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

Generally, Florida’s creditor exemptions are expressed in Chapter 222 of the Florida Statutes. The Chapter’s sections list Florida’s premier asset protection exemptions including the exemptions afforded wages, retirement funds and annuities. Sometimes the legislature makes important asset protection changes in various other parts of the Statutes.

A few years ago Florida changed part of its banking law statutes making it easier to for individual debtors to protect tenants by entireties bank accounts. Section 655.79 (1) provides that any joint bank account, including a CD, owned by husband and wife is a tenants by entireties account.

It does not matter any more whether your bank offers tenants by entireties account labels or even if the bank understands entireties accounts. It does not matter whether the spouses were married when they opened their joint account, or whether one spouse opened the account before marriage and added their spouse to the same account after the wedding. It does not matter if your account title is owned husband OR wife versus husband AND wife. None of these types of issues  matters according to a reasonable interpretation of this statute.

The bank account will not be an entireties account if the debtor and spouse indicated somewhere in writing that they want a different type of account. Also, the strong presumption of entireties ownership applicable to bank accounts does not apply to personal property such as brokerage accounts and vehicles. Other than marital bank accounts there are many technical traps in establishing entireties ownership of personal property.  

 

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Prior to 2011,  when the estate tax exemption was much lower,  most estate planning attorneys preferred to separate spouses’ assets in separate trust to make sure each spouse received their full estate tax exemption. Joint trusts which are not properly drafted or maintained can forfeit one or the other spouse’s exemption. The increase of the estate tax exemption to $5.0 million per person, $10.0 million per couple, has made joint living trusts more feasible estate planning tool. Even if just one spouse gets an exemption, most families today, after the recession, have taxable estates less than the single exemption of $5.0 million.

If  more couples’ estate plans will use joint living trusts the issues for asset protection is whether a married couple can retain tenants by entireties protection after transferring an asset to a joint living trust. Tenants by entireties requires ownership by married persons; a trust is a contract relationship and not a person. A creditor surely can argue that transfer of a jointly owned asset to a trust destroys one or more of the tenants by entireties legal requirements.

I have always cautioned married couples with asset protection issues for one of the two spouses  against putting entireties property into an estate planning living trust. I suggested that the married couple retain joint ownership in their personal names and then disclaim the inheritance by survivorship upon the first death so that the asset can pass to the living trust by disclaimer. There are, however, several technical requirements for proper use of disclaimers.

I took another look at the issue and found some cases which indicate that a married couple can retain entireties protection even after they convey joint property to a joint living trust for which the spouses act as joint trustees. One case held that a married couples’s transfer of property to a turst for their joint benefit under their joint control does not terminate entireties ownership whiche the parties “clearly intended their property to be held as a tenancy by the entireties.” Another case cautioned that transfer of entireties property to a trust would destroy T by E if only one spouse could exercise control over the trust.

I think that if a couple created a joint trust for their joint benefit and served as joint trustees, requiring joint approval of all trustee actions, that the courts would maintain entireties ownership and protection. The trust should include a provision stating the trustmakers’ intent to preserve ownership as tenants by entireties over all trust assets. Attorneys: see, 886 So.2d 295

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This post is about tenants by entireties accounts. Assume two married people living in Florida have a joint financial account. Whether the account is presumed to be an entireties accounts depends upon where the account is maintained. Accounts opened and maintained in Florida are presumed to held by the entireties. Accounts opened and maintained in other states which states to not recognize entireties ownership are not entireties accounts notwithstanding the fact that the account owners live in Florida- Florida residents cannot export entireties protection to accounts set up in other states unless the other state recognizes entireties ownership.

That’s the general rule. One of my clients had retired from IBM. He had invested over the years in a non-tax qualified stock purchase plan where the company would contribute some money to the purchase of IBM stock. He owned approximately $250,000 of IBM. The stock was titled jointly with his wife. We discussed whether the stock was owned as tenants by the entireties. The stock was not held in a brokerage account. The IBM shares have never been issued to the client. The client described his ownership as an accounting entry on IBM books; they owe him the stock.

Because this stock is not held in a financial account I could not tell the client with certainty what state’s entireties laws would apply to ownership and creditor protection. Perhaps the stock is located at the IBM physical corporate offices. Yet IB M has offices in several different states so that it would be difficult the find the stock in the company’s maze of offices. These clients stated that they had the right to request delivery of their IBM stock in physical certificates to their current residence in Florida.

 

In my opinion, this client does not own "stock" until the stock is issued. What this client owns is a debt receivable from IBM because IBM is obligated to issue the client stock upon request. I think a judgment creditor could garnish IBM and direct  IBM to issue stock certificates to the creditor.

