Florida Asset Protection Blog

Who Is A Creditor?

There is a common misconception that a party has to either have filed a lawsuit against you or has a judgment against you to be considered your creditor for purposes of fraudulent conveyance law. Transfers or conversions of assets to evade creditors can be reversed or the transferee sued for the value of the conveyance. Under Florida law, the term creditor is liberally construed, and almost anyone you do business with can be considered a creditor even if there is no existing legal dispute.

Florida Statute 726.102 defines a creditor broadly to include any person who has a claim against you whether or not the claim is matured, disputed, contingent, or reduced to a judgment. Therefore, if you transfer your assets to avoid potential future judgments which may be brought by another party to a business relationship, that other party could set aside the transfer if the party later asserts a claim through legal action and gets a judgment. The point is that for most people there is a large class of parties who may in the future contest asset planning under Florida’s fraudulent conveyance laws.

Nevis LLC Recommended in Forbes Article

Mr. Charles Clemons, who operates the asset protection website "thoroghbredinc.com" pointed out to me last week that an article touting the benefits of Nevis LLCs for asset protection appeared in a 2002 article in the online version of Forbes MagazineForbes.com: Buried treasure. Note that the article points out that Nevis LLCs, and offshore planning in general, does not involve hiding money and is of little use to protect assets from government prosecution.

Credit Card Tax Evasion Attacked

A common illegal tax evasion scheme is when U.S. taxpayers divert money earned to offshore bank accounts titled in the name of offshore corporations . The taxpayer does not pay tax on the money on the theory that he did not receive the money, but then the same taxpayer uses the money for personal expenses by charging expenses on credit cards issued by the offshore bank. The following news release issued by the Department of Justice describes how the government attacked another one of these operations. Why do people think they can get away with these tricks? Again, legitimate asset protection should not be confused with criminal tax evasion.

TWO BUSINESSMEN PLEAD GUILTY TO TAX FRAUD
IN OFFSHORE CREDIT CARD SCHEME
Credit Cards Were Used To Spend Untaxed Income
Stashed In Foreign Accounts

" Herbert Greaves and Kurt Greaves own Greaves, Inc. (the “company”), which operates roofing and other businesses. They admitted that, from 1999 through 2001, they used offshore entities run by tax scam promoters to hide much of their income. They admitted filing fraudulent individual income tax returns that falsely reported no interest in a financial account in a foreign country. In fact, they each had interests in numerous foreign bank accounts.

In one scheme, the Greaves admitted they caused their company to make payments to Nevada shell corporations, and fraudulently deducted them as “professional fees” and/or “outside fees.” In fact, the payments were deposited in bank accounts controlled by the scheme’s promoters, who then wire-transferred the funds offshore to bank accounts maintained in Nevis, West Indies. The Greaves admitted they controlled those accounts. The promoters arranged for issuance of a credit card by Bahamas-based Leadenhall Trust Company Ltd., and for untaxed income held in the foreign accounts to be used to pay the credit card bills. The Greaves used the credit card to pay their personal expenses.

In a second scheme, the Greaves caused their company to wire transfer $230,000 to an offshore Nevis-based bank account controlled by the promoters. The company deducted the entire payment on its tax returns as an “insurance” expense. To substantiate the fraudulent deduction, the promoters provided the Greaves with a bogus insurance policy purportedly issued by Grenada-based Sovereign Life & Casualty Ltd. The Greaves had executed a secret indemnification agreement whereby, through a Nevis-based corporation, they agreed to indemnify the insurance company from any claims which might be made under the policy. The promoters received six percent of the total funds as a fee for holding the funds for one year, after which the Greaves were entitled to receive the balance. "

Protection of Federal Targets

I had a call from a prospective client who says his company is under investigation by the Security and Exchange Commission, and he wants to move money to an offshore trust. He asked whether this would protect his money from the SEC investigation.

There’s no way I’m getting involved in this case. Its one thing in Florida to protect money from civil lawsuits; but trying to hide money from federal agencies is something else. For all I know the SEC investigation involves criminal allegations in which case I could be dragged into the client’s criminal scheme. My advice to aspiring asset protection attorneys is to draw the line on prospective clients whenever a government agency is involved. First, most common asset protection plans are not effective against federal collection efforts to retrieve ill-gotten financial gain. For example, even Florida’s homestead protections cannot avoid a lien placed on the house related to criminal or egregious activity. Secondly, federal agencies have unlimited resources to attack lawyers who attempt to deceive the agency or collaborate with targets of their investigations. Targets of federal civil or regulatory agencies are “toxic clients”. Its not worth it.

