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

Asset protection planning deals mostly with civil money judgments. When it comes to family law, there are fewer asset protection options available to avoid awards of alimony and support of a former spouse. For example, judges in divorce cases can order an allocation of retirement accounts which are exempt from regular judgment creditors. The homestead exemption is the strongest asset protection tool, but does it work equally well in a family law context. A caller asked me whether a court can force the sale of a former spouse’s homestead property to pay court awarded child support or alimony.

There is at least one case which held that a spouse could force the sale of a homestead to enforce a support order. In that case, the court reasoned that the purpose of the homestead protection is to protect the debtor’s family, and that the debtor cannot hide behind the homestead shield to the detriment of those family members it was designed to protect.

More recent decisions have held that there is no alimony or support exemption to homestead protection. If the creditor spouse can demonstrate that the spouse who owns the homestead property acted fraudulently, reprehensibly, or egregiously to acquire or use the homestead exemption to avoid paying an alimony or support order then the court could impose an equitable lien on the homestead property. However, I think most courts will agree that a former spouse cannot force the sale of homestead to fund an alimony or support obligation.

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A Florida homestead, once established, may be abandoned in which event the property’s homestead protection from creditors is lost. There are many Florida court cases which have discussed the tests of whether an owner has "abandoned" their homestead. Temporary absence or a forced absence from a homestead generally is not abandonment. One important abandonment test is whether the homestead owner has rented the house under a long-term lease to a third party. Rental is consistent with abandonment.

Two Florida attorneys wrote an interesting article in the current Florida Bar Journal about rental and homestead abandonment. The authors discussed how renting a homestead affects the owner’s homestead tax deduction. Their article equally is relevant to renting and homestead abandonment for creditor protection.

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Your house in a municipality is homestead provided the lot is no larger than ½ acre. If the city homestead lot is greater than ½ acre the protection is applied pro rata. For example, for a lot 1 acre in size within a city only 50% of the equity is protected as homestead. This week I spoke with a man who lived on a lake front lot in the city. The lot was barely over ½ acre. The lot survey showed that the side lot lines extended several feet into the lake so that a significant part of the lot was under the lake. The dry land was less than ½ acre in size. The man asked me if the part of the lot under the lake counted toward the calculation of his homestead exemption.

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Only individuals can claim homestead protection. The Florida Constitution states that homestead protection applies to "natural persons." I read a case this week wherein a debtor had transferred their homestead property to a family limited partnership for estate planning and estate tax purposes. The debtor owned 95% of the limited partnership interests, and there was a partnership agreement permitted the same debtor to reside in the house. The debtor claimed that the property should qualify as exempt homestead because he had the right to occupy the house under the terms of the partnership agreement. The debtor claimed that he had indirect equitable title to the property, and that his interest was sufficient to warrant homestead protection from his creditors.

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Homestead protection applies to homes and land occupied by a debtor as his primary residence. Property used for commercial purposes or for the production of income generally does not qualify for homestead protection. A Florida bankruptcy court recently considered married joint debtors who used part of a homestead property for his residence and part of the same property for business and income production. The issue was whether the partial business use disqualified all or part of the debtors' homestead protection from their judgment creditors. The two debtors owned a five acre parcel of land in the county. They built their residence on a minority portion of the land. The debtors had two more buildings on the same land. One building was a warehouse used exclusively for the debtors' business. The third building was a second residence rented to an unrelated third party. In other words, two of the three structures occupying most of the property were used commercially.

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Asset protection planning is part of estate planning. Tax planning is part of estate planning. Often, however what is good tax planning is not good for asset protection. A recent example is a client who is attempting to reduce their taxable estate by using a estate tax tool called a qualified personal residence trust ("QPRT"). The QPRT is a well-known estate tax reduction technique whereby the taxpayer transfers a residence to a trust and retains use of the residence. After a period of time specified by the trust title to the property passes to the heirs who rent the property back to the former owner and trustmaker. The technique freezes reduces the value of the residence for estate tax purposes. The asset planning issue is that conveyance of a primary residence to a QPRT probably strips the house of homestead protection in Florida. The Florida Constitution protects homestead owned by a natural person. Courts have protected homesteads owned by living trusts where the debtor is the trustmaker, trustee, and beneficiary. A QPRT involves third party beneficiaries and often third party trustees. I do not think a QPRT can own a homestead in Florida.

