by husband and wife in Florida is presumed to be owned tenants by entireties, but this presumption can be rebutted by a creditor. One way for a creditor to overcome the presumption of tenants by entireties is to show that the property does not possess what courts have referred to as the "unities of title", which are the technical requirements for entireties ownership. One of the "unities" is unity of time. The Florida Supreme Court has said that unity of time means both spouses' interest must have originated at the same time in the same instrument.

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I just finished responding to following email about Florida homestead protection and IRS debts:

"My friend informed me that in Florida a qualified homestead was exempt from legal judgments and that the law was very broad. He stated that a principal residence was protected from forced liquidations. He went on to state that the law was even good against IRS debts. I found this to be very hard to believe."

Don't believe it. If you owe income or payroll taxes the IRS tax lien encumbers all your property including a Florida homestead. The Florida constitution prevents the IRS from foreclosing the lien and forcing you to sell your primary residence. When you sell the house, or when the owner(s) dies, the IRS will take sale proceeds to pay the tax lien. Other exceptions to homestead protection are voluntary liens, such as mortgages, and mechanics liens for work done on or goods supplied to your principle residence.

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A caller asked me today whether he and his wife can move to Florida and maintain two homesteads, one for each spouse. The answer is that a husband and wife living separately can each protect unlimited amounts of money in their own Florida homestead. The caller said, when asked, that in fact he and his wife would continue to live together in one of the homesteads and also maintain joint financial assets. I explained that a creditor could easily establish that they were in fact living together in just one of the houses. In that event, the second house which neither of them occupied as their principal residence would have no homestead protection. If the second house were owned jointly it would still be protected from individual creditors of either spouse because it would be tenants by entireties property. The purchase of the second home could be challenged as a fraudulent transfer if the purchase money came from the debtor spouse because purchase of tenants by entireties property, unlike homestead, can be undone as a fraudulent transfer or conversion.

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I received an email from someone who wanted to know if he could claim homestead protection on a house he owned jointly with his parents. The questioner faced a potential judgment. The questioner and the parents lived together in this house. Florida homestead is not limited to one owner per property. All people who jointly own and also reside in a primary residence have homestead protection and no creditor of either of the co-owners and co-residents can force a sale of the property. If the questioner became a judgment debtor his interest in the residence and his parents' interest would be protected from forced sale. If, on the other hand, the questioner/debtor was a co-owner but resided elsewhere his interest in the property owned with his parents would not be protected. His creditors could still not force a sale of the house if his house was his parents' homestead residence. If all three co-owners voluntarily sold the house his parents' share of the equity would be protected as their homestead interest, but creditors might have a lien on the debtor child's share of equity

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California is serious about collecting judgments. A gentleman called me from California last week to inquire about moving to Florida and transferring his bank accounts and his wife's separate bank accounts to Florida bank accounts owned by he and his wife jointly. A judgment had already been entered against the caller by a California court, although his wife had not been named in the lawsuit. In Florida, as blog readers know, a creditor cannot garnish bank accounts owned jointly by the debtor and the non-debtor spouse because such joint accounts are presumed to be tenants by the entireties property. TE assets of Florida residence are protected from judgments against one spouse

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A caller wanted to purchase a residential lot and then build on the lot his primary residence. The caller was about to go into default on a substantial amount of credit card debt and was concerned about creditors taking the lot prior to his ability to complete and occupy a house.

Several entries on this blog have pointed out that homestead protection is not effective until a property is occupied, and that houses under construction are not protected. This caller proposed to take title during construction in a separate LLC and then convey title to himself personally when a certificate of occupancy was issued. If a judgment was entered against the debtor prior to occupancy and homestead protection the judgment would not attache to the LLC. Moreover, the debtor's interest in the LLC could not be taken by creditors. Once the debtor is ready to move into the property he would have to convey title out of the LLC to himself personally because homestead protection is not available to LLCs or other legal entities other than natural persons.

