Florida Asset Protection Blog

Is Homestead Protection Lost During Reconstruction?

What happens to homestead protection if a Florida debtor moves out of their home and then demolishes the entire structure? A client presented that question about Florida homestead protection. After leveling the home, the debtor rented an apartment and hired a builder to build a new and bigger home on the same lot. Courts have often refused homestead protection to a property while the owner is building a residence on a vacant lot prior to the time when the completed home is livable and the debtor actually occupies the house. On the other hand, courts have also extended homestead protection when an owner temporarily moves out of their homestead with the intent to one day return to the home as a permanent residence. The question I found in this case is whether the debtor could intend to return to a house that no longer existed even though a replacement was being built. Are these facts most similar to non-protected construction of a home on a vacant lot or the protected temporary relocation with provable intent to return? I am not aware of any court decision on this fact situation.

In my opinion the debtor should retain homestead protection. These facts are similar to a situation where a debtor moves out of a homestead in order to remodel the home or renovate the home and lives temporarily nearby during construction. In that case, homestead protection most likely would continue during remodeling. In cases which denied homestead protection to a house under construction the debtor never had previously resided in the property. A court decision on this issue may hinge on the particular facts and equities involved.

Subtleties Of Tenancy By Entireties

I received a phone call from an attorney in California who works for the dark side of the force. He is trying to collect a large judgment from a Florida debtor. The debtor, who is married, owns an expensive building lot jointly with his spouse. The property is not homestead property at this time because the house is unoccupied. His spouse purchased the lot over four years ago which is beyond the statute of limitations for fraudulent conveyance. Recently, the spouse conveyed title to herself and her debtor/husband jointly. They are building their future residence on the lot. The attorney levied on the lot, but the sheriff returned the writ unsatisfied for the reason that the lot is owned jointly as tenants by entireties.

All property owned by husband and wife in Florida is presumed to be owned tenants by entireties, but this presumption can be rebutted by a creditor. One way for a creditor to overcome the presumption of tenants by entireties is to show that the property does not possess what courts have referred to as the “unities of title”, which are the technical requirements for entireties ownership. One of the “unities” is unity of time. The Florida Supreme Court has said that unity of time means both spouses’ interest must have originated at the same time in the same instrument.

Initially, I told the creditor attorney that the property is not exempt as tenants by entireties property. The wife’s interest in the property originated before the husband’s interest originated, and their interest did not originate in the same instrument. However, upon further review, I found Florida Statute 689.11 which pertains to ownership of real estate. The statute provides that one spouse who owns real property in their own name may create ownership of real property by the entireties by a deed to the names of both spouses. In this case, I do not believe the property is protected as tenants by entireties real estate.

This case illustrates that tenancy by entireties is more complicated that it may seem and that it is more that just “joint ownership.”

posted by Jonathan Alper, asset protection and bankruptcy lawyer, Orlando, Florida

Random Interesting Questions

Much of my typical day is spent answering interesting questions from clients and callers. Here are a few that were presented today:

Question: If a debtor owns a life insurance policy on his own life payable to his wife upon death, can a creditor of the debtor get the insurance proceeds upon his death. The answer is no. The life insurance death benefits become property of the non-debtor spouse upon the debtor’s death. If the debtor made his estate the beneficiary, or if he failed to designate any beneficiary, then his creditors could attach the death benefit when he died.

Question: if a federal bankruptcy court, or any other federal court, issues a judgment against a Florida debtor other than the debtor filing bankruptcy is the judgment debtor’s Florida homestead still protected? In other words, does Florida’s homestead protection afforded by state law protect against a judgment of a federal court as well as a state court? The answer is yes. Homestead protection does not distinguish the source of the judgment. Although some federal actions, such as IRS collections or criminal actions can impair homestead protection, civil money judgments from federal or state courts cannot be enforced against the debtor’s homestead.

Question: Inasmuch as a Florida homestead cannot be devised to anyone other than a surviving spouse or minor child, can a single spouse who owns the family homestead in his own name transfer or encumber the homestead during his lifetime. The answer is no, unless the spouse joins in the conveyance. The spouse has a legal interest in her homestead even if she is not on title. Minor children do not have to waive their potential homestead interest because, as minors, they are unable to waive their own rights and they are represented by their parent guardians.

posted by Jonathan Alper, asset protection and bankruptcy lawyer, Orlando, Florida

How To Annoy Debt Collectors

Many people facing bankruptcy are tormented by collection agencies. There are legal ways to fight back using federal consumer protection statutes. For example, the Fair Debt Collection Practices Act provides that if you receive a collection notice and thereafter send a letter requesting verification of the debt, the creditor cannot take legal action until it provides written verification. If you ask for information about the debt, such as the payment history and amortization schedule where applicable, this information as to be provided before the creditor can proceed with a lawsuit. The creditor’s failure to respond to your dispute and request for verification can be used in court to defend or delay collection suits. If you receive information from the creditor you may write back stating the information is insufficient or unclear and demand more information.

