Florida Asset Protection Blog

Wage Protection Umbrella: How Large?

Florida Statute 222.11 protects from garnishment salary of unlimited amounts earned by a head of family. The statute defines a “head of family” as someone who provides more than 50% of the support for a child or other dependent. Once a debtor qualifies as supporting a child or dependant, all of his wages are protected regardless of how much of his earnings are allocated to support of the other person. Who may be an “other dependent” is an interesting question because the term is undefined. Clearly, someone living with the debtor family head, such as a spouse, will qualify as a dependent if they rely on the debtor for more than half of their support. I think a parent living with the family may also be a dependent. But there is no requirement in the statute that the dependent reside in the same house with the debtor.

A client asked me last week if he would be considered a head of family if he supported his mother who lived independently and in a different state if the client provided more than one-half of his mother’s support. I answered that a court would probably defer to an IRS definition of dependent, so that if he could claim his mother on his tax return as a dependent the client would have a good argument. There is a lack of case law on the definition of dependant for purposes of the wage garnishment statute. Given the Florida court’s policy of liberally interpreting exemption statutes for the benefit of Florida debtors, most courts would protect wages if the debtor actually supported another member of his immediate family. Whether dependents who are more remotely related could be used to earn wage protection is uncertain

Trusts That Fail To Protect Against Creditors

Trusts may be an effective asset protection tool if properly drafted. Setting up a trust to hold your own property for your own benefit (such as a living trust) provides no asset protection benefits under Florida law. However, if a debtor is a beneficiary of a trust set up by another family member for the debtor’s benefit, the debtor’s beneficial interest in the trust is protected from the debtor’s creditors if the trust agreement has what is referred to as a “spendthrift clause” or “anti-alienation clause.” These clauses say, essentially, that a beneficiary may not assign his interest, voluntarily or involuntarily, for the benefit of another party. However, if the trustmaker makes the debtor/beneficiary the successor trustee of the trust so that after the trustmaker’s death the beneficiary is wearing the hats of trustee and beneficiary, asset protection benefits of the spendthrift clause may be lost. Spendthrift provisions work, in part, because most trust agreements give the trustee, or successor trustee, discretion over whether or not to distribute trust income and principal to the beneficiaries. The debtor’s ability as trustee to make discretionary distributions to himself may subject the debtor to a court order requiring distributions of trust property that may be seized by the debtor’s judgement creditors. For the protection of trust beneficiaries, it is better for trust agreements to require successor co-trustees, one of whom must be unrelated to the beneficiary.

Beneficiary as Trustee of Trust: Is Protection Lost?

An attorney asked me about a situation where a parent sets up a trust for the benefit of an adult child and makes the child the trustee of the trust. The trust has typical "spendthrift" provisions which protect the beneficial interest of a trust from the creditors of the trust beneficiary. The attorney inquired whether the spendthrift protection offered by the trust is lost where the beneficiary (child) controls trust assets in his position of trustee.

I found one bankruptcy court decision which supported my colleague's position that the child's (trustee"s) interest would not be protected from creditors. In this case, the judge said:

“Florida law generally recognizes the validity of spendthrift clauses and will allow them against the valid claims of creditors. However, where a beneficiary has the power to control the plan's assets, this dominion over the property is such that the interest is not exempt from claims for payment of debts.” 81 B.R. 681.

This is the only judicial opinion supporting this position. I believe the case is isolated and unsupported by any other law. Nevertheless, my trusts usually include an instruction that a child acting as trustee of his own trust share must appoint an independent co-trustee who must be an attorney, CPA, or financial institution. The requirement of an independent co-trustee makes sure that the beneficiary never has total control over their trust property and ensures spendthrift protection against the child's creditors.

Tenants By Entireties With California Spouse?

A client presented today an interesting question which I can not answer with any certainty. The well-established rule under Florida case law is that tenants by entireties property (property owned jointly by husband and wife) is immune from creditors of either spouse individually, but the property is not protected from joint creditors. This particular client was a Florida resident whose spouse was a California resident. The client (husband) had recently moved to Florida to start new employment, but his wife remained in their California home to continue medical treatment. California is a community property state which does not even recognize the concept of tenants by entireties, not to mention its exemption from creditors.

The husband faced potential lawsuit. The issue was whether a Florida resident married to a non-Florida resident of a community property state. Do both husband and wife have to be Florida residents in order for the Florida debtor to protect marital property? I know of no case law on this issue. In my opinion, the husband’s property located in Florida would be protected as tenants by entireties property because his ownership interest would be characterized by Florida law. However, I do not have support for this conclusion. It will be interesting to see if the question is presented to a Florida appellate court.

Exposing Trust Property to Trustee's Creditors

According to judicial decisions in Florida a person who served as trustee of a trust which held real property for the benefit of another person could expose the real property to the trustee’s personal creditors. These cases held that real property titled in the name of a trustee belongs to the trustee in his individual capacity, and as a result, the property is vulnerable to the trustee’s individual creditors or part of his bankruptcy estate. A new Florida Statute (HB 529) clarifies whether deeds or mortgages belongs to a trustee in his individual capacity or to the trust and the trust beneficiaries. The bill retroactively states that real property or a mortgage belongs to a trust and its beneficiaries if the instrument conveying the real property interest to the trustee includes any of the following information: 1. the name of a beneficiary of the trust; 2.the nature and purpose of the trust; or 3. the title or date of the trust. If none of this information is including on the instrument of conveyance then the real property or mortgage interest in real property belongs to the trustee where it can be seized by the trustee’s individual creditors to the detriment of trust beneficiaries.

Florida Homestead and Alimony

I received an inquiry from a New York resident who was subject to an alimony judgment. He wanted to know if Florida homestead laws protect against alimony judgments. His plan was to make himself a Florida resident, invest money into a Florida homestead, and then tell the New York judge he had no money to pay alimony in the hope that the court could not put a lien for alimony on his protected Florida homestead.

The plan won’t work. While a court could not put a lien on a Florida homestead to satisfy an alimony (or child support) award, the family courts have other methods of eliciting payment. For example, the New York court could order payment of alimony, and if the individual did not pay, after putting available cash into the homestead, the court could hold him in contempt of court. Continued failure to pay could result in arrest and imprisonment for contempt of court.

Homestead protection is effective against civil judgments, including marital settlement decrees, but it does not stop courts from taking other measures to enforce awards of alimony or child support.