I suggested to the client that they ask IBM to deliver physical possession of stock certificates representing their accumulated stock account. Then, the clients should open a joint brokerage account in Florida and deposit their joint certificates in their joint account. The physical location of the stock  would be clear, and the stock should be protected as a tenants by entireties asset. There no longer would be an account at IBM subject to garnishment.

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A man from southwest Florida  consulted with me about filing Chapter 7 bankruptcy in Ft. Myers, Florida bankruptcy court. The client and his non-debtor spouse lived on their sailboat docketed at the marina. The boat’s motor was broken but the sails worked. The boat was registered on a national boat registry with a federal boat ownership certificate. The ownership was listed as: husband wife. Not husband and wife, not husband or wife, and there was not choice of specifying ownership as tenants by entireties, tenants in common, or even as joint tenants with rights of survivorship. The client wanted to know if his boat was exempt from creditors under Florida law.

There are two possible exempts applicable to this boat: homestead and tenancy by entireties. A boat can be a homestead so long as the boat is permanently docket and is not suitable for transportation. A seaworthy  boat is more like a “boat” than a “home.” This client’s boat could sail. However, the client explained that the boat could not reach open water without navigating though the docks and other docked boats which it could only do with a working motor. The client stated his boat could not sail away from its docket location without a motor.

In my opinion, this sailboat is currently not seaworthy. The client is using the boat more as a “home” than as transportation. I think this  boat would be exempt homestead. However, if the boat’s motor is easily repairable a court could find that the asset is primarily a “boat” which is only temporarily immobile.

 

Even if this sail boat is not considered this debtor’s homestead, the boat would still be exempt from the husband’s creditors if it is titled as tenant by entireties. Under Florida law assets owned by a husband and wife as joint tenants with survivorship are presumed to be owned as tenants by entireties.  The boat  title is not clear on its face. Simply listing the names of the husband and wife gives no indication of whether they own the boat with rights of survivorship.

If the boat’s title instrument was a Florida state document, similar to a car title, I think most courts would not find entireties ownership. There are Florida court cases which  require that state boat or car titles list the married owners specifically as tenants by entireties or as husband and wife in order to claim an entireties exemption. I do not think the same Florida court decisions regarding cars or boats registered with a Florida title would apply to this client’s boat with a national registry. In this instance, the owners’ intent is unclear on the face of the document, and absent court decisions interpreting entireties requirements for such federal title certificates I think the general presumption favoring tenants by entireties ownership of jointly titled assets would apply.

 

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You can file a new LLC yourself at Florida’s business website: www.sunbiz.org. The website has the forms with instructions, and it take just a few minutes. File your own LLC and save legal fees. It appears to be very simple. Yet, my experience is that about half the asset protection clients with a “do-it-yourself” LLC screw it up.

The Sunbiz form requires that you name at least one LLC manger and that you designate that manager as either “mgr” or “mgrm.” You are not required to file with the State the owners of the new LLC. Ownership can be determined as part of the operating agreement which is a private contract. However, when you designate an individual as an “mgrm” you are telling the State and the world that the person has an undivided  ownership interest in the LLC.

Here is an example of the problem. A husband and wife want to start a new business as an LLC to be run and managed by the husband but owned jointly as tenants by entireties. The husband assures his wife: “don’t worry, I can do it myself.” Husband files the new LLC on Sunbiz and puts his own name as “mgrm”. He is the manager and he is also an owner so the “mgrm” designation seems to fit. However, the husband arguably has registered an individual ownership position in the LLC which is inconsistent with his intention to own all the equitable membership interest as tenants by entireties. You cannot tell your creditors you hold all your LLC membership interests by the entireties if you previously have told the State of Florida(or the IRS) that you have an individual interests.

The above hypothetical example is but one of many problems I have seen with LLCs formed by legally  unsophisticated business owner who  find themselves seeking asset protection of their LLC ownership. My advice: do it yourself at Home Depot, but not a Sunbiz.org.
 

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One of my Florida  clients has a joint account with his spouse at an internet bank. The bank has no branches other than its main office in Utah. The husband is facing personal liability from a failed commercial real estate venture. The client asks if the bank account is exempt as a tenants by entireties account.

A bank account is deemed to located where the account was opened. In most cases, a financial account is opened at a branch location. Because internet banks have no branches, I suspect a court may find the account is situated at the bank’s home office. A debtor could argue that in the case of an internet bank without branches the account is opened where the debtors resided at the time they applied for the bank account. The issue could go either way, but I think the better answer is that this account is anchored at the internet bank’s home office in Utah. Utah law does not recognize tenants by entireties ownership. I think the account is not protected as an entireties account.

If I’m right, then Florida debtors may be exposing joint bank accounts at national internet banks where the internet bank home office is in a state without entireties law. 