There is not special language needed to dispute a debt or request verification. A debtor could simple write that, “I dispute this debt”, or “please send verification of the debt”, or “I’m not going to pay this debt and you can’t make me.” Requests for information about a debt or debt disputes is an easy way to delay collection lawsuits without hiring an attorney, and you get the satisfaction that you are annoying your creditors.

posted by Jonathan Alper, asset protection and bankruptcy lawyer, Orlando, Florida

Asset Protection Does Not Protect Against All Legal Risk

Asset protection planning is designed to protect debtors against civil money judgments. There are other types of legal liability for which asset protection is less effective including, for instance, court orders which demand that a defendant turn property over to the court or a plaintiff. These orders often come in the form of disgorgement orders or turnover orders. When a defendant is found to have obtained money wrongfully in violation of various federal laws such as regulatory statutes and regulations the court may order the defendant to disgorge the money to the court or the agency. Agencies such as the SEC or FTC frequently seek disgorgement remedies in federal court. Or, bankruptcy trustees frequently seek turnover orders requiring third parties to turn over to the trustee specific funds which the bankruptcy court believes is part of a debtor’s bankruptcy estate.

Failure to comply with these civil remedies is punishable by contempt and incarceration. Asset protection planning is less effective against this type of civil liability. The principal defense against civil contempt is impossibility of performance. Offshore trust planning is designed, in part, to afford the impossibility defense to defendants. Offshore trust documents on their face make it impossible for the beneficiary to demand return of funds, yet most offshore planning is not properly or effectively implemented. Other Florida exemptions such as homestead protection, annuities, and tenants by entireties do not provide reliable defenses against civil contempt although they are effective defenses against collection of state court money judgments.

Effective asset protection starts with identification of the nature of legal risk. Many people who begin asset protection planning after they encounter legal problems do not understand the nature of civil remedy they face. A legal problem which at worst will result in a money judgment indicates one set of asset protection tools. A more serious legal problem which could result in court orders enforceable by contempt proceeds indicates more extreme asset protection planning with a lesser chance of success. Before you seeks asset protection advice you should understand your legal risks.

Protection of Partnership/LLC Interest in Bankruptcy

Family partnership and limited liability companies provide asset protection in state court collection proceedings because creditor’s collection tools are limited by Florida statute to a charging lien on distributions. Less clear is how a debtor’s partnership interest or LLC interest would be treated if the debtor filed bankruptcy. The bankruptcy trustee is not necessarily limited to collection tools set forth in Florida’s partnership and LLC statutes.

In a case where a bankruptcy debtor own a minority LLC or partnership interest, could the trustee force the partnership/LLC to sell all of its assets at a “fire sale” after which the trustee would take that part of the net sales proceeds allocated to the debtor’s minority interest, or could the trustee sell only the debtor’s interest subject to the provisions of the partnership/LLC agreement without disturbing partnership assets. The value of a minority interest in a partnership/LLC subject to the provisions of the agreement and rights of other partners would most likely be much less then cash proceeds from a liquidation sale. Also, a partnership/LLC agreement may give other partners the right to purchase the debtor’s interest for cash at the fair market value of the minority interest, thereby preserving partners’ interest in the entity and the assets.

The 11th Circuit Court of Appeals issued a decision on this issue in April, 2005. The court decided that a bankruptcy trustee may not force partition of a partnership and a liquidation of partnership property in order to convert to cash the interest of a minority partner who filed bankruptcy. The court found that the trustee’s right to partition is governed by state law, and that the state statutes did not provide for forced partition. The bankruptcy trustee was not allowed to force sale of partnership property, and the trustee’s remedy was limited to sale or recovery of fair market value of the debtor’s minority interest subject to the terms of the partnership agreement. The case is: Leo v. Powell (In re Powell), 2005 W.L. 1155176 (Bankr. N.D. Ala., April 20, 2005)

posted by Jonathan Alper, asset protection and bankruptcy lawyer, Orlando, Florida

Bloomberg Asset Protection Article

For those of you who enjoy reading national articles about asset protection visit a recen article in Bloomberg's online financial magazine. Link: Bloomberg.com: Bloomberg Wealth Manager Magazine.