Posted by bankruptcy and asset protection attorney Jonathan Alper of Orlando, Florida

Is a Homestead Under Construction Protected From Creditors?

Planning to build a home? Many people have asked me whether or not money used to buy a lot where they intend to build a residence is protected. Or, is money paid in advance to a contractor to build a homestead protected under Florida’s homestead provisions exempting homestead property from creditors. The short answer is “no.

Your investment is a homestead property is protected only after you actually move into the property as your primary residence, and after the property has been issued a certificate of occupancy. Money spent to purchase a lot where you intend to build and live is “investment property” and not “homestead” until it actually is used and occupied as homestead. Until occupancy, the land or money spent to design and build a house is unprotected from your creditors.

Business Journal Article on Asset Protection

The Charleston Regional Business Journal published today an article about selecting appropriate business structure for asset protection puposes. Asset protection varies with corporate structure

Will the Havoco Decision Protect In Bankruptcy Court?

People throughout the country are learning about the Florida Supreme Court case of Havoco v. Hill and its importance for Florida asset protection planning. Havoco says that if you take non-exempt money otherwise subject to creditor attack and use the money to purchase, expand, or repair a house or to pay a mortgage on the house with the purpose of hiding that money from creditors, the payment toward the house cannot be undone or reversed even if the payment would otherwise be considered a “fraudulent conveyance.” Many people make the mistake in asset protection planning of assuming that the license and planning opportunity created by Havoco carries over into a bankruptcy proceeding. It does, and it does not. If a bankruptcy debtor applied non-exempt funds to his homestead property over a year before filing bankruptcy then, yes, Havoco v. Hill would probably protect that application of funds from being undone in a bankruptcy proceeding. But, if the transfer was within a year prior to bankruptcy there would be potential problems. Bankruptcy Code section 727(a)(2) gives the bankruptcy court the power to deny bankruptcy discharge (i.e,., allows debts to survive bankruptcy) if the bankruptcy debtor transfers property within the year of filing with intent to hinder, delay, or defraud a creditor. The court could order the transfer reversed and the transferred amount paid to creditors either from other funds of the debtor or through a sale of the homestead. The court may issue additional sanctions including prohibiting subsequent bankruptcy filings for a period of time.

Havoco v. Hill may not work as a defense in bankruptcy court against denial of discharge for a fraudulent conveyance. Therefore, if someone applies non-exempt money to a house or mortgage a creditor in a state court collection proceeding cannot undo the transfer of money, and the transfer does not otherwise subject the debtor to risk. If that same debtor files bankruptcy within the year of house purchase or mortgage payment the same money transfer could the debtor to a denial of discharge. The bankruptcy court could possibly order the house liquidated and proceeds applied to pay creditors to the extent of the fraudulent conveyance made within the preceding year.

Whether Florida bankruptcy judges would allow a debtor to assert the ruling in Havoco v. Hill as a defense in bankruptcy court is unclear. To date, there is not reported written bankruptcy decision from a Florida bankruptcy court on this issue.

Good Judge Makes Wrong Decision

As you many readers of this blog already know, the Florida Supreme Court declared that personal property owned jointly by a husband and wife is presumed to be tenants by entireties property which is immune from the creditors of either spouse individually. The Supreme Court made this holding in the case of Beal Bank, SSB v. Almand and Associates in 2001. The Supreme Court conldued that there is a strong policy favoring the presumption of tenants by entireties title when a married couple jointly own personal property. The Court said that the well-recognized presumption of tenants by entireties ownership of real property owned by married couples should extend to personal property as well.

The ruling seems clear, but it apparently is not clear to everyone. In a recent case in Orange County Circuit Court, of Sunny gifts, Inc., v. Vong Corporation, Judge Thomas Mihok entered an order stating specifically that the Beal Bank decision and its presumption of tenants by entireties does not extend to the attachment of a motor vehicle owned jointly by husband and wife. The judge permitted a creditor to levy on a jointly owned automobile.

The ruling in the Vong case not only contradicts the Florida Supreme Court, but it also ignores a unanimous three-judge decision of a Florida Appellate Court which held that the Beal Bank decision applied to jointly owned stock certificates. The debtor’s attorney, David Cohen of Orlando, Florida, stated that the judge based his ruling on a prior opinion of a Jacksonville bankruptcy judge. Apparently, the judge readily accepted the opinion of a single bankruptcy judge over the ruling and opinion of six Florida Supreme Court justices and three appellate court judges.