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Many of my clients current live in another state and are considering moving to Florida for asset protection purposes. Almost everyone wants to know when homestead protection applies to a new Florida home they will buy. The general answer is that the owner has to actually live in the home as a permanent residence to make the house a Florida homestead. This past week a client posed a question regarding homestead occupancy which required I renew my research on the topic. Its not appropriate to repeat the exact question because my research is incomplete, but in the course of research, I found several cases (some old, some new) which expressed interesting principals about the occupancy of a new Florida homestead.

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The Florida Constitution includes three specific exceptions to homestead protection: consensual liens (mortgages); taxes and assessments (homeowners associations) and debts for improvement (mechanics liens). There is an important fourth exception to homestead protection established not in the Constitution but through a history of court decisions. The fourth exception is the "fraud exception." Courts have held that people cannot protect money used to purchase or improve a Florida homestead when the money was obtained by fraud or by breach of a fiduciary duty. Courts use equitable remedies, such as an equitable lien or constructive trust, to pursue the money taken from a fraud victim and put in a Florida homestead.

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The issue is whether you can exempt as homestead a commercial building with an second floor apartment used as your primary residence. A south Florida debtor owned a commercial building in Miami. He operated a adult entertainment club on the first floor. He claimed that he lived in an apartment on the second floor. During the day, when the club was closed, the debtor used the kitchen and the employee showers for personal use. He filed bankruptcy and sought to protect the entire property as homestead. The bankruptcy trustee objected to the exemption. The bankruptcy court overruled the debtor's exemption of the entire building as homestead and ordered that the trustee sell the property for the benefit of the bankruptcy estate, reserving to the debtor a percentage of the sale proceeds for his extent of personal use.

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A caller said he was angry at his homeowners association because it had raised monthly dues to compensate for revenues lost from neighbors who were abandoning their home to foreclosure. He said that he owned his own home free and clear and that he wanted to stop paying his HOA dues in protest against the increased assessments. His wanted to know whether HOA could foreclose on his home to collect dues. The caller told me he assumed that the Constitutional homestead provision protected his home from forced sale initiated by an HOA lien. I told the caller he should pay his HOA dues.

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Two clients in the past week have owned homestead properties in a municipality on lots greater than ½ acre in size. Both clients were judgment debtors and were asking if there was a way to protect their entire residence under Florida's homestead protection. One situation was particularly interesting. This client owned 3/4 acres within a city on which he build a main house and a guest house. While remodeling the main house, the client and his family temporarily lived in the guest house. Local zoning and land use laws permitted the client to further subdivide the property. The client understood that Florida's homestead law protected two-thirds of his 3/4 acre homestead within the city limits. The client asked if he could convey one-third  of the homestead lot to a family partnership which itself offers some asset protection reserving ½ acres under the homestead umbrella. The client, his spouse, and his children would be partners in the partnership. The client proposed that the land transferred to the new partnership would not include the main house or the guest house.

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The Florida Constitution protects 160 acres of contiguous property used as the debtor's primary residence. Sometimes people ask me why Florida has such a large homestead exemption and what is the signficance of 160 acres. A recent article in the Florida Bar Journal discussed the history of Florida's homestead exemption.  Bar Journal Article. The article traces our homestead exemption to the Armed Occupation Act of 1842 enacted by the U.S. Congress to help attact people to new U.S. territories including Florida. The law set the maximum homestead at a quarter section of land, or 160 acres. You may have learned in school that a section of land is 640 acres. The policy basis of our homestead law is interesting. The homestead provisions are not intended to shield wealthy debtors from their creditors. The Constitutional homestead law comes from the public policy of attacting people of modest means to the new Florida territory and providing them a secure and protected estate which they could farm and could build a secure future for their family.

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A parent buys a house for their child to live in. The parent borrows the purchase money by giving a bank a second mortgage on the parents' own homestead property. The child does not have sufficient income or credit to qualify for a purchase money mortgage on the new home. The second mortgage lender insist that the new property be titled jointly in the names of the parents and the child. The parents and child take title as joint tenants with rights of survivorship. The child moves into the new house and files for homestead taxation. The question posed to me this past week is whether the new home is protected from judgment creditors.

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I often get questions about abandonment of a Florida homestead. People ask whether they can move from their Florida homestead to live in another state and still maintain creditor protection of the Florida residence under the Florida homestead protection. A recent bankruptcy case considered a debtor who moved from her Florida home to another state for several years prior to filing bankruptcy and claimed her Florida property as exempt homestead on her bankruptcy petition. The court held that under the facts of the case the debtor had not abandoned her Florida homestead even though she had not resided there for several years.

