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

A client asks: " doesn’t the creditor have to find out if I’m head of household before they garnish my wages." In other words, is your creditor obligated to check out your exemptions before taking action to collect a judgment? The general answer is: "no."

Florida law does not require a judgment creditor to investigate and negate possible exemptions prior to making attempts to execute upon their judgment. In this clients case the creditor legally can serve a wage garnishment on the employer. The debtor has the burden of asserting head of household exemption and dissolving the garnishment in court. The same rule applies to garnishment of an exempt entireties account. The creditors writ of garnishment will freeze the account until the debtor takes action to dissolve the garnishment. In most cases, the debtor will need to pay an attorney if he wants the garnishment of an exempt asset removed quickly.

Florida law provides valuable exemptions; the law does not guarantee that the exemptions are self-executing or free.

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A judgment creditor cannot garnish wages of a Florida domiciled debtor who is head of household. Assume, that a creditor sues the Florida resident in Georgia and gets a money judgment against a Florida resident based on a transaction in Georgia. . During the proceeding, the debtor was a full time resident of Florida and worked in Florida. The employer had an office in Georgia, but it paid the debtor his salary in Florida. Do you think that the Georgia creditor can garnish the wages in Georgia at the employer’s Georgia address, or can the debtor assert his Florida wage exemption because he is a Florida citizen?

Similarly, suppose the Florida debtor had lived previously in Georgia many years ago, and that when he Georgia he opened an annuity investment account at the Georgia office of a national finance company. Surely, Florida statutes exempting IRA from creditor levy would protect the debtor’s IRA account.

The Florida statutory exemptions will not protect the debtor in Georgia. The Georgia creditor can garnish his wages paid in Florida and his annuity to the extent either are not otherwise exempted under Georgia laws. There is a general rule of law that exemptions cannot be exported, so that most courts in other states will not recognize exemptions afforded to Florida residents. In other words, exemption laws have no extraterritorial effect.

Courts do recognize judgments and contracts from other states under the principal of "comity." Several courts have stated a general rule that the rule of comity among states extends only to rights and not to creditor remedies; rights are substantive while remedies are procedural.

Asset protection for Florida residents must guard against enforcement of judgments in other states’ courts when another court has jurisdiction over either the debtor personally or property of the debtor located in another state.

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Effective asset protection planning requires anticipation of what creditors’ attorneys may and will do to collect their judgments. The best way to learn creditor attorney strategy is to ask them. My social relationships with creditor attorneys are very valuable to me professionally, as well as personally, because they give me the opportunity to learn about their methods.

I recently had a lunch with one of Orlando’s preeminent collection lawyers. We discussed collection practices and asset protection strategy, and I found some of his comments to be interesting. I asked him what was the most effective debt collection tool. His answer was, without hesitation: bank account garnishments. Bank garnishments, he explained, was the only way to capture a significant amount of a debtor’s cash quickly and without lengthy legal proceedings. Bank accounts are where the money is. Bank garnishments strike a surprise blow to debtors which freeze their funds and usually force them to settle the remaining debt.

I next asked him whether wage garnishments were effective assuming the debtor is not head of household. He said that garnishments were not a good collection tool. First, the creditor collects small amounts of money each month toward the judgment, and his clients are not interested in long-term payback. Next, he explained, that wage garnishments usually force debtors to file bankruptcy because debtors will not work for an indeterminate future for the benefit of creditors. Wage garnishment, he felt, usually backfire against his clients' debt collection.

Many of my clients spend much time asking about charging liens a creditor could get against their LLC which operates their small business. This creditor attorney has not sought a single charging lien for many years. He cannot recall the last time he used a charging lien. From the creditor perspective, he explained, charging liens are ineffective against an LLC business managed by the debtor or the debtor’s family. The attorney explained that charging lien collection against a closely held LLC depends upon the honesty of the debtor; the creditor collects money only if the debtor voluntarily reports an LLC distribution subject to the lien. He found that most debtor LLC owners circumvent the charging lien with salary and loans, and that neither he nor his clients are able to monitor effectively the Debtor LLC distribution practices. It seems that an LLC properly formed and clear of fraudulent transfer challenges is practically a very effective asset protection too.

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

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

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

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I dealt with an interesting question today about alimony and support questions. Sometimes people ask me if there are asset protection tools to guard against awards for payment of alimony or support (generally, the answer is "no") or what types of assets are vulnerable to enforce family court judgments. Today's issue was different. A divorced woman was facing a large civil judgment. The divorce court awarded the woman alimony, and her ex-husband sent her monthly alimony checks. The woman depended upon the alimony to pay her basic costs of living. She wanted to know if a judgment creditor could garnish the alimony payments from the ex-husband.

Florida statute Chapter 222 which lists the asset exemptions applicable to Florida residents does not include an exemption for alimony or support. There is no exemption in the Florida constitution nor under federal law. Florida courts, however, have protected alimony and support from garnishment. One court held that alimony was not the type of debt or obligation subject to garnishment, and that public policy calls for the protection of alimony and support. See Waters 547 So 2d 197 . At least one bankruptcy court recognized this garnishment exemption.

posted by Jonathan Alper, asset protection and bankruptcy attorney, Orlando, Florida

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