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

 A creditor cannot levy upon or freeze your assets until the creditor obtains a civil judgment against you. The creditor cannot go after your assets just because he has filed a lawsuit and you are defending the suit. That is the general rule. However, as pointed out in an article in Forbes Magazine online, written by attorney Jay Adkisson, some courts will permit creditors to freeze assets to stop potential fraudulent transfers. 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Physician and attorney practices through corporations or LLCs can be owned only by licensed professionals. Therefore, the professional cannot own his business in most cases jointly with his spouse who is not also licensed in the same profession. Profit distributions from the professional practice are paid to the professional spouse who owns the business. These distributions are non-exempt money in the hands of the professional.

Most professionals and their  spouse maintain joint financial accounts in order to achieve tenants by entireties protection of their personal money from potential creditors or claims against the professional related to his professional practice. When the professional deposits non-exempt distributions from his business in to his joint personal account the professional is depositing non-exempt money into an exempt entireties account. Is this deposit a fraudulent conversion of a non-exempt asset to an exempt account?

Most courts do not consider this common practice to be a fraudulent conversion. Fraudulent transfer law considers the context of debtors’ transfers. In cases where the debtor has established a practice of depositing profit distributions in to a joint account during a long-term marriage, continuation of the practice does not become fraudulent just because a judgment is entered. The answer is different if the debtor changed his personal financial arrangements when a claim arose or moved money secretly.

Fraudulent transfers and conversions depend on circumstantial evidence of the debtor’s intent. Maintaining financial arrangements established long before a legal problem arose, by itself, is usually not evidence of intent to evade creditor collection.

 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Many asset protection clients own once-valuable properties which are currently upside down. If a creditor gets and records a judgment the creditor will establish a subordinate lien on the property. The judgment creditor is unlikely to foreclose the judgment when the property has no equity. However, if and when the real estate market recovers and the property’s value comes back the creditor’s lien eventually will be “in the money.” Even though an improved real estate market will enable the debtor to sell the property and payoff the mortgage all the money over and above the mortgage will go to the judgment creditor’s subordinated lien. The debtor will never see any money from this property.

If the debtor conveys title of the property to his spouse, a friend, or a newly formed LLC the judgment creditor’s lien will not attach, and and the new transferee can sell the property at some point free and clear of the judgment lien.  The judgment creditor might try to  reverse the debtor’s transfer as a fraudulent transfer intended to evade the creditor’s judgment even where there the debtor had no  equity in the property at the time of the transfer. Can there be a fraudulent transfer of zero value?

Based upon the definitions in in the fraudulent transfer statutes (Section 726.102 ) I believe that the transfer of a property which is upside down at the time of the transfer cannot be reversed as a fraudulent transfer. The statutes define a “transfer” as the disposition or parting with “an asset.” The statute then defines “assets” as any property of the debtor but  not including the debtor's property to the extent encumbered by a valid lien. Therefore, real estate encumbered by a valid mortgage in excess of property value is not an “asset” for purposes of fraudulent transfer analysis.  

 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

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

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

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

 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

One of most important indicators of a fraudulent transfer is the receipt of value as consideration for the transfer. If a debtor transfers title to a person or entity and receives nothing in return the transfer is susceptible to fraudulent transfer allegation, but if the debtor receives consideration reasonable equivalent value the transfer appears more as a “fair trade” rather than an attempt to evade a creditor.

Some people have  suggested to me  that a debtor’s receipt of fair value defense  applies to a debtor’s transfer of non-exempt money or property from the debtor’s name to an LLC or partnership owned by the debtor. They contend that a debtor’s transfers to an LLC or partnership is not a fraudulent transfer when the debtor receives LLC or partnership interest in exchange for the conveyances to the LLC or partnership.  The LLC/partnership interest is a fair trade for the assets conveyed.