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A caller from California asked me whether Florida law would protect from creditors a Florida property owned by a Florida LLC which in turn was owned by the caller's self-directed IRA. I responded that Florida law exempting IRAs from creditors would not apply to this California resident, although because the real estate would be situated in Florida the creditor remedy may be limited by Florida law which makes charging liens the sole remedy to pursue a member's LLC interest. I have not researched this issue, and it could be that a California court may give a creditor greater rights to levy on the LLC interest.

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A caller from Kentucky asked about asset protection of several rental properties located in Florida and owned jointly with his wife. The caller was facing a potential civil judgment against him individually, but his wife was not named in the lawsuit. Property owned by husband and wife in Florida is presumed to be owned as "tenants by the entireties", and such property is immune from judgments against either spouse individually. This caller was a resident of Kentucky, and that state does not recognize tenants by the entireties ownership and not other exemption is given to marital property. The question was whether the jointly owned Florida properties are protected from a Kentucky judgment against and individual Kentucky resident who owns Florida real property jointly with his spouse.

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My health insurance agent, Mark Boxman, suggested changing medical insurance from a traditional PPO plan to a high deductible plan funded though a Health Savings Account. Naturally, one of my first inquiries was to see if the Health Savings Account is an exempt asset under Florida statutes.

Health Savings Accounts ("HSAs") were recently enacted as part of the 2003 prescription drug bill in Congress. Health insurance companies this year have offered new high deductible insurance plans that are legally compatible with HSA accounts. HSA accounts were modeled after MSAs which are specifically exempt from creditors judgments under Florida Statute 222.22. Under current Florida law these new HSAs are not exempt from creditors. However, there is a proposed statutory amendment pending in the Florida Senate that would afford to the new HSA account the same protections enjoyed by MSAs. Given the importance of HSAs in today's medical insurance planning and their role in reducing insurance costs I expect that the Florida legislature will enact creditor protection for HSAs. In that event, HSA balances would also be exempt in bankruptcy proceedings. The HSA is not only a useful tool to lower health insurance premiums, but it is also a part of Florida asset protection planning and bankruptcy law..

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I received a call from an attorney in Alabama about his physician client who was interested in declaration of Florida residency and protection under Florida homestead law. The physician owned a house in Florida which he visited occasionally. He had a Florida drivers license, was registered to vote in Florida, and had filed a declaration of domicile in Florida courts. The physician was not licensed to practice medicine in Florida. He and his family lived in a house in Alabama where his children attended school. He worked in Alabama and earned no income working in Florida.

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A caller asked me to explain the Florida homestead law limitation on the size of lots protected from creditors. Florida law protects 100% of the value of homestead properties situated within a Florida municipality so long as the homestead is located on a lot not greater than ½ acre in size. The caller asked me what the term " municipality " meant. A municipality is a "city" incorporated as a "city" under Florida law. The terms municipality and city are synonymous for homestead purposes. Other people who contemplate moving to Florida have asked me how they can determine if a property they are interested in purchasing is located within a municipality. The real estate listing agreement and the property tax assessors website should state whether any particular property is in a city. Look to see if property is assessed for tax purposes for municipal or city tax; if it is just assessed a county tax then it is in the county, not the city.

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A reader described a situation where a debtor owned and resided in ½ of a duplex and where the other owner did not reside in the other half unit. The reader asked whether the debtor could protect the entire building under Florida's homestead laws because the entire building was located on a lot less than one-half acre within a municipality. I think that only ½ the total value of the building is protected, and more specifically, only the debtor's unit is shielded from creditor's under the Florida homestead laws. Each divisible unit must stand on its own legal footing. Because the other owner does not reside in his half of the building he cannot claim his part of the unit as a protected homestead.

