Asset Protection Issues in Florida

      I often get calls asking me to assist a client with asset protection. Many people believe they need a revocable trust in order to obtain asset protection. However, a revocable trust, which allows the grantor to retain control of their assets as trustee of the trust, provides no creditor protection to the grantor trustee, and is simply a tool for estate planning purposes. In order to use a trust for creditor protection the grantor must give up control of their assets and appoint a separate trustee the who is not legally obligated to act as directed by the grantor.

    However, in Florida, there are many methods of asset protection that occur simply by residing as a citizen of this State. The primary protection lies in the Florida Constitution.  Article X, Section 4 provides: 

There shall be exempt from forced sale under process of any court and no judgment, decree or execution shall be a lien thereon, except for the payment of taxes and assessments thereon, obligations contracted for the purchase, improvement or repair thereof, or obligations contracted for house, field or other labor performed on the realty..” 

   This means that if you own a home, whether married or single, with or without children, condominium or cooperative, regardless of value and regardless of whether you have a mortgage, a judgment creditor cannot foreclose their judgment against your homestead property. Even a municipality is unable to foreclose a code enforcement lien on homestead property. This protection extends past the death as long as your property descends to your spouse or children.  Note that if you file bankruptcy, the Florida exemption preempts State law, requiring that you must have resided at the property as your homestead for at least forty months to obtain full protection.  Prior to forty months of continuous residency, the cap is approximately $160k.  In addition, homestead property is limited to one-half acre in a municipality and one hundred sixty acres in unincorporated areas. 

   If you have a judgment and wish to sell or refinance a  homestead property, Florida law allows clearance of those claims by giving the creditor a forty-five-day notice of homestead, which gives the creditor a limited window to challenge the homestead claim.  In addition, after sale, the homestead sale proceeds remain protected as long as the proceeds are used to purchase a new homestead. We recommend placing same in a homestead trust rather than commingling the funds after any such sale while searching for a replacement homestead property.

   Florida also recognizes a special estate, called tenants by the entireties. This is property owned by married couples, such as real property (non-homestead), bank accounts or brokerage accounts.  Under common law in Florida the claims of individual creditors cannot reach properly-created entireties property.  In the eyes of the law, property owned by a married couple is treated as one, hence not reachable by creditors or divisible without both spouses conveying the interest.

  Special rules exist to create property as tenants by the entireties.  It must be received as a married couple, each must hold title to the property, each must have equal use and possession of the property, must remain married and have an equal interest therein.  Failure to meet each of these criteria invalidates the entireties protection.  Also, the judgments are not invalid, only inchoate, which means that upon breaking of the entirety’s estate (by death, divorce, or transfer), a creditor’s judgment immediately attaches to the asset.  Also, judgments against both spouses may still reach entireties property (so no fighting over the steering wheel).

   Judgment creditors have another tool to obtain payment of claims against Florida debtors.  They have the right to garnish up to twenty-five (25%) percent of a person’s wages and bank accounts.  However, debtors who serve as the head of a household (married couples and single parent with children or dependent relatives) may not have these assets garnished.  A head of household is the person that provides at least fifty percent of the living expenses for the household.  A debtor, when served with the garnishment notice, must file notice of this exemption within twenty days.

   A favorite method of asset protection is the limited liability company.  For example, if you own a rental property and a tenant or guest is hurt, you are liable for any damages, even if owned as entireties property.  Any claims in excess of insurance coverage would be a judgment against all other assets exclusive of homestead.  However, if the property is owned in a limited liability company, the claims would only be against the company and its assets.

   Limited liability companies have a second benefit.  Creditors can reach shares held in a corporation, but membership units in a multi-member LLC cannot be taken away, only the available distributions may be reached (which distributions are frequently controlled in closely held companies.

   Asset protection is an important tool, but if deployed improperly may result in unnecessary expenses and consequences, so working with a good estate and asset protection attorney is key to obtaining the best results.\

Michael J Posner, Esq., is a partner in Ward, Damon, Posner, Pheterson & Bleau, P.L. a mid-sized real estate, estate planning and business-oriented law firm serving all of South Florida, with three offices in Palm Beach County.  They specialize in estate planning and asset protection. They can be reached at 561.594.1452 or at mjposner@warddamon.com