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A common homestead question is whether or not a homeowner can rent out part of a homestead property and retain homestead protection from creditors. A client this past week owned a four unit apartment building which is currently rented to four tenants. He proposed to move into one of the four units and assert homestead protection as to the entire property. I am fairly sure that courts would not extend homestead protection over the entire building. There are several bankruptcy cases which have declined homestead protection to those parts of a property that were physically separate and were used primarily for the production of income. Duplexes where one unit is rented to someone other than an immediate family member, and the other unit occupied by the owner are considered homestead only up to half of the value. Courts do not permit people to convert multi-unit investment properties, such as apartments or motels, to homestead by the owner's occupancy of a single unit therein.

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A reader emailed invited me to post his emailed question on the blog:

"My homestead is located in a municipality and is greater than ½ acre (about .82 acres). I purchased the house before I was married (in 2002). Recently, after we had been married about 1 year and 5 months, we filed a quit claim deed so that my wife is now a joint owner of the house. From what I understand Florida law automatically considers this tenancy by the entireties ownership. If I was to receive a judgment against me, is my homestead protected from a forced sale (and distribution to the creditors of 39% of the proceeds) since it is also my wife's homestead and she is a joint owner? In this situation, am I subject to any look back periods as far as when the ownership was changed? The reason it was changed so far after the wedding is that my wife lived separately from me to complete a residency program. The quit claim deed was filed the month that she moved in with me and the house became her primary residence"

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The owner of a Florida homestead takes a one-year work assignment in another state. He rents a house in the other state for work. He decides to rent his Florida homestead as much as possible to help carry the mortgage. The house is in a vacation area, and the best rental opportunities are weekly rentals to people on vacation. Vacation rental are primarily during the summer months. The house will not be rented during most of the winter. The person hopes to return to the Florida house after his year assignment, but his return is not guaranteed by his employer. He asks whether he will retain homestead protection during his absence under these facts.

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A client's real estate development company obtained a large construction loan from a commercial bank. The client personally guaranteed the loan. The company will soon be unable to pay the loan so that the loan and guarantee will be in default. The guarantee document contained a clause which stated that the borrower waived Florida homestead protection to the extent allowed by law. The client use to transfer non-exempt money to pay down the homestead mortgage in order to protect the money from a future judgment in the event the lender sues on the guarantee. The client asks whether the homestead waiver forfeits his homestead protection including cash paid toward the mortgage soon prior to a lender lawsuit.

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Can a court from another state impose a constructive trust on the homestead of a Florida debtor? This interesting question was the subject of an opinion last week from the Fifth District Court of Appeals involving one of my clients. (Case No. 07-3718) The briefest summary of the facts is that my client's former husband (deceased) was trustee of a trust for the benefit of his other family members, and he wrongfully took money from the trust to my a home in Florida for himself and my client, his then current wife. The former husband and my client lived in California at the time they bought the Florida property. A California court entered a judgment in favor of the trust beneficiaries and as a remedy the court imposed a "constructive trust" over the Florida property in favor of the beneficiary-judgment creditor. No one alleged that my client did anything wrong. My client occupies the Florida property as her primary residence. My client filed a lawsuit in Florida asking the court to dissolve the constructive trust on the grounds that the California court had no jurisdiction to impose a trust on Florida real estate and because of my client's homestead protections.

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Following a rough divorce up north a man sails his sailboat to Florida, docks the boat, and thereafter lives on the boat . He registers the dock address as his primary residence on his drivers license and in other government registrations. The man wants to know if his boat is protected as a Florida homestead similar to protection afforded mobile homes.

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From time to time I get asked whether a homeowners association or a contractor can lien a Florida homestead. The answer is "yes." There are several exceptions to the protection against creditors' liens on your Florida homestead. Mechanics liens are an exception in the Florida constitution. If someone works to build or repair your home, or if a company provides materials for the construction or repair of your home, they are entitled to a lien on the homestead to secure payment. Homeowner Associations acquire a consensual lien similar to a mortgage. An HOA can foreclose its lien under the provisions of a new HOA Act effective July, 2007. A homeowner may lose his homestead if he does not pay HOA dues or does not pay for the construction or repair of his property.

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I often get calls or emails from people who are concerned about protecting their parents assets because their last surviving parent is being moved to an assisted living facility or nursing home. People are concerned primarily about their parents' homestead. Many elderly people own their homestead properties free and clear. The question is often whether the nursing home or medical providers can levy upon the homestead to collect medical debts after their parents move from the home.

