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

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

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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.

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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.

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