If one accepts this argument, then it would be very difficult for a creditor to reverse almost any transfer from a debtor to the same debtor’s multi-member LLC or partnership because the debtor will show that he received an asset (the interest) comparable in value to the asset he transferred out of his own name. A creditor would be left with only a charging lien against the LLC or partnership interest even thought the creditor could have levied or foreclosed the non-exempt asset when it was titled in the debtor’s name.

 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Asset protection clients often deal with judgments against both themselves individually and their closely held business. Many of my clients believe that they can deal with their businesses’ liability and potential judgment by closing or bankrupting their business. When I asked them how they plan to make a living after they close their business the response is something like, “I’ll just start a new business doing the same kind of work.” Not exactly. I’ve written before on this blog that when the debtor’s new business is nothing more than a name change or a successor business that uses the goodwill and other assets of the debtor business the creditor can levy upon the new business as the continuation or alter-ego of the debtor business.

I am addressing this problem again because I read recently a post on this subject dated September 29, 2010, t on The Sale of Business Law Blog. The blog discusses a court decision where the judge found that a newly formed business was liable for the debts of a closed debtor business where the new business, among other things, took the former business’ employees and customers and operated in the same physical location.

In most instances the only way to be sure a new business is protected from the debts of a former business is to file Chapter 7 bankruptcy for the former business. Any assets of the old business, including goodwill, would be part of the bankruptcy estate so that there should be no assets to transfer to a successor venture.
 

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Some people use offshore trusts or LLCs for asset protection because offshore jurisdictions have shorter statutes of limitations for fraudulent conveyance claims. For instance, if a U.S. debtor uses non-exempt cash to purchase a parcel of real estate in a foreign country or fund a foreign trust a creditor has a limited time to attack the property purchase as a fraudulent transfer. Under the law in most states, including Florida, the creditor has four years to bring a fraudulent transfer action. In many foreign countries the creditor has only one or two years to challenge a fraudulent transfer. Most asset protection planners and clients assume that a creditor’s challenge to a fraudulent transfer to a foreign trust or LLC, or the transfer of a foreign property, limits their creditors to the shorter statute of limitations of the offshore jurisdiction where the property or trust is located.

In the course of researching an unrelated  foreign property issue I came across a federal appellate court case which suggests that the longer U.S. statute of limitations can apply to a fraudulent transfer by a U.S. debtor involving foreign assets or entities. In this bankruptcy case a U.S. debtor transferred real property he owned in the Bahamas to another U.S. resident who was not a debtor for no consideration. The debtor filed bankruptcy, and the trustee attacked the transfer seeking to recapture the property into the debtor’s bankruptcy estate. The bankruptcy estate includes assets in all countries. The debtor’s transfer was after the Bahamian statute of limitations but within the U.S. statute of limitations.The debtor argued that the Bahamian time limit applied because the property was located in the Bahamas.

The federal appeals court held in 2006 that the longer U.S. statute of limitations was applicable to the property transfer because the transfer was between two U.S. parties. The statute of limitations applicable to the trustee’s action was where the transfer took place, in the U.S., rather than where the property was situated despite the general rule that law applicable to real property is the jurisdiction where the property is located. 440 F. 3d 145

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Husband tells me his automobile is protected from creditors because his wife has a recorded lien on the title. The story is that when this man bought the car in February, 2005, he put this wife’s name on the title as a lien holder. He states he cannot recall how much, if any, money his wife loaned him from her separate funds to finance the purchase, and he has no record of periodic loan payments to his wife. This year, after this same man was sued, he man transferred the car title to his wife as a "repayment of her loan and in satisfaction of the lien", so he says.

Is this a fraudulent loan, and is the transfer of the car title to the wife a fraudulent conveyance? Probably. The creditor would have to show that the original lien and loan was fraudulent to creditors in order to invalidate the transfer of title in satisfaction of the lien. The creditor’s problem is that the original loan and lien are five years old and took place the statute of limitations for fraudulent transfers. If the original loan is not invalid then the debtor may be able to defend a fraudulent transfer attack on the conveyance of title this year to his wife. This debtor would be in better position if he had just left title in his name subject to the five year old lien.