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I am frequently asked by clients who are in the process of estate planning whether they should convey their Florida homestead property to their living trust. I think it depends on the client's circumstances. If estate planning is being done for a married couple there is little practical benefit to holding a homestead property in a living trust because upon the first death the surviving spouse automatically gets a life estate. If, as in most families, the homestead is owned jointly by husband and wife, the surviving spouse gets total ownership of the homestead. The disadvantage of ownership in a trust is the possibility that a court could rule that the property does not qualify for homestead protection under Florida law. The Florida constitution protects homestead property owned by a natural person. One bankruptcy case held that a living trust is not a natural person, and therefore, the property owned by the trustee of a living trust is not protected from creditors. Other courts have reached the opposite conclusion.

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Florida statutes state that wages, salary, commissions and other compensation for personal services paid to the head of household cannot be garnished by a creditor. The "salary exemption" is an important part of Florida asset protection law. The definition of "head of household" has been the subject of numerous Florida court decisions. Recently, a client presented the issue of whether a divorced father can be a head of household if he provides more than 50% of the support for adult children, one of whom is married. Florida courts have stated consistently that wage garnishment protection should be liberally construed in favor of the debtor. Most courts have held that the term "child" in the wage garnishment statute does not have an implied age limitation, and that even an adult child whom the parent does not have a legal support obligation can be deemed a dependent for purposes of the statute on the basis of the parent's moral obligation to care for his children.

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A new client visited with me and presented a unique and interesting asset protection issue. The client is a British citizen who is living in Florida. He has a temporary immigration visa which is renewable. He owns approximately 120 contiguous acres of land consisting of six separate legal parcels. His primary residence, owned jointly with his wife, is situated on one parcel. Two separate parcels are used exclusively for a commercial business. The property is worth over one million dollars.

Homestead protection is not available because the client does not have a permanent visa. Homestead protection requires that the debtor has the intent to make the residence his permanent home. Courts have held that such intent cannot exist for people who lack the legal basis to permanently reside in Florida. A second problem with homestead for this client is the commercial use of part of the property. Although homestead extends to 160 contiguous acres in most cases, it only applies to residential use. Here, there are separate and distinct parcels which although contiguous to the residential parcel, themselves are used exclusively for business purposes. Even if the client had a permanent visa, it is likely that the only property which would be deemed homestead is that parcel of land on which his primary residence is located.

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Florida Statute 222.11 protects from garnishment salary of unlimited amounts earned by a head of family. The statute defines a "head of family" as someone who provides more than 50% of the support for a child or other dependent. Once a debtor qualifies as supporting a child or dependant, all of his wages are protected regardless of how much of his earnings are allocated to support of the other person. Who may be an "other dependent" is an interesting question because the term is undefined. Clearly, someone living with the debtor family head, such as a spouse, will qualify as a dependent if they rely on the debtor for more than half of their support. I think a parent living with the family may also be a dependent. But there is no requirement in the statute that the dependent reside in the same house with the debtor.

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I occasionally get asked whether non-U.S. citizens ("aliens") resident in Florida can file for bankruptcy protection in Florida or can claim homestead protection. The rule is that debtors must demonstrate they are permanent residents of the U.S. and Florida to take advantage of bankruptcy protection and Florida asset protection benefits such as homestead. Florida bankruptcy courts have held that an alien debtor can file bankruptcy if he can demonstrate the intent and ability to be a permanent Florida resident. In order to even be able to argue intent of permanent residency a person must have a permanent visa of "green card." A non-citizen who fails to maintain visa status cannot be a resident of Florida for purposes either of claiming homestead protection or filing bankruptcy because he lacks the legal right to be a permanent resident. Application for permanent visa is not enough until the application is approved and the green card is in hand.

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Florida Statute 222.11 exempts for creditors salary and other compensation for personal services paid to the head of household of a Florida family. Many closely held businesses and self employed persons confuse the asset protection of this statute. The confusion centers over the difference between money received from the business as salary and money received as distribution of profits. Only compensation for personal services to the business is protected by Florida Statute 222.11. Only compensation paid to the business owner in his role as employee are protected. Therefore, it is important for the small business owner to document his status as employee for purposes of the wage exemption statute. Documentation includes factors such as: (1) payment of fixed amount of salary on a regular basis. Payments to the owner in varying amounts as needed to pay the owner's personal family expenses is in the nature of profit distribution rather than employee compensation (2) existence of a written employment contract between the corporation and the owner (employee), and (3) payments conditioned upon the time the owner actually works at the business rather than amounts based upon the business revenue or profit.