Asset Protecting Causes of Action

Asset protection planning often overlooks the value of claims or lawsuits the debtor has against creditors or other third parties. For example, I consulted with a client who owed another state a substantial income tax debt because a large tax shelter was disallowed by the IRS and subsequently the state revenue department. The client had liquidated most of his assets to pay the IRS, but he wanted to protect what he had left from the state. The client had several lawsuits pending against accounting firms, lawyers, and financial firms which issued opinion letters to the effect that the tax shelter was legally valid— which it was not. The state department, or any other civil creditor, could easily levy upon the client’s claims and lawsuits against the third parties who caused his tax liability. Most of any settlement would go to pay taxes. It is very difficult to protect causes of action, in part, because they are matters of public record once filed in a lawsuit. There is little market to sell or encumber a lawsuit whose outcome is uncertain. Any attempted assignment would not survive fraudulent conveyance allegations. Asset protection planning of potential causes of action is best done before litigation is begun.

Best Way To Get Credit Report

Some asset protection and many bankruptcy clients have asked me how they can get a credit report for free. The Orlando Sentinel ran a column last week instructing people how they can check their credit and get their credit score. Previously, you could get a free credit report by being turned down for a credit application. Now, getting a free report is easier because the law requires each of the three major credit reporting agencies to give you a free credit report once a year. You can get an immediate copy of your credit report online at annualcreditreport.com. You can get a free report from just one or all the agencies. For a small fee, you can also request your current credit score

Finding Relief From A Receiver

Previous post have discussed an aggressive creditor collection tactic to collect judgments against Florida residents from courts outside of Florida. Briefly, the creditors had the foreign court appoint a receiver over the person of the debtor and all his non-exempt personal property. The receiver obtained an order from the foreign court ordering the Florida debtor to appear with his non-exempt personal property in the foreign court house and hand over the property to the debtor. The creditor asked for specific personal property owned by the debtor. When the debtor does appear at the first scheduled hearing with his property, the creditor seeks an order holding the Florida debtor in contempt and ordering his arrest. Two of my clients are currently under this type of receivership attack

The first client appears to have mounted a successful counterattack. I referred the client an Orlando litigation attorney who, working with me, sued the foreign receiver in a Florida court. Our complaint asked the Florida court to declare the debtor’s specific personal property to be exempt from process under Florida law and therefore not subject to collection by any foreign receiver. The Florida court gave us what we asked for. The Florida court issued an order finding, item by item, that the client’s personal property is exempt from levy, that he has no non-exempt property, and ordering the receiver to stop further levy upon this exempt property. We sent the order to the debtor foreign counsel to quash the receiver’s continued attempt to seize the property in Florida. When faced with a foreign receivership over a debtor and his personal property, it seems that the best defense is to open a proceeding in Florida, name the receiver as defendant, and ask to Florida court to decide whether specific property of the debtor is exempt under Florida law.

posted by Jonathan Alper, asset protection and bankruptcy lawyer, Orlando, Florida

Legal Defense Insurance For Physicians

At a party I attended last week I spoke with an orthopaedic surgeon who had dropped malpractice coverage about a new insurance policy that covered only the cost of legal defense. This insurance paid up to $100,000 for legal fees required to defend a malpractice action, but he insurance provided no benefits to the plaintiff and his attorney in the event the jury awarded damages. The legal defense policy for this specialty was less than 20% of the cost of typical malpractice insurance.

Legal defense insurance is designed for physicians who have implemented asset protection planning. The theory of legal defense insurance is that once the plaintiff’s attorney finds out that there is no pot of liability insurance to pay legal fees and an award to the client, and where the doctor has ample funds to defend a lawsuit making the plaintiff’s victory uncertain, difficult, and expensive, the plaintiff’s attorney will be reluctant to take on even meritorious cases.

I spoke with Mr. Scott Stein who writes liability insurance for doctors and other professionals. Mr. Stein says that there are two principle companies selling legal defense coverage. One company is Gulf Atlantic and the other is Evanston Insurance. He prefers Evanston’s policy for several reasons. One reason is that the Evanston policy cannot force an insured doctor to accept a settlement and discontinue the legal defense, and another reason is that Evanston has a 30 year history in the area of professional liability insurance. To date, legal defense insurance is not available for businessmen or professionals other than physicians.

Legal defense insurance presumes effective asset protection planning put in place well before a lawsuit is filed. This is an example about how insurance and legal planning work together to provide the best overall protection. If you are a physician who has in place an effective asset protection plan and who wants more information about legal defense coverage, contact Mr. Stein at 954-349 6250. Thanks to Stuart Morris, Esq., an asset protection attorney in Palm Beach County, Florida for introducing me to Mr. Stein.

posted by Jonathan Alper, asset protection and bankruptcy lawyer, Orlando, Florida