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

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.

 

Whether or not a bank account is a tenants by entireties account depends on the law of the state where the account is located rather than the law of the debtor’s residence. Florida law presumes that all bank accounts in Florida owned by a married couple are tenants by entireties accounts. The entireties status of bank accounts or other marital assets in Florida does not require that the debtor reside in Florida. (Contrast: assets exempted by statute require Florida residency).

Ohio law does not exempt a single debtor’s interest in an entireties bank account. The creditor could obtain a writ of garnishment from an Ohio court against the account. If the creditor served the writ on an Ohio branch of the bank (assuming the bank has a branch in Ohio) then the debtor would have to argue to an Ohio court that the account is sited in Florida and is exempt as an entireties asset. The argument’s success is uncertain before an Ohio judge..  If there are no Ohio bank branches the creditor would have to domesticate the judgment in Florida and serve the garnishment writ in Florida where the court in my opinion should exempt the account from the Florida judgment.

This couple should make sure their Florida bank account is with a bank that has no branches outside of Florida in order to provide the best change of an entireties exemption against the wife’s separate creditors.
 

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Tenancy by entireties is an effective, simple, and economical asset protection tool for a married Florida debtor where only one of the married spouses has creditor issues. The primary problem with T by E protection is that its effectiveness last only so long as the debtor is married to the same spouse. In the event of a divorce or the sudden death of the non-debtor spouse the remaining debtor spouse could find all his formerly T by E property exposed to creditors. I have seen severance of T by E by death or divorce expose a debtor to garnishment and levy without warning by a pre-existing judgment creditor who somehow discovered that the debtor spouse’s assets had become exposed by the end of his marriage.

The Delaware legislature enacted this year a law providing for a “tenancy by entireties trust.” (“TET”). 12 Del. C. Section 3334.  Delaware law, like Florida law, recognizes a tenancy by entireties creditor exemption for both real property and personal property (cash, stocks etc.). The tenancy by entireties trust is designed to preserve the exemption in the event the marriage ends by divorce or death. The law applies to revocable living trusts typically used in estate planning where the married couple is the trustmaker and lifetime beneficiary of the trust. A married couple contributing T by E assets to the Delaware trust may continue to withdraw trust income and principal for their living expenses. Simply stated, the Delaware statute says that if you contribute property to the TET, which property is exempt T by E property at time of contribution, the property in the TET retains its T by E character for the lifetimes of both spouses. If the asset is T by E going in, it is always T by E even if there is a death or divorce.

 

One issue is whether a Florida court would apply the Delaware TET law in a Florida collection involving a Florida debtor. Because this law is so new there are not cases on this issue, and it may be many years before this issue is litigated in Florida or any other state. I think the debtor’s position would be strongest if the debtor maintains some Delaware TET property in  Delaware financial institutions. The more property located in Delaware the more the TET becomes anchored in Delaware law.
 

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Questions from other attorneys are usually the most interesting; here’s an example. A Florida attorney called me about one of his clients who was concerned about a bank garnishment. The client and his wife had a permanent residence in Florida. While on a temporary work assignment in South Carolina, the husband was sued by a South Carolina company, and a South Carolina court entered a civil judgment. The husband and wife had previously opened a joint bank account at a Florida branch of a national bank. The joint bank account is exempt from garnishment by the husband’s individual creditors under Florida law because its considered tenants by entireties property.

The couple's bank had branches in South Carolina which state does not recognize tenants by entireties ownership. The question was whether the South Carolina creditor could garnish the bank account at a South Carolina branch of the bank using a writ of garnishment issued by the South Carolina court that entered the judgment against the husband.

Florida exemptions can not be exported, so, for example, the husband’s creditor could probably garnish salary earned and paid in South Carolina even though the wages are exempt under Florida law. This debtor’s bank account is somewhat different in that the account was at a Florida branch and deposits were made in Florida. Not being sure of the answer, but intrigued by the question, I called a local creditor attorney who had garnished hundreds of bank accounts in his career.

The creditor attorney said that the best way to stop a South Carolina garnishment of the Florida account would be for the debtor’s wife to assert an exemption. Under Florida’s tenants by entireties law the non-debtor wife has an interest in 100% of the bank account. The South Carolina court has no personal jurisdiction over the non-debtor wife in this case. Therefore, the wife could raise a due process argument that the South Carolina court has no basis to garnish her money.

In this case, even assuming my creditor attorney friend is legally correct, at a minimum the non-debtor spouse would have significant costs to defend the account before a South Carolina judge who might not appreciate her argument and could garnish the account anyway. I always advise my clients never to bank at a national bank because its too easy for the creditor to attack the account outside Florida. I suggests that Florida residents concerned with asset protection bank only at small Florida community banks with no branches outside Florida. In addition to being creditor safe, these banks, I find, provide more personal service.

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