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I often receive phone calls from out of state resigned that they cannot achieve any of Florida's asset protection benefits because they do not reside in Florida- not exactly. While it is true that Florida's statutory creditor protections are specifically limited to Florida residents and Florida homestead presume permanent Florida residence in the house, Florida law does include asset protection available to non-residents, and even to people who have never set foot in Florida.

I’m referring to tenants by entireties protection available to a single debtor of a married couple.. Tenants by entireties protection from individual creditors is based on Florida common law defining Florida property. The concept applies to Florida property regardless of the owners’ residence. I wrote a post on this topic last year, but its worth repeating for current readers because most callers from outside Florida still think they have to move into their Florida house as a homestead in order to protect the house from judgments.

If a married couple living in any state in the United States buys real property in Florida that property is considered owned tenants by entireties and is exempt from judgment creditors of either spouse. Regardless of where the debtor resides, and regardless of where in the U.S. the judgment was entered, the creditor will have to domesticate the judgment in Florida to lien the debtor’s property. The foreign (out of state) creditor of one spouse will find that Florida law will not permit him to attach his judgment to the debtor’s jointly owned Florida real estate.

People do not have to move to Florida to used tenants by entireties law to exempt real estate they purchase in Florida.

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Often, a high-risk professional will title all assets in the name of their non-professional spouse as an asset protection plan. The professional thinks they are a lawsuit target, but in the event they are sued, they could tell their adversary that they "have nothing in my name." It’s a simple plan, but it sometimes backfires. Here’s an example where putting everything in the name of low risk spouse did not work out.

A woman physician worked in a high-risk specialty. Her husband worked for a large company in a non-professional job. The couple bought investment real estate and titled all parcels in the husband’s name alone. Their bank accounts were in the husbands name, as were some non-retirement stock accounts. You can probably guess what happened.

The husband called me for asset protection advice because he had been at fault in a serious car accident. He had only $20,000 liability insurance. All of the assets titled in his name, and bought mostly with his wife’s earnings, were at risk. Fortunately, the car he was driving was also in his name only so his wife would not be liable for the car accident. What did they do wrong?

This couple made two mistakes. First, they should have titled their investment assets as tenants by entireties rather than in the husband’s name alone. Assets titled in the entireties would be exempt from the husband’s car accident liability as well as from the wife’s professional liability. Entireties protects against any judgment against just one spouse. If each spouse has a judgment from a different lawsuit and for a different reason the entireties protection works against all the judgments.

The second mistake is lack of adequate insurance. In Florida, both the driver and all car owners are responsible for car accidents. If one spouse is driving a car owned jointly or in the name of the other spouse both spouses are held liable for the full amount of damages. If you have significant assets in the family you must get a large umbrella insurance policy to cover automobile and homeowner liability.

You may think you know whom in the family is going to be sued and for what reason- such as, the dreaded professional malpractice liability. Sometimes its what you don’t expect that gets you. Both spouses and all assets must be protected in a property asset protection plan.

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Husband and wife open a joint bank account at a Florida bank, and on the signature card, they pencil in the words "tenants by entireties" to express their intent that the account be an exempt entireties account. Subsequently, the deposit in the account money from another joint bank account and a joint income tax refund. These facts support clearly the conclusion that all money in the account is owned tenants by entireties, and assuming no fraudulent transfers, the money is protected from the individual creditors of either spouse. It would seem very difficult for a creditor or a bankruptcy trustee to defeat the entireties exemption- not exactly.

A decision by a Florida bankruptcy court found that a husband and wife with the above facts could destroy their entireties exemption by their actions and testimony after this account was opened and funds deposited. Here are the most important facts which undid the couple’s exemption.

After the deposit of the joint tax refund and money from the prior joint account the husband wrote a check for half the total amount to his wife who proceeded to deposit her half in her individual bank account. The husband testified that he viewed all remaining money in the account as his money, and he wrote all of the check on the account and was liable for all debts that were paid from the account. The court found that the husbands testimony and the facts established that the joint account was a joint tenancy with survivorship but not an entireties account. The court said that husbands actions had the legal effect of disclaiming entireties ownership and overcoming the legal presumption of entireties under Florida law.

I was surprised by the legal ruling because I had thought that once the couple established the account as an entireties account the funds therein were exempt regardless of what they chose to do with the money thereafter. However, I also see the judge’s point that the couples intended to segregate the wife’s half interest in the original deposits in the wife’s own account leaving what the couples believed was only the husband’s money. The case shows that couples should be careful to maintain entireties accounts under their joint custody and control, and not to split off the interest or funds belonging to the non-debtor spouse. The case is In re Underwood. No. 08-411, Adv No. 08-140, decided September 29, 2009.

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