Common Sense Florida Asset Protection Strategies

Anyone with assets should learn about asset protection strategies in order to to protect those assets from involuntary creditors and potential judgments.  A Florida asset protection attorney can educate you and help you develop a customized plan to protect your assets.

A single automobile accident can lead to a huge award of damages that can completely deplete a lifetime of savings and hard work, as was the case faced recently by elderly clients of mine. The wife was found to be at fault in an automobile accident with a motorcycle rider who died. Because the car was titled in the husband's name, he was also found liable for the million-dollar judgment. The couple, who had saved well for their retirement, faced utter financial catastrophe. Any Florida asset protection attorney will tell you that a well-designed asset protection plan can build a protective wall around your estate, and will safeguard your wealth from the attack of creditors and frivolous lawsuits.

If you reside in Florida, you can take advantage of Florida asset protection laws, which are among the strongest in the country.  Below you’ll find what I call the “Florida Foundation” of asset protection – the basic three areas that every Florida resident should focus on as a starting point for building and retaining wealth.

Protect Your Home

If you own multiple properties, make sure the property where you primarily reside is the one that you want to protect from creditors. Even if you only own one property as a principal residence, you should consider paying off your mortgage as quickly as possible.  The Florida Constitution protects homestead property (i.e. individual and family homes) from levy and execution by judgment creditors.  As long as you are a permanent Florida resident and the homestead property is your primary place of residence, it is protected.  Condominiums, manufactured homes, mobile homes, and single family homes are all considered “homestead property.”  Your principal residence can be up to one-half acre within a municipality and up to 160 acres in any Florida county.  You must either own the property in your name or through a living trust because only “natural persons” qualify for “homestead” protection.  If the property is owned by a corporation that you own, it will not qualify. 

Contribute to a Pension Plan, Profit Sharing Plan, or IRA

If your job allows you to participate in a pension plan, profit sharing plan, IRA or other retirement plan, you should participate.  If you are a Florida resident, the money you invest in one of these retirement savings plans avoids current income taxation and is also protected from creditors of the beneficiary or participant.

If You Are Married, Consider How to Hold Your Joint Property

There are a two common ways that married couples can own property in Florida.  They can own it as joint tenants with the rights of survivorship or as joint tenants by entireties.  Each has its pros and cons. 

Most married couples own property as joint tenants with rights of survivorship.  The benefit of owning property in this fashion is that if one of the owners dies, his or her share of the property automatically goes to the surviving owner.  Each spouse can also sell his or her own interest in the property, leaving the other spouse to deal with the new owner.  However, if one of the spouses has debt, the spouse’s creditor can seize the spouse’s share of the property.  This leaves the non-debtor spouse in the unfortunate position of being a co-owner with the creditor. 

Tenancy by the entirety is a special type of joint ownership that is available only to married couples.  Under this type of ownership, both spouses must agree to any sale or alienation of the property.  Creditors cannot involuntarily seize the property when only one spouse is indebted to the creditor.  Both spouses have to owe money to the creditor in order for the creditor to seize the property.

Carry Adequate Liability Insurance

One of the biggest mistakes people make in failing to protect assets is not carrying adequate insurance. Always keep good comprehensive insurance that covers your home and all vehicles that are in your name (regardless of who actually drives them). Keep in mind that supplemental umbrella insurance policies that enhance the limits of homeowners and auto policies are low-cost and effective asset protection tools. Consider taking out insurance on any other substantial assets you have, and reassess their value every two or three years.

These are just a few basic Florida asset protection strategies.  A Florida asset protection attorney can review additional strategies with you.  If you believe that you would benefit from the services of an experienced Florida asset protection attorney, please call us at 866-996-6104 for more information.

Banks Settle Mortgage Fraud Allegations with U.S.

You may have seen articles in the news about the latest round of settlements between the large banks and the United States.  It is not yet known how the new settlement will affect mortgage foreclosures on the ground.  It appears, though, that all FNMA and FMAC mortgages are exempt, and these constitute 92% of all mortgages. It is likewise unclear how the settlement will affect the normal defenses to foreclosures based on fraudulent documents. We'll advise you here once we see how the settlement affects local foreclosure cases in Florida.

Legal Services for Business

In addition to our work in bankruptcy and commercial litigation, we also provide services for businesses including contract drafting and review, formation and dissolution, negotiation of contracts and agreements, mergers and acquisitions, and other corporate work. Please feel free to call us if you have need of legal services for your business and would like active, thoughtful representation.

