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

Not all annuities owned by Florida residents are protected from their creditors. Protection does not depend upon the type of annuity or the issuer of the annuity, but asset protection does depend upon the state where the annuity was issued to the debtor. People who purchased annuities in another state before moving to Florida may not be eligible for Florida’s annuity exemption.

Start with the general principal that Florida residents cannot export Florida’s exemptions to another state so that your assets located or sited in a foreign state may not be protected by Florida laws. Annuities are contracts between you and an insurance company providing for financial benefits. Most annuity contracts state that the contract is to be interpreted under the laws of the state where the annuity was issued or where the owner signed the contract. If you resided in Florida when you bought an annuity your annuity was issued in Florida and governed under Florida asset protection law regardless of whether the insurance company has offices in Florida. But, if you lived in another state when you bought your annuity the annuity contract is probably located in the other state and not Florida.

 

If the state, other than Florida, where you purchased the annuity also exempts all annuities from creditors then you are protected under the laws of the other state. If the other state’s laws do not exempt annuities then I do not think your moving to Florida with your annuity in hand is sufficient to bring the annuity under Florida’s annuity protection. There are cases which have held, for example, that a person who opened a bank account or an IRA account in another state before moving to Florida cannot claim Florida’s exemptions for those assets.

Understand that it does not matter where the insurance company is located; the issue is where you were located when you purchased the annuity. If you purchased your annuity in another state which does not provide annuity exemption there are several things you can try to protect the asset. I cannot explain all options in a brief  blog post. One example is to ask the insurance company to reissue the same annuity in Florida, and another option is to see if the annuity contract itself contains asset protection provisions.

 

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A Florida debtor can protect his primary residence  from creditors so long as either the debtor has an ownership interest in the property and either the debtor or the debtor’s family resides in the property as their principal residence. Even if the debtor moves to a new residence his former residence  is still protected  from his creditors under the Constitutional homestead provision  if a member of his family continues living in the house.

This principal is explained in a recent decision of a Florida appeals court. In this case, a man, his wife, and their child  lived in a Florida home. The couple divorced. The divorce settlement required the husband to deed the home to the wife who, together with the child, would live in the home exclusively. The husband moved out but never signed a deed to the wife. A creditor obtained a judgment against the husband only.

The wife died. After her death, the husband deeded the house to their child who was now an adult and still lived in the home. The judgment creditor sought to foreclose its judgment lien on the house. The creditor argued that after the husband/debtor lost his homestead protection when he left the house following the divorce.


 

The court held that the house retained its homestead exemption against the husband’s creditors. The divorce decree ordering the husband to give the home to his wife did not terminate the husband’s homestead rights because homestead protection is forfeited only by voluntary abandonment or conveyance. The husband did not voluntarily abandon the homestead protection when he moved to a new Florida residence because a member of his family, his daughter, continued to live in the home. When the husband transferred the home to his daughter he no longer had an interest in the home subject to levy.

This court’s decision reflects the important principal that the public policy behind the generous homestead exemption is designed primarily to protect the debtor’s family as opposed to the debtor himself. Beltran v. Kalb, 2011 W.L. 904244.

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I got a call from a Florida businessman who owned a business Jacksonville which had been sued. The court awarded a judgment against the business, but there is no judgment against the owner personally.  The owner is  considering closing down the debtor business and starting a new company doing similar kinds of things for similar clients. The owner asked me if the creditor could “pierce the veil” of the new business.

The question as phrased points out a subtle distinction between the concepts of piercing the corporate veil and that of attacking a successor corporation under the theory of alter-ego and business continuation. The legal  issue in this caller’s situation is not one of “piercing the veil” but is whether the proposed new business would be considered a continuation of the debtor business and merely the alter ego of the debtor business. When a newly formed business starts off its operations with the assets of a prior business the creditor of the prior business should be able to  execute upon the same assets under the theory that  the new business is alter ego of the prior business. Alter-ego theory would apply  when a  new business has, for example, the same ownership,  physical assets, customers, a similar name, the same location and  phone numbers, and other forms of goodwill transferred from a debtor business.

Piercing the corporate veil theory, on the other hand, typically  applies when a creditor wants to penetrate a corporate shield to obtain a personal judgment against the business owner. It is very difficult to pierce a corporation in Florida and most other states. There are two grounds to pierce the veil. First, a creditor can obtain a personal judgment against an owner who set up a corporation in order to defraud creditors. Second, a creditor can pierce the corporate veil when an owner operates a corporation as a sham and as an alter-ego of the owner. An example is an owner who pays personal expenses such as his mortgage and credit card bills directly out of corporate bank accounts. Such practices would indicate that the owner is treating the corporation monies as his personal funds and is not respecting the corporations separate legal existence.

 

The laws on these topics is much more complicated than discussed in the two paragraphs above. There is overlap between piercing the veil and business continuation concepts. I am trying to point out that the issue of piercing the corporate veil and the issue of business continuation/alter ego are typically applied in different contexts and are separate legal theories.
 

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Using a Florida limited liability company as an asset protection tool used to be relatively easy. Attorneys understood that a creditor’s sole remedy against a debtor’s interest in a Florida LLC, especially multi-member LLCs, was a charging lien. The charging lien gave the creditor restrictive and impractical tools to capture money from the debtor’s LLC interest. No more. The Florida Supreme Court’s Olmstead decision last month seems to give creditors the right to use any and all collection tools, not just the charging lien, to go after a debtor’s membership interests.

The next line of asset protection defense is the LLC operating agreement. Contractual provisions in the LLC operating agreement can minimize a creditor’s power to compel LLC distributions or liquidate LLC assets. Effective asset protection language is not in "off the shelf" or standard LLC operating agreements.

Prior to the Olmstead ruling a small business owner might get by with a "do it yourself" LLC. The owner could create an LLC online and buy a standard operating agreement online from any of the many sites that market legal forms. Once you realized the LLC was the preferred asset protection business structure a competent business owner could achieve good asset protection with the "do it yourself" Florida LLC. Not any longer. Do it yourself may work at Home Depot, but it won’t protect your Florida LLC from judgment creditors.

LLC owners concerned about asset protection are going to have to do something. There are many asset protection alternatives to the basic LLC structure. The simplest and cheapest next step - not necessarily the best or the most effective step- is to have an attorney customize your LLC operating agreement with provisions that will weaken and deter your prospective creditors. Yes, it may cost money. But, these things can happen whenever the Florida Supreme Court is in session.

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New client is confident he has protected a substantial of cash proceeds from the sale of a business by depositing the money in a bank branch in his native country of Ecuador. He is confident that none of his creditors could figure out how to domesticate a U.S. civil judgment in Ecuador. Even if they could domesticate a U.S. judgment in his country, the creditor would have to bribe the right government officials to levy on his account. I told him that most of my other asset protection clients would not feel comfortable having so much money in an Ecuadorian financial institution. No problem, he said, this Ecuador bank is covered by our FDIC insurance.

Really !?!. Does this dude think the U.S. government insures banks that are wholly offshore institutions with no U.S. presence? Isn’t more likely that this client has deposited his money in the Ecuadorian branch of a U.S. bank or at least a bank with offices or branches in the U.S. where the creditor can easily serve a writ of garnishment. General rule: if its FDIC insured it’s probably not an "offshore bank" beyond the reach of your creditors.

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