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Can you waive your homestead protection? The issued was recently addressed by the Florida Supreme Court in the case of Chames v. DeMayo. The Court pointed out that Florida's Constitution expressly allows people to give up their homestead protection when they voluntarily pledge their homestead to secure a debt by mortgage deed. The Supreme Court in previous cases affirmed the right of a spouse to waive marital homestead rights before or during marriage. The present case addressed the situation where a debtor entered into a written contract with a creditor (in this case, a law firm) which contract waived the debtor's homestead protection in the event the creditor took legal action to collect the debt. While affirming the narrow exceptions to homestead waiver stated above, the Supreme Court said that the homestead protection cannot be waived by contract with a creditor to enforce an unsecured debt. The Court overturned a contrary decision by one of Florida's district appellate courts.

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A man owned a home and decided to get married. Before the marriage he created a Florida corporation and deed his home into the name of the corporation. He owned all the shares of the corporation. Later, when the husband wanted to refinance the house the lender inquired whether the non-owner spouse had an interest in the homestead which she would have to waive in order to give the new lender an enforceable mortgage. Although this issued arose in the context of a real estate transaction, the issue is relevant to understanding homestead rights and protection.

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The well-known case of Havoco v. Hill decided by the Florida Supreme Court in 2001 is the basis upon which debtors can protect non-exempt assets from existing creditors by converting the assets for the purchase or improvement of Florida homestead. The Havoco case permitted an exception to homestead protection where funds invested from the property came from fraud or other egregious circumstances. In such cases, the Supreme Court stated that the aggrieved creditor could get an equitable lien on the homestead although the creditor still could not force the sale of the house. The "fraud exception" in Havoco has lead to some court decisions in the past few years which have clarified the exception to fraudulent transfers into the homestead shelter. Some creditors believed, or at least have argued, that blatant fraudulent transfers, where the fraudulent conversion of money to the homestead is obvious and timed solely to avoid debts, are sufficiently "fraudulent" or "egregious" so as to warrant an equitable lien on homestead property.

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Money from the sale of a homestead, if not invested in a new homestead, can still be protected after the sale if invested directly from the closing in otherwise exempt assets. There is no fraudulent conveyance or fraudulent conversion if exempt money is invested or transferred directly to protected assets or third party ownership. Consider a client who told me last week that he had moved from his former homestead into a new house and had put the old house up for sale. The new home was titled in the name of a limited liability company rather than in the individual names of the client and his spouse. The client had concerns about liability and potential litigation from a real estate investment. His question was how he could maximize homestead protection between the two properties given he was willing to reside in either house.

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I received a call from an out-of-state businessman who anticipated a large judgment. He had already listed for sale his current home and anticipated moving to Florida. He already had a vacation home in the Caribbean. He fired off several quick questions, each of which are common questions about Florida homestead and warrant repeating. His question were: 1. Does it make any difference if I title my Florida homestead just in my name because my wife and I separate our assets? 2. Does it matter if I spend several months a year in my Caribbean home. 3. Is there anything I have to file with the State of Florida to get residency and homestead protection, and 4. Does it matter if I return to the state of my previous residence for weeks at a time for business reasons?

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Frequently callers ask me if they have to file something in order to qualify for homestead protection against creditors. Some of these questions are probably due to Florida Statute 222.01, Designation of homestead by owner before levy. Subsection 1 of the statute states that a person desiring the benefits of homestead protection may file a statement of homestead with the circuit court. The filing is discretionary and not required to qualify for homestead protection. Filing or no filing, the primary residence of a Florida resident is protected from forced sale. As a practical matter most people do not file a designation of homestead until they try to sell or refinance a house and find a judgment lien on the title report. In that case, subsection 2 of the same statute provides a procedure to remove the judgment lien from the title report.

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have had several calls within the last two weeks from people about to refinance their house who find that a judgment lien has shown up on their title report as an encumbrance on their homestead. The callers want to know why and how a creditor can place a judgment lien on their homestead which they thought is exempt from creditor liens.

Creditors do not place liens on selected properties. In Florida, a judgment creditor files its judgment with the Florida government in Tallahasseee, and that judgment then becomes a lien on all the debtor's Florida real estate. The lien is not selective, but instead is an indiscriminate blanket lien. The state registry of judgments does not distinguish homestead property. The debtor must take affirmative steps to rid his homestead of the blanket judgment lien.