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Florida Statute 222.21 protects from creditors financial assets that qualify under specified sections of the Internal Revenue Code to include most IRAs, 401k plans, and other common tax "qualified" retirement plans. The Internal Revenue Code states that a IRA will cease to be tax qualified for tax purposes the first day of the tax year in which the taxpayer and the IRA are involved in what is called a "prohibited transaction." Examples of prohibited transactions include sales, exchanges, and similar financial transactions between the IRA and its owner or other "disqualified persons" such as members of the owner's family. For asset protection, it is important to keep in mind that any prohibited transaction or self-dealing which would cause an IRA to lose its tax qualification not only would have adverse income tax consequences, but it would also cause the IRA to forfeit its creditor protection. The loss of creditor protection would be retroactive to the beginning of the tax year which causes the problem to be even more troublesome for asset protection planning.

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There has been much debate among estate planning attorneys about the pros and cons of deeding your homestead to a living trust. One benefit often mentioned is avoidance of probate upon death. But, because homestead is exempt from creditors, the homestead passes quickly through any probate proceeding. Also, homestead jointly owned between spouses automatically passes to the surviving spouse

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Generally speaking, the Florida consitution protects homestead property owned by a natural person. But, what happens if a person deeded their homestead to their living trust, and as a result the legal title is held in the name of the trustee for the trust. In the case of Callava v. Feinberg, the Second District Court of Appeals held in October 2003, that homestead protection for creditors applies even if a person's primary residence is titled in the name of the trustee of a trust, The court stated

" The constitutional provision "does not designate how title to the property is to be held and it does not limit the estate that must be owned...." Southern Walls, Inc. v. Stilwell Corp., 810 So.2d 566, 569 (Fla. 5th DCA 2002). "[T]he individual claiming homestead exemption need not hold fee simple title to the property." Id. (citing Bessemer Props., Inc. v. Gamble, 158 Fla. 38, 27 So.2d 832 (1946)). See also HCA Gulf Coast Hospital v. Estate of Downing, 594 So.2d 774, 776 (Fla. 1st DCA 1991)(beneficiary of spendthrift trust entitled to claim homestead exemption as to trust property). Thus, even if Callava owns only a beneficial interest in the property, she is entitled to claim a homestead exemption to the forced sale of the property and the trial court erred in foreclosing her interest in the property."

Based on this decision a Florida resident's homestead property is still protected from creditors after the person conveys legal title to a living trust or any other trust as long as the resident retains a beneficial interest

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Many lawyers and attorneys do not tell their clients about the exceptions in Florida law to homestead protection. Your home is not protected from foreced sale from tax liens both for proerty tax and IRS tax. Nor, is your home protected from special assessement from homeowners associatsions. The homestead is not protected from materialmen liens. Those are liens placed on your home because you did not pay for materials and labor supplied to improve your homestead property.

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529 Plans are named under the section of the IRS code that creates and regulates them. These plans provide for a way for a parent or grandparent to invest and save for a child's education. Protection of these plans under Florida law depends on where the money is placed. If you invest in a 529 Plan located in Florida the fund is probably protected under Florida Statute 222.22 pertaining to prepaid college trust funds. There are no definite court decisions interpreting this exemption. However, if your 529 Plan is created under the laws of a different state, such as a plan qualifying as a Georgia 529 Plan, your plan may not protect you as a Florida resident against your creditors. Each state's 529 Plans have different rules and investment options. You may choose a plan which is better for investment purposes under the laws of a different state and by doing so forfeit asset protection of plan proceeds. Be careful to weigh investment opporunties of plans in a different state with the asset protection benefits of a 529 Plan created under Florida laws.

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