Florida Asset Protection Blog

Is There A Time Limit on Tax Liability?

IRS debt is like no other debt; the IRS has unique collection remedies, and asset protection strategies that work against civil judgments provide no barrier against the IRS. Clients occasionally asks whether there is any point after which the IRS cannot prosecute a collection action to recover past due taxes. There is a ten year statute of limitations against collections by the IRS. This means that in 2004, the IRS can take action collect taxes due or assessed within the past ten years. There are many other rules which could extend the IRS’s reach. For examples, delays in assessment of taxes, extensions granted to the taxpayer, an agreed installment payment plan, and other types of IRS procedures can make the statute of limitations effectively longer than ten years. A taxpayer owing back taxes can ask the IRS to provide a tax transcript which provides a comprehensive history of tax payments and liability

Moving to Florida: New Web Page

I have had so many email questions and telephone consults about the rules for moving to Florida that I quickly realized that it constituted the most important questions about Florida asset protection. People want to know how they can become a Florida resident and become eligible for Florida’s creditor protection, especially our constitutional homestead protection. Consequently, I have recently added a new page to my website about “moving to Florida”Florida Homestead & Residency: Becoming a Florida Resident for Homestead Protection

Limited Partnership Pitfalls

Using partnerships for asset protection is complicated and subject to traps. Many people form family limited partnerships for asset protection purposes. Family limited partnerships require a general partner who is liable for partnership obligations whereas limited partners are not liable for acts or debts of the partnership. Wary of naming themselves, individually, as general partner where they could theoretically expose themselves to liability for the partnership, many people create a corporation to be general partner of their family limited partnership. The corporation acts as a shield which protects the client from liability for partnership obligations. In most cases, the client or client and spouse own the stock in the corporation. The problem is that if the client is sued individually, his limited partnership interests are protected from his judgment creditors (charging lien remedy), but his stock in the general partner corporation is fully exposed. The creditor will seize the stock in the general partner; gain control over the partnership; and thereafter, distribute partnership property where it will be seized by the creditor’s charging order

A better solution is for the client to serve individually as general partner and then file a Statement of Qualification to make the partnership a limited liability partnership under Florida law.

Bankruptcy Trustee Attacks Homestead Purchase

The homestead protection afforded Florida residents is being tested in a Florida bankruptcy proceeding. The Florida Supreme Court, in the case of Havoco v. Hill, has held paying money to purchase a homestead property or applying funds to reduce the principal balance on a homestead cannot be reversed, set-aside, or undone on the grounds that the purchase or payment was a fraudulent transfers to avoid creditors. In the case of In re Potter, pending in the Middle District of Florida bankruptcy court, the bankruptcy trustee, Ms. Gene Chambers, has sued to recover approximately $300,000 which a debtor used to by a homestead approximately 18 months prior to filing bankruptcy on the grounds that the purchase was a fraudulent conveyance under Florida’s fraudulent conveyance statutes. It will be interesting to see whether this court finds that the Florida Supreme Courts ruling in Havoco precludes this fraudulent transfer claim in bankruptcy, or whether the court ignores Havoco and applies a different legal standard.

Florida Residency Guide

People frequently asks me about what steps are necessary to become a Florida resident. The State of Florida has a website which provides a Florida residency guilde. It explains the requirements and the process of obtaining Florida residency. State of Florida.com - Florida Residency Guide

Federal Exception To Wage Garnishment Protection

A lady contacted me about with a question about garnishment of her paycheck by the federal government because of defaulted student loan. The caller said the government told her they could garnish 10% of her take home pay even though she supported a child, and that Florida Statute 222.11, which exempts from garnishment all wages of a head of household, did not stop the government’s garnishment for student loan default. The government cited their authority under 20 U.S.C. 1095(a) which is quoted, in part below.

Sec. 1095a. - Wage garnishment requirement

(a) Garnishment requirements
Notwithstanding any provision of State law, (emphasis added) a guaranty agency, or the Secretary in the case of loans made, insured or guaranteed under this subchapter and part C of subchapter I of chapter 34 of title 42 that are held by the Secretary, may garnish the disposable pay of an individual to collect the amount owed by the individual, if he or she is not currently making required repayment under a repayment agreement with the Secretary, or, in the case of a loan guaranteed under part B of this subchapter on which the guaranty agency received reimbursement from the Secretary under section 1078(c) of this title, with the guaranty agency holding the loan, as appropriate, provided that ....

Although I have never previously had a client facing this particular issue, I have now learned of an exception to Florida’s unlimited wage garnishment protection where a federal law regarding education loan defaults specifically overrides state law.

Protecting Family Business Corporations

Family businesses should be planned with asset protection in mind. In previous post on this blog I have strongly suggested using limited liability companies in lieu of corporations for new businesses for reasons which will not here be repeated. In the event a family has an existing corporate business owned by both spouses, there are still planning possibilities to protect the corporate shares from creditors.

Consider the hypothetical situation where a man owns 50% of the shares in a valuable, successful corporation, and his wife owns the other 50 % of shares. If the husband only has a creditor problem, the creditor after obtaining a judgment against the husband can seize his stock and acquire 50% of the controlling interest in the corporation. As a 50% shareholder, the judgment creditor and debtor’s spouse will be in a permanent voting deadlock. This situation is good for neither party. If either spouse saw a creditor on the horizon a transfer of their stock shares would be reversible as a fraudulent conveyance. Perhaps a better alternative would be for the husband and wife to hold a corporate meeting in which they vote to issue additional shares to the non-debtor spouse in consideration for an additional cash contribution to the corporation. The stock issues effectively dilutes the value of the shares of the debtor spouse. It also gives the non-debtor spouse majority voting control. If a judgment creditor seizes the stock owned by the debtor spouse, the creditor is in the position of a minority shareholder without power to significantly affect corporate business decisions. The issuance of additional corporate shares devalues the debtor spouse’s stock, and puts the debtor spouse in a better negotiating position with his creditor.

In addition, the corporation’s issuance of new share in exchange for consideration is arguably beyond the definition of a fraudulent conveyance by the debtor spouse.

Asset Protection Overkill

Beware of complicated asset protection solutions. I was contacted by a gentlemen today who was not a citizen or resident of the United States, but who spent a few months each year touring the country in a mobile home. He has not assets or businesses in the U.S. Nevertheless, some asset protection “advisor” sold this gentleman on using a Swiss Insurance Company to provide asset protection against U.S. lawsuits. Offshore insurance companies are effective and very sophisticated asset protection techniques, and they are important tools in some complicated cases. But for this case, the advise was extreme overkill. The advisor appears to be more interested in “selling” expensive product than giving reasonable advice. Few attorneys who practice asset protection would advise an expensive and sophisticated asset protection vehicle client who has very limited exposure to liability or creditors in the United States. The lesson in this case is that the most complicated and sophisticated legal plan is not always the best plan. Asset protection should be geared to the client’s specific situation, and the fancy and complicated planning should be used only for those clients whose asset mix and legal exposure requires the top level of asset protection work.