I asked this man if he had spoken with his CPA about the tax treatment of his title transfer in 2010. The wife’s forgiveness of her loan and lien may result in 1099 income to the husband. I’m not sure if the wife can take a corresponding investment loss because I don’t know if the wife’s transaction qualifies as a business investment. Interesting question for the couple’s accountant.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Asset protection planning sometimes involves knowing and purposeful fraudulent conveyances. An attorney from south Florida called me recently to discuss the following plan he would propose to his client. His client, a married man, was a defendant in a civil suit. The judge had just granted the creditor’s motion for summary judgment, and the judge would probably enter a final judgment as soon as the creditor submitted proof of damages.

The man owned a one-acre lot upon which he was constructing a house to be his future homestead. The problem is that the court would be entering a final money judgment before the house was completed and occupied. The final judgment would be automatically a lien on the lot. Subsequent occupancy as a homestead would not remove the pre-existing lien.The attorney wanted to know if he should advise the client to quit-claim deed the lot to his wife for the remainder of construction and then have it conveyed to joint ownership when the couple moved in as their new homestead. I think the plan would work.

• Email This
• Print
• Comments (2)
• Trackbacks
• Share Link

People often confuse a fraudulent transfer in asset protection or bankruptcy law with the crime of fraud or common law civil fraud. Common law fraud or criminal fraud are types of "evil fraud." This type of fraud involves intentional deceit or cheating of innocent victims. The fraud involves intent to harm and the victim suffers damages. The judicial remedy is incarceration in the case of criminal fraud and damages in the case of civil common law fraud.

Fraudulent transfers or fraudulent conversions to evade or avoid creditors are reversible because there are Florida statutes which give courts the authority to undo such transfers or conversions and put the property back in the hands of the debtor where it is subject to creditor levy. Fraudulent transfer actions are creditor remedies; they are part of the creditor’s array of tools used to collect judgments. A court may not award a creditor any additional damages for a debtor’s fraudulent transfers or conversions. Certainly, no one ever went to jail for making a fraudulent transfer to protect assets from creditors.

Many attorneys confuse civil/criminal fraud, the "evil fraud", with reversible fraudulent transfers. Some judges confuse the two concepts. An attorney I know sent me an order issued by a federal district court judge which clearly distinguishes fraudulent transfers from common law fraud. This order is not precedent. Nevertheless, readers may find the analysis and cases cited within to be helpful in arguing this issue in their own cases.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

As a general rule, a creditor cannot challenge as a fraudulent conveyance any transfers of assets made more than four years ago. I use the four year statute of limitation applicable to fraudulent transfers and conversions as a planning guideline and do not advise most clients to consider additional asset protection tools to protect transfers four years in the past. There are, however, exceptions to this general rule which permits creditors to challenge older asset transfers. Specifically, Florida Statute 726.110 provides that a creditor can challenge as fraudulent an asset transfer to avoid pre-existing creditors for one year after the creditor was or could reasonably have been discovered by the creditor under certain conditions. This Statute gives some creditors the ability to challenge a conveyance no matter how ancient for a period of one year after the creditor's actual or constructive discovery.

• Email This
• Print
• Comments
• Share Link

When a small family business encounters business problems they do everything they can to preserve money. One of the first steps usually is reducing or deferring salary payable to the owners. Some businesses borrow money from other family members to pay bills. Some business cannot recover nor can they obtain enough capital to survive a recession, and eventually, they recognize that the business must shut down. I have often been asked by owners of failing businesses whether they can use what money is left in the business to pay themselves deferred salary or to repay their family members. The owners would prefer to pay themselves and their family rather than expose what money remains in the business to creditors. The owners think its fair to pay what are legitimate obligations to themselves or family. Unfortunately, payments from a failing business to owners or their family may be subject to reversal under Florida law.