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Homestead protection from your creditors persists after your death. An attorney from another state asked me the following question. Suppose creditor C has records a civil judgment against debtor D in Florida. D is a Florida resident and lives in a valuable Florida homestead property. D dies leaving his estate, including his homestead, to his adult children. The question is whether D's personal representative has to sell the homestead to pay C's money judgment after D's death.

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A man is going through a divorce proceeding in California. The man and his wife sell their California house. The husband takes all the sales proceeds and gives his wife other assets including his retirement account. The husband then moves to Florida and buys a homestead property with the proceeds from the sale of the California house. . The man becomes a Florida resident. At the end of the divorce proceeding the judge orders the man to pay additional money to his ex-wife from the house sale proceeds now invested in the Florida homestead. The man asked whether his homestead is protected from the order of the California divorce court.

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An email posed an unusual question about homestead protection of contingent improved residential properties. The writer owned land which initially consisted of separate lots but which he joined legally into a single parcel. On each side of the parcel he built two separated residential buildings. Assume that the lots could be legally separated back to separate parcels. The writer states that he uses both houses as a principal residence although he did not say whether either house was a primary residence. I inferred that both structures were used by the writer and his family for day to day family life. The question is whether homestead protection would apply to both buildings.

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I received a couple homestead e-mails this week; one is easy to answer, the other is more interesting. The first question is whether Florida homestead protections can apply to more than one home owned by a Florida resident. No. Homestead by definition is your primary residence. Other real estate in your name which is not your primary residence is not under the definition of homestead. The second question is whether a person who owns an apartment building and lives in one of the apartments can protect the entire building under homestead provisions.

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A client reports that he lives in a motor home. Most of the time he parks the motor home in a rented space in Florida, and for all other reasons, he maintains Florida as his residence. He neither owns nor rents any real property in Florida or anywhere else. He asked me whether the motor home qualifies as his homestead because it is the place where he resides with his spouse.

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A email asked whether proceeds from the re-finance of homestead owned by husband and wife are protected from creditors under Florida law.. It depends what the owners do with the money. Assuming the homestead is owned jointly and net refinance monies is deposited in a joint checking account, then the money would be protected as tenants by entireties money from the creditors of either spouse individually, If the money was put in a financial account titled in the name of just one spouse and that spouse had judgment creditors, or if it were deposited a joint account and both spouses and both spouses had judgment creditors, the money would not be protected from creditors even if it came from the refinance of a homestead.

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I always tell people that if a judge wants to "get you" they will usually find a way- especially the federal judges. One of my clients was sued in federal district court in another state up north. The client was already a resident of Florida. The judge ruled against him and gave the other party a money judgment. Knowing the client, now the judgment debtor, had recently purchased an expensive condominium in Florida as his main asset, the judge issued an injunction to stop the debtor from selling the condominium. The judge rejected imposition of a constructive trust over the condominium because, among other reasons, he probably did not have jurisdiction over Florida property and because he may have questioned the court's ability to impose a remedy over a Florida homestead protection. What the court did, however, is issue an injunction against the client/debtor personally to stop him from taking any action to sell or transfer the condominium

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A few weeks ago I received an email inquiry about the effect of a judgment lien on the writer's ability to sell their homestead and buy a new homestead. The writer was concerned that a money judgment would prevent him from selling his homestead and buying a new homestead. The writer wanted to know if the lien would transfer to the new homestead. The answer is "no" for several reasons.

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An investor writes by email that he lost money in a fraudulent scheme for "gourmet coffee distribution." The bad guy says the investors can't touch his Florida homestead. The victim states that he read somewhere that creditors can put an equitable lien on a homestead if the creditor can a judgment based on fraud. He wants to know if he should sue the bad guy for fraud and put a lien on his house. In this case, I think the homestead would be totally protected even though the investor was defrauded.

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Is your homestead protected if title is held in a Roth IRA? That is a question asked by a recent caller. I have not seen a case on the issue directly. I believe the answer will be "yes" if the beneficiary of the IRA lives on the property.

The Constitution limits homestead protection to "natural persons." A property owned by someone's corporation or family partnership probably would not be homestead protected. Yet, many Florida court decisions have held that a person claiming homestead need not hold legal title to the property so long as he has a beneficial interest. Several Florida courts have held that ownership through a living trust- where the debtor is settlor and beneficiary- qualifies as ownership by a natural person.