Mr. Cohen stated that he intends to appeal the Vong decision to the Fifth District Court of Appeals. If there is to be consistency in Florida case law one expects Mr. Cohen’s appeal to be successful and that Judge Mahok’s decision will be reversed.

Orlando Bankruptcy Attorney : Florida Bankruptcy Law

Nobody wants to file bankruptcy. Yet, many people find that when creditors pile late fees upon penalties on top of card balances it becomes impossible to climb out of debt, and they end up working for their creditors. Most people explore all possible alternatives before even considering personal bankruptcy. Those who must declare bankruptcy often feel uneasy or ashamed about their financial situation. In today’s financial environment, however, bankruptcy is no longer the stigma it was decades ago. . Millions of consumers seek bankruptcy protection each year, and most lenders and employers are much more tolerant of bankruptcy than they were years ago.

I often tell clients that bankruptcy is easier and less disturbing than they imagine. Most bankruptcy debtors never appear in court before a judge, and for most, bankruptcy is primarily government paperwork. Florida law provides generous bankruptcy exemptions which protect your most valuable assets including your homestead and retirement savings. For people with overwhelming debt and little or no non-exempt assets at risk , bankruptcy is the best way to protect their families and to move beyond present difficulties.

If you want more information about bankruptcy in Orlando, Florida area, or want general information about laws concerning Chapter 7 or Chapter 13 Bankruptcy, visit AlperLaw.com : Bankruptcy Basics or the Florida Bankruptcy Law Blog.

Is Homestead Owned by a Trust Still Protected?

Generally speaking, the Florida consitution protects homestead property owned by a natural person. But, what happens if a person deeded their homestead to their living trust, and as a result the legal title is held in the name of the trustee for the trust. In the case of Callava v. Feinberg, the Second District Court of Appeals held in October 2003, that homestead protection for creditors applies even if a person’s primary residence is titled in the name of the trustee of a trust, The court stated

“ The constitutional provision "does not designate how title to the property is to be held and it does not limit the estate that must be owned...." Southern Walls, Inc. v. Stilwell Corp., 810 So.2d 566, 569 (Fla. 5th DCA 2002). "[T]he individual claiming homestead exemption need not hold fee simple title to the property." Id. (citing Bessemer Props., Inc. v. Gamble, 158 Fla. 38, 27 So.2d 832 (1946)). See also HCA Gulf Coast Hospital v. Estate of Downing, 594 So.2d 774, 776 (Fla. 1st DCA 1991)(beneficiary of spendthrift trust entitled to claim homestead exemption as to trust property). Thus, even if Callava owns only a beneficial interest in the property, she is entitled to claim a homestead exemption to the forced sale of the property and the trial court erred in foreclosing her interest in the property.”

Based on this decision a Florida resident’s homestead property is still protected from creditors after the person conveys legal title to a living trust or any other trust as long as the resident retains a beneficial interest

When Homestead is Unprotected

Many lawyers and attorneys do not tell their clients about the exceptions in Florida law to homestead protection. Your home is not protected from foreced sale from tax liens both for proerty tax and IRS tax. Nor, is your home protected from special assessement from homeowners associatsions. The homestead is not protected from materialmen liens. Those are liens placed on your home because you did not pay for materials and labor supplied to improve your homestead property.

Creditors Can Take Your Lawsuit

One problem of having a judgment entered against you is that the creditor’s attorneys can attack any lawsuit you have, or any claim which you may have in the future, against any third party. For example, if you have an unsatisfied judgment and you are subsequently injured because of someone else’s negligence, you will likely seek a lawyer to sue the other party or their insurance company. If a pre-existing creditors finds out about your lawsuit, or even your claim before you hire an attorney to file suit, your judgment creditor can seize your right to sue. Thereafter, any compensation you might otherwise be entitled to collect because of your injury would go to your creditor to pay your judgment in full before you would see any money. Your potential claims and your lawsuits against others are important and sometimes valuable assets which must be covered in your asset protection plan.

Homestead and IRS

A prospective client called and asked whether the Florida homestead protection extends to IRS debts where the IRS debt pertains to one of the two spouses who own the homestead. While Florida's homestead is a broad and strong asset protection shield, it does not offer full protection against IRS taxes. The IRS can put a lien on homestead property to collect taxes. While the IRS cannot force a sale of the residence to collect taxes, the tax lien would remain a recorded encumbrance, and whenever the house is sold, the taxes, plus accrued interest and penalties would have to be paid before the homeowner received any sales proceeds.