• Email This
• Print
• Comments (1)
• Share Link

Generally, if a husband transfers non-exempt property to his wife in the face of a creditor's claim or lawsuit, the transfer will be reversed a a fraudulent conveyance. From time to time people who anticipate a legal problem tell me that in the event they lose a lawsuit they will divorce their wives and give their property to their wife as part of the divorce. The legal issue is whether there can be a fraudulent divorce to avoid or delay creditors. Does the fact that the divorce settlement is approved by a court protect property transfers made pursuant to the settlement agreement?

• Email This
• Print
• Comments (3)
• Trackbacks (1)
• Share Link

Fraudulent conveyance is always the largest issue in asset protection planning. A debtor has a strong defense to a fraudulent conveyance threat if the debtor can prove that he sold or transferred an asset for value. For example, if a debtor sells an asset to a third party and receives money or property in return the debtor is left with the equivalent amount of assets and the creditor is not harmed thereby. The question often is how much money does the debtor need to receiver for a transfer of asset in order to avoid allegations of a transfer to defraud creditors.

• Email This
• Print
• Comments (2)
• Trackbacks
• Share Link

A caller described his asset protection plan designed by his financial planner. The caller had created a "grantor retained annuity trust" which he funded with about $500,000 within two years of being sued. The trust had been accumulating income, but the trust document named the grantor/debtor as the sole lifetime beneficiary. Income paid to the grantor from the trust would be in the form of an annuity for his lifetime. All annuities, in whatever form, are exempt from creditors in Florida. The caller's estate was below the level susceptible to estate tax.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

Many people tell me they are planning transfers that they do not think will be challenged as a fraudulent conveyance because no creditor has yet to file a lawsuit. For fraudulent conveyance issues the important event is not the lawsuit or judgment, but it is the creation of a claim. Fraudulent conveyance statutes address creditors' "claims" not creditor lawsuits or creditor judgments. "Claim" is defined by the statutes. A claim means a right to payment, whether or not the right is reduced to judgment, is liquidated, fixed, contingent, disputed etc. A transfer of assets made even under the vague shadow of a potential claim is subject to attack as a fraudulent transfer under Florida Statute 726 even though substantial time passes before a lawsuit if filed or judgment awarded.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

I have cordial professional relationships with a few creditor attorneys. Sometimes, a creditor attorney who is representing a debtor client invents interesting asset protection strategies. Mr. Larry Kosto of Orlando, Florida, is one Florida's best collection attorneys. Larry says that he represented a debtor who owned assets jointly with his spouse which assets, for one reason or another, could not be deemed protected tenants by entireties assets. He came up with an interesting plan to transfer the joint assets to the non-debtor spouse and avoid fraudulent conveyance.

• Email This
• Print
• Comments (2)
• Trackbacks
• Share Link

Man owns several rental properties and a primary residence. He is concerned some of his rental properties will be foreclosed as the falling real estate market has made it impossible to sell the homes for enough money to pay the mortgage and rental income does not cover monthly expenses. One of the rental home is owned free and clear. The man asked whether he can protect the free and clear home by deeding it to his adult child and having the child move into the home as the child's primary residence. The man understands the transfer would be a fraudulent conveyance if one of his homes went into foreclosure and resulted in a deficiency judgment in the near future. His question is whether a creditor could take the transferred house occupied by the child and whether this is a viable asset protection plan.