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A man is appointed trustee of a trust for the benefit of himself and another, younger beneficiary. The trust agreement provides that the trustee should use the assets for his own benefit only if his other resources are depleted. Nevertheless, at a time when the trustee has significant other financial resources he uses the trust assets to purchase a primary residence in California for himself and his spouse, as joint owners with survivorship. The trustee dies. Title to the home passes to the surviving spouse. The surviving spouse sells the home, moves to Florida, and invests the proceeds in a Florida homestead. The other beneficiary sues to recover proceeds invested in the California house. A California court finds that the trustee wrongfully appopriated trust property in violation of California statutes and his general fiduciary duty, and as remedy, holds that the surviving spouse holds her Florida house in a constructive trust for the surviving beneficiary. Can the beneficiary enforce the California court order in Florida so as to force conveyance of the spouse's Florida homestead to the California beneficiary?

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On June 16, 2006, I raised the question of whether an unrelated heir can force the sale of the parent's homestead which was devised to three heir when one of the heirs occupied the house. I stated my opinion that the homestead protections of the Florida Constitution would prohibit forced sale of an heir's homestead to allocate the proceeds among the other heirs. Apparently, my opinion was incorrect. A reader referred me to the Tullis case at 360 So 2d 375 which held that courts can order partition of homestead property to allocate value among competing interests in the property.

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A caller stated that his parent had devised his homestead property 30 percent each to himself, his brother, and 40 percent to an unrelated third party. The brother lived in the property with the parent and continues to live in the property as his primary residence after the parent's death. The caller wanted to know if the unrelated heir can force the sale of the parent's homestead and an allocation of the sale proceeds

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Here's a practical question. An attorney outside of Florida was considering moving to Florida, in part, because of Florida's homestead protection. The attorney read that homestead protection is limited to ½ acre properties inside a Florida municipality. The called asked me how he can determine if a house he is considering buying is in or out of a municipality.

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Debtor owns house in Georgia, and then moves to Florida where he rents an apartment. He does not sell his Georgia home. A creditor gets a judgment against the same debtor. The debtor seeks to protect his Georgia house on the grounds that as a Florida resident he is entitled to exempt his homestead. Can a Florida resident protect his primary home if it is located in another state, or does the Florida Constitution protect only homestead owned by Florida residents and located in Florida?

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I discussed the following case with a creditor attorney. A debtor loses his house at a foreclosure sale. The foreclosure sale price brings in enough money to pay off the mortgage and provide excess funds of $20,000. The funds are held temporarily in the trust account of the debtor's attorney. Next, the debtor files bankruptcy. The question is whether the excess funds from the sale are exempt.

Florida law protects the proceeds from the sale of a homestead so long as the debtor intends to reinvest the proceeds in a new homestead. No case has distinguished proceeds from a voluntary sale from foreclosure sale proceeds. Therefore, the foreclosure proceeds should be exempt if intended for a new homestead.

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I received two short homestead questions this week. The first situation involved a homeowner who failed to pay an assessment made by his homeowners association. The Association placed a lien on his homestead for the amount of the unpaid assessment. The homeowner asked if the Association could kick him out of his house. The Association's lien is in the class exceptions to the Constitution's homestead protection. The Association can sue to foreclose the lien, and the lien foreclosure would have the same consequences as a mortgage foreclosure.

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The May 22, 2006, print edition of the Wall Street Journal included an article about higher property taxes assessed to nonresident owners of Florida real property ("snowbirds"). The article stated that a snowbird can become a Florida resident by filing an affidavit of residency in order to qualify for property tax savings. The affidavit may work for establishing residency for tax purposes of Florida's homestead tax benefits, but establishing residency for protection of homestead from creditors is more complicated than filing an affidavit. I have written previously many blog entries about establishing Florida residency for asset protection and homestead. The Journal article may be accurate as to property taxes, but do not confuse residency for property tax purposes with residency for homestead protection. Protection from creditors requires substantially more evidence of domicile in Florida than merely filing an affidavit

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Can a judge in another state enter a judgment against a Florida resident that circumvents the debtor's homestead exemption? One of my clients is facing a judgment in the state of his former residence which may effectively take his homestead to satisfy an obligation to the plaintiff in that case. The facts are that my client received funds from a trust which were improperly distributed by the trustee to the detriment of the intended trust beneficiary. There were no allegations of fraud or breach of fiduciary duty against my client. Upon receiving the money from the trustee my client moved to Florida and bought a home with the money. The trust beneficiaries sued the trustee and my client in seeking return of their rightful share of the trust money. The judge found my client liable to return the money , the judge imposed a "constructive trust" on the client's homestead in favor of the plaintiff trust beneficiaries. Plaintiff's will domesticate the foreign judgment which will result in a Florida judgment stating that the client's homestead is subject to a constructive trust for the plaintiff's benefit.