Liability for Association Fees After Bankruptcy

I am frequently asked about liability of homeowners for condo and homeowner association fees, where the homeowner has surrendered their property in their bankruptcy, but the bank has not yet foreclosed for one reason or another. The answer is provided by 11 U.S.C. 523(a)(16), which provides that:

(a) A discharge under section 727, 1141, 1228 (a), 1228 (b), or 1328 (b) of this title does not discharge an individual debtor from any debt—

(16) for a fee or assessment that becomes due and payable after the order for relief to a membership association with respect to the debtor’s interest in a unit that has condominium ownership, in a share of a cooperative corporation, or a lot in a homeowners association, for as long as the debtor or the trustee has a legal, equitable, or possessory ownership interest in such unit, such corporation, or such lot, but nothing in this paragraph shall except from discharge the debt of a debtor for a membership association fee or assessment for a period arising before entry of the order for relief in a pending or subsequent bankruptcy case;

Short answer: for as long as the homeowner is on the deed, that homeowner is responsible for fees and assessments arising after the bankruptcy. All pre-bankruptcy fees or assessments are discharged as provided by in each bankruptcy chapter.

Fla Supreme Court finds for Debtors in Mortgage / Wildcard Case

In Osbourne v. Dumoulin, __ Fla. ___ (February 3, 2011), the Florida Supreme Court held that debtors in bankruptcy who indicate an intent to surrender their homestead property do not "claim or receive" the benefit of the constitutional homestead exemption, and therefore, will generally be eligible to receive the statutory personal property exemption.  The Court found this result even where the debtor has no immediate plans to move out of the home. The issue was framed by the Court as follows:

Whether for the purpose of the statutory personal property exemption in section 222.25(4), a debtor in bankruptcy receives the benefits of Florida's article X, section 4, constitutional homestead exemption where the debtor owns homestead property but does not claim the homestead exemption in bankruptcy and the trustee's administration of the property is not otherwise impeded by the existence of the homestead exemption.

The Court answered: No.

However, the Court allowed that the "claim or receive" analysis was a factual one, and that cases must be decided on a case-by-case basis:

As several courts have explained, each case must be decided on its own facts because the debtor in bankruptcy may still receive the homestead examption's protections despite failing to assert the homestead exemption. In re Bennett, 395 B.R. at 790 ("A debtor who does not claim the Homestead Exemption may still receive its benefits in certain limited circumstances that can only be determined on a case-by-case basis, after a fact-intensive inquiry.").

By way of an example, the opinion cites In re Hernandez, 21 Fla. L. Weekly B299, B300 (Bankr. S.D. Fla. Apr. 10, 2008), for the proposition that a married debtor filing alone whose home remained exempt from forced sale pursuant to the homestead protection because his nonfiling spouse retained protected homestead status nevertheless received the benefit of the constitutional protection, and could not claim the statutory personal property exemption (the "wildcard").

The holding makes clear that if the trustee's ability to administer the property is not impeded or obstructed by the homestead exemption, the debtor may claim the additional $4,000 statutory personal property exemption:

[W]here a debtor in bankruptcy elects not to claim the article X, section 4, homestead exemption and the trustee's administration of the bankruptcy estate is not otherwise obstructed by the existence of the homestead exemption, the debtor does not receive the benefits of the homestead exemption and may claim the section 222.25(4) personal property exemption of $4000.

Finally, the fact that a debtor is eligible for homestead protection, or that any equity in the homestead may be subsumed by a mortgage does not affect the analysis of the trustee's ability to administer the estate:

[W]hether a debtor in bankruptcy could claim the homestead exemption, previously received the benefits of the homestead exemption, or may receive such protection after discharge from bankruptcy does not constitute receiving the benefits of the article X homestead exemption within the meaning of the personal property exemption.

Therefore, my evaluation is that this decision is favorable to debtors. If a debtor in an underwater mortgage declares an intent to surrender their homestead on their bankruptcy petition, and claims the $4,000 (or $8,000 for couples) additional wildcard exemption, the burden would seem to be on the objecting trustee to prove that factual circumstances exist that would "obstruct" the trustee's ability to administer the homestead property, even if there is no practical reason for the trustee to administer it (such as because it is fully secured).

Update 4-26-2011: Trustees are responding to this ruling by taking steps to force debtors to either move out or give back the wildcard exemption. For example, some trustees are requiring debtors who remain in their homes to pay rent to the estate, or turn over the keys to the property. At least one trustee that I am personally aware of has hired a real estate broker to try to short sell these properties.

You can download the full opinion here.