• Email This
• Print
• Comments (1)
• Share Link

I found an interesting issue in a California bankruptcy case concerning fraudulent conveyance. A bankruptcy corporation paid many expenses within one year of bankruptcy including salaries and other money due to corporate insiders who had provided services to the corporation. The Trustee filed a complaint alleging the payments to insiders were fraudulent transfers. Some corporate insiders were Florida residents. The bankruptcy trustee sued these Florida insiders under the fraudulent conveyance sections of the bankruptcy code and under Florida's fraudulent conveyance statute. A jury returned a verdict against the insiders, in favor of the bankruptcy trustee, finding that there were fraudulent transfers and that such transfers were made "with malice." The court entered a verdict against the Florida insiders finding them jointly and severally liable for the total amount of fraudulent transfers by the debtor corporation and imposing $2 million punitive damages. The individuals are considering whether a fraudulent transfer judgment can include punitive damages.

• Email This
• Print
• Comments
• Share Link

I often receive calls, like this one, where a potential debtor is concerned that asset protection planning can affect his spouse. This man wanted to open a new bank account with his wife as "tenants by entireties" and deposit some of his separate money in the account. There were currently no judgments or lawsuits against the caller, but he was involved in a business disagreement which he feared could lead to a lawsuit and liability. He wanted to better protect his assets, but he did not want to make his wife involved in his problems.

• Email This
• Print
• Comments (1)
• Share Link

Debtor inquired whether they can shelter money from a creditor by transferring the money to their private charitable foundation. The first question is whether the foundation qualifies and operates as a charitable entity for tax purposes, and if it does, the next question is whether a donation to a charity may be undone as a fraudulent transfer.

• Email This
• Print
• Comments (2)
• Share Link

Consider a man and his wife who moves from Georgia to Florida and purchase a homestead for $100,000 cash. Title to the homestead is in the name of the husband only. After he and his wife reside in the new home for a few months, the man gets an equity line second mortgage. He uses $50,000 of loan proceeds to purchase an investment property title to which is taken in the wife's name only. A year later, the man encounters severe financial difficulty and files chapter 7 bankruptcy. Because he has not lived in Florida for two years prior to filing he is not eligible for Florida bankruptcy exemptions and must file with Georgia exemptions even though he is a Florida resident. Georgia has a relatively small homestead exemption which I'll assume is $10,000. (exact amount is not relevant ). Therefore, only $10,000 of his homestead is an exempt asset in bankruptcy. The issue is whether the equity line loan used to purchase the $50,000 property for his wife is a fraudulent conveyance of $40,000 subject to attack in the bankruptcy

• Email This
• Print
• Comments
• Trackbacks (5)
• Share Link

A judgment is entered in favor of the defendant and against the plaintiff.. The plaintiff files an appeal. The defendant asks whether transfers of non-exempt assets to his spouse after his win in the trial court could be attacked as fraudulent conveyances in the event he loses the appeal and the plaintiff's case is reinstated.

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

Clients often tell me of their frustrated attempts to get competent asset protection advice from attorneys who work in large law firms. Attorneys in traditional, "tall building" firms take a dim view of asset protection planning. As an example, a colleague attended last week a seminar on Florida asset protection taught by an attorney in one of Florida's silk stocking law firms. The instructor taught that any transfer or conversion of assets that is later found to be a fraudulent transfer in violation of Florida's fraudulent transfer statutes constitutes criminal fraud. Accordingly, any attorney who assists or advises a client to make a transfer of property subsequently reversed by a court as a fraudulent conveyance is engaged in assisting the commission of a crime. Such attorney, according to the instructor, is not only unethical but may himself be subject to civil remedies and criminal prosecution.

The problem with this opinion expressed authoritatively to other lawyers at a teaching seminar is that the view is unsupported by Florida law and has been rejected essentially by Florida courts. There is not statute that deems a fraudulent conveyance to be a criminal violation or punishable by fines or incarceration. The Florida Supreme Court and lower appellate courts have thus far consistently found that the fraudulent conveyance statutes are creditor recovery remedies only and they impose no additional civil liability on the debtor or any third party who assists the debtor. Some Florida judges have expressed contrary views in dissent opinions, and other state courts have reached contrary conclusions based on their own state's laws. Florida law, however, is based not on minority views or foreign law, but rather on the decisions by the majority including the Supreme Court.