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I get frequent questions about what is required to become a Florida resident in order to benefit from Florida homestead protection and other creditor protections under Florida law. Not infrequently, this question comes from people who are not U.S. citizens but who reside in Florida. Several bankruptcy court decisions have held that people without "green cards" which entitled them to permanent U.S. residency are not entitled to homestead protection. The bankruptcy courts ruled that non-citizens without green cards cannot by law intend to make their Florida residence a permanent residence until they have the legal right to remain in Florida permanently under immigration laws. There have been relatively few decisions on this issue in Florida's appellate courts. However, during the first week of May, 2006, the Second District Court of Appeal ("DCA") issued an opinion consistent with prior bankruptcy court opinions.

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A reader ask whether she can claim Florida homestead protection on a Florida condominium when he works in New York but plans to live in the Florida condo for six months of the year. The reader states that most of his life is in New York.

This situation does not appeal to qualify for Florida homestead. I infer that the reader does not work in Florida. In order to be sure that his condo qualifies as homestead the reader must create a set of facts from which it is clear that Florida is his primary home. Retirement from the New York job and giving up the New York drivers license and voter registration would help. It is not necessary for this reader, or anyone else, to sell their northern home. Florida is full of "snowbird" residents who maintain a home in their state of origin. Residence in Florida does not require you sever your ties elsewhere, but it does require you to demonstrate an intent to make Florida your primary residence and the place you call home.

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A man buys a 35 foot sailboat. He removes the onboard motor, and docks the boat. He attaches a generator to the boat and moves onto the boat as his principal residence. He maintains the boat permanently at the docking facility, never sailing the boat for commercial or recreational purposes. The question is whether the boat qualifies as his homestead for purposes of creditor protection.

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A Florida resident can temporarily move out of his Florida residence and still claim the residence as his homestead as long as he demonstrates the intent to return to the property as his permanent home. What happens if a Florida resident has to leave his house to serve prison time for a criminal offense ? Someone inquired whether they could maintain homestead protection if after moving to Florida they were sentenced to prison in another state for a term of about six months. The question is whether forced incarceration out of the homestead constitutes the abandonment of the homestead property.

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The Florida Supreme Court has ruled that debtors can purchase a homestead in Florida to avoid creditors' judgments and the creditor cannot undo the home purchase under Florida's fraudulent conveyance statute. This well-known exception to fraudulent conveyance liability has exceptions. The Court stated that if a judgment arises from acts of fraud or other egregious circumstances then the creditor can have placed an equitable lien on the homestead for the amount of money fraudulently converted into the debtor's home. The equitable lien cannot force the debtor to sell his homestead, but if an when he does sell, the creditor gets paid the amount of his judgment lien.

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A Florida resident entered into a commercial contract which contract included a waiver of homestead rights. The same Florida resident was subsequently by the other party to the contract, and a money judgment was entered against the Florida resident and in favor of the other party. The other party, now a judgment debtor, seeks to enforce the money judgment by forcing the sale of the debtor's homestead arguing that the debtor had waived homestead protection when he signed the agreement. The issue presented to the appellate court in Florida was whether Florida's homestead protection can be waived in a commercial contract.

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There is an interesting asset protection planning idea in article published in ABA Health eSource and co-authored by attorneys Alan Glassman of Clearwater, Florida and Justin Pikramenos of Stetson University in Deland, Florida. The article addresses the hypothetical situation where a debtor jointly owns with his spouse an expensive homestead property and where the debtor also has substantial amount of non-exempt assets titled in his name individually. For example, assume that the jointly owned homestead is worth $1,000,000 and the debtor has $500,000 of individually owned assets. Glassman and Pkramenos suggest that the debtor spouse buy his non-debtor's spouse ½ interest in the homestead property for $500,000 and that payment be made with the debtor's $500,000 of non-exempt assets. The debtor spouse would end up with 100% ownership of the exempt homestead and no non-exempt assets.

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Homesteads are protected on lots up to ½ acre in size within a municipality and up to 160 acres in a county outside any municipality. If your large homestead lot in a county is subsequently incorporated within an expanding municipality your homestead status is "grandfathered" and the homestead over ½ acre remains protected after annexation by the municipality.