• Email This
• Print
• Comments (1)
• Trackbacks
• Share Link

One unresolved issue in common law of fraudulent conveyance concerns business profits or distributions from closely held corporations which are used to support the debtor's family. For example, suppose a judgment debtor supports his spouse and children with earning from his business corporation of which he is the chief executive and sole stockholder. The business pays the debtor a salary and profit distributions. The debtor deposits all salary and profit distributions into a bank account owned jointly with his non-working wife. The money in the account is used solely to support his wife and children. The salary is exempt because the debtor is head of household. The question is whether the deposits of corporate distributions to the joint checking account are fraudulent transfers of the debtor's corporate profits to the debtor and his wife.

• Email This
• Print
• Comments
• Trackbacks
• Share Link

I read a report in Leimberg Information Services about a Missouri Court of Appeals case which held that a debtor and other parties can be held liable for civil conspiracy in a fraudulent transfer when they create new entities through which the debtor conducts future business. The case essentially finds that opportunity shifting is a form of fraudulent conveyance. When a creditor obtains a judgment against a business and its principal owner the individual businessman often starts a new company to conduct the same business and gives ownership of the new business to his spouse or other family member so that neither the new corporation nor the owners are subject to the prior judgment. The Missouri court found this technique of creditor avoidance, although not a traditional form of transfer, nevertheless could be undone as a form of fraudulent conveyance. To date, no Florida case has reached the same result. The Missouri court also found the debtor and his wife were both liable for damages on the theory of civil conspiracy for their efforts to set up successor businesses operated by the debtor. Leimberg's article says that the case is evidence that, "civil conspiracy is the creditor's new super-weapon against planning meant to render a debtor judgment-proof." While this observation may be generally true throughout the county, Florida courts have held uniformly that the fraudulent conveyance statutes do not support claims against third parties for civil conspiracy or any other basis of liability.

• Email This
• Print
• Comments (1)
• Trackbacks (1)
• Share Link

The May edition of the Florida Bar Journal contains an article Mr. Robert Meyer about whether a disclaimer for estate planning purposes can be set aside as a fraudulent conveyance against creditors of an heir or trust beneficiary. The article includes an interesting discussion of the meaning of insolvency for purposes of fraudulent conveyance allegations.

• Email This
• Print
• Comments
• Share Link

I was in a deposition today representing a lady who was the recipient, transferee, of an alleged fraudulent conveyance. The allegations are unique; here's what happened. My client, a professional mortgage broker, loaned money to a businessman evidenced by a promissory note. The note stated that the loan was secured by two parcels of real estate and a mortgage note receivable from a third party. At the time of the loan, the collateral's value was close to the original note amount. The note was not recorded, and there was no separate mortgage. My client did not know the borrower at the time of the loan, but subsequent to the loan they became good friends. The businessman found it impossible to make payments on the note. My client and the businessman agreed that to satisfy the note the businessman would assign to my client all the collateral. The collateral by then had appreciated, and my client received assets close to double the amount of money she originally loaned. Just over one year after the assignment of collateral the business man filed Chapter 7 bankruptcy. The trustee is suing my client to recover the assigned assets.

• Email This
• Print
• Comments
• Share Link

A caller asked me if a debtor could protect assets by legally changing his name and then conveying assets to his new legal name. He reasoned that this would not be a fraudulent conveyance because he was transfer title to himself, just under a new name. This was an innovative asset protection ideal, but it is not a good asset protection plan. The caller did not understand that the fraudulent conveyance statutes also include a prohibition on fraudulent conversions. A fraudulent conversion is when the debtor sells an asset that is not exempt from creditors and buys an asset which is exempt. An example would be selling publically traded common stock and purchasing an annuity. Annuities are exempt from creditors under Florida law. Fraudulent conversions can be undone under the same rules applicable to fraudulent conveyances.