A client posed the following question about annexation. He lived in a house situated on a lot over ½ acre in the county. Then, he got married an moved into a new home with his spouse, but he did not sell the old house. He and his spouse filed for a homestead tax exemption. A few years later upon getting a divorce he sold the marital home and moved back to his first house. During the time he was living with his wife a nearby city annexed his lot. The question is whether his homestead status on a lot larger than ½ acre now located in a municipality is grandfathered since he owned and lived on the property prior to annexation.

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A caller asked whether Florida's homestead protection protected against suit for failure to perform under contract to sell the house to a third party. The caller while unmarried had owned a homestead property in is own name. Subsequently, he decided to sell the homestead and get married. He entered into a contract to sell. A month later he got married and his spouse moved into the house as her permanent residence. Thereafter, he and his wife realized that the house was worth more money than the contract price so they decided to default under the husband's sale contract. They want to know if the buyer can get a judgment of specific performance to force sale of the house when the house is now homestead of the wife who was not party to the sales contract.

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Generally speaking, if you find a new house you want to buy, or build, you may sell your current homestead and protect the new sale proceeds in a bank account until you close on the purchase of a new homestead. A Florida client asked me if he could, instead of selling his current homestead, rent the property until the new homestead was available and sell the current homestead just before he closed on the new house. The question was whether the current house would lose its Florida homestead protection if it were rented for income.

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A common asset protection question is what happens to homestead upon divorce. Typically, homestead property is owned jointly by husband and wife as tenants by entireties. Upon divorce, the tenants by entireties is broker and the homestead is owned by husband and wife as tenants in common. After one spouse moves out of the house the question arises as whether either spouse has homestead protection.

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The November issue of the Florida Bar Journal includes an excellent article onFlorida's homestead protection in light of the new bankruptcy law. Link: Bar Journal Article. Most of the points in the article were made at one time or another in posts to this blog. The article is a comprehensive summary of these issues and is important for anyone considering investing in homestead as part of asset protection planning

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A few homestead questions I received this week which may be of interest to people considering moving to Florida. One reader asked whether the purchase of a house for an imminent move to Florida locks in Florida residency and homestead protection of that property. The answer is no. As I have written many times on this blog, you must actually occupy a house as a primary residence to achieve Florida homestead protection.

Another reader asked whether he had homestead protection of a residence he owned jointly with another family member. The answer is yes. Whatever interest you have in your homestead, legal or equitable, full or partial ownership, is protected from creditors. This reader had legal ownership up to 50% of the house's value, and that ownership interest was under homestead protection.

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I received an email asking whether the homestead provisions of the Florida Constitution would protect a residence owned by an irrevocable trust where the debtor had deeded a house into the trust and remained the trustee and one of the beneficiaries. The Constitution protects residences owned by natural persons. Previous blog posts discussed whether a homestead can be owned by a revocable living trust, or whether conveyance to a living trust forfeits homestead protection. Although there is a case which denies homestead protection to a property owned by a living trust, most courts have protected a residence in a living trust.

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I have had so many email questions and telephone consults about the rules for moving to Florida that I quickly realized that it constituted the most important questions about Florida asset protection. People want to know how they can become a Florida resident and become eligible for Florida's creditor protection, especially our constitutional homestead protection. Consequently, I have recently added a new page to my website about "moving to Florida"Florida Homestead & Residency: Becoming a Florida Resident for Homestead Protection

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It is becoming well known that following the Florida Supreme Court case of Havoco v. Hill a debtor can use non-exempt cash otherwise subject to creditors to either purchase a homestead or reduce the principal balance of a mortgage on the debtor's homestead without fear that the purchase or principal payment could later be reversed or undone pursuant to Florida's fraudulent conveyance laws. Under the Florida Court's decision it makes no difference when money is applied to the homestead to protect the money from creditors.

But, does it make any difference if that same debtor files for bankruptcy liquidation under Chapter 7 within one year of the purchase or mortgage payment. Section 727 of the Bankruptcy Code says that a fraudulent conveyance by a debtor within one year of bankruptcy is grounds to deny discharge, i.e., "kick the debtor out of bankruptcy." How do the penalties of the Bankruptcy Code interact with the homestead protections established under Florida state law. The Florida Supreme Court in Havoco v. Hill did not say that hiding non-exempt money in a homestead is not a fraudulent conveyance or fraudulent conversion; it said that the State's constitutional homestead protections take precedence over remedies available under Florida's fraudulent conveyance statutes.

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Planning to build a home? Many people have asked me whether or not money used to buy a lot where they intend to build a residence is protected. Or, is money paid in advance to a contractor to build a homestead protected under Florida's homestead provisions exempting homestead property from creditors. The short answer is "no.

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