• Email This
• Print
• Comments
• Share Link

A new client presented a plan to undo a potentially fraudulent conveyance. Client and spouse had used a joint line of credit from a bank to borrow money for several investments. Some investments made in companies owned solely by husband made a profit. These companies distributed some profits to husband who, in turn, conveyed the profits to other companies owned solely by his wife.

A creditor obtained a judgment against husband only. To undo what may be deemed a fraudulent conveyance of profits to his wife, the husband and wife borrowed more money from the same lender on the same line of credit and deposited the borrowed funds in wife's solely owned company. The wife's company distributed to the wife/owner funds equal to the amount of profit the company had first received from husband's company, thereby, reversing the potentially fraudulent conveyance. The client wants to know whether this plan makes moot any fraudulent conveyance action against wife and her company.

• Email This
• Print
• Comments (1)
• Share Link

A speaker at a legal seminar on Florida asset protection law, when discussing homestead protection in Florida described homestead as a state of mind. Homestead law seems simple, but it is actually very complex involving many facts and nuances. I think that describing Florida homestead as a state of mind captures the essence of homestead law. What the speaker was referring to is that whether a property serves as your Florida homestead is a matter of your subjective intent. Your intent includes things only you know in your own mind. For example, homestead protection is available to you if you really intend to make the property a permanent and primary place of residence. It also matters whether you consider Florida as your home state. On the other hand, if you intend to remain here only until legal clouds are clear and then return elsewhere you do not have the homestead state of mind. Homestead therefore depends on facts and circumstance- your behavior- which indicate to a judge what your true state of mind is in regards to your Florida property. There are no clear tests or standards that must be met to have a protected Florida homestead. The expression state of mind is a great description of a complex law that is easily understood by laymen.

• Email This
• Print
• Comments (6)
• Share Link

An email asked if the transfer of a personal residence from a land trust to the beneficiary of the land trust who resides on the property is a fraudulent conveyance under Florida law. I think that the transfer is not a fraudulent transfer under most land trust agreements. A land trust typically vests all beneficial ownership and use in the land trust beneficiary. The trustee holds minimal legal title, and the beneficiary retains total control over the trust property and the trustee. Even if the conveyance is deemed fraudulent, the result is that the residence once owned in the name of the beneficiary is exempt from creditors as a Florida homestead. The more important issue is whether the same property in the name of the land trustee has homestead protection. With the exception of one case to the contrary, most courts in Florida have extended homestead protection to a residence titled in a revocable living trust or a land trust where the beneficiary uses the property as his primary residence.

• Email This
• Print
• Comments (4)
• Share Link

The homestead protection afforded Florida residents is being tested in a Florida bankruptcy proceeding. The Florida Supreme Court, in the case of Havoco v. Hill, has held paying money to purchase a homestead property or applying funds to reduce the principal balance on a homestead cannot be reversed, set-aside, or undone on the grounds that the purchase or payment was a fraudulent transfers to avoid creditors. In the case of In re Potter, pending in the Middle District of Florida bankruptcy court, the bankruptcy trustee, Ms. Gene Chambers, has sued to recover approximately $300,000 which a debtor used to by a homestead approximately 18 months prior to filing bankruptcy on the grounds that the purchase was a fraudulent conveyance under Florida's fraudulent conveyance statutes. It will be interesting to see whether this court finds that the Florida Supreme Courts ruling in Havoco precludes this fraudulent transfer claim in bankruptcy, or whether the court ignores Havoco and applies a different legal standard.

• Email This
• Print
• Comments (3)
• Share Link

There is a common misconception that a party has to either have filed a lawsuit against you or has a judgment against you to be considered your creditor for purposes of fraudulent conveyance law. Transfers or conversions of assets to evade creditors can be reversed or the transferee sued for the value of the conveyance. Under Florida law, the term creditor is liberally construed, and almost anyone you do business with can be considered a creditor even if there is no existing legal dispute.

• Email This
• Print
• Share Link