Florida Asset Protection Blog

How Long Does A Judgment Last?

I received a call from a doctor who had his checking account garnished by a creditor who obtained a judgment over 10 years ago. The caller had found by his own research that judgement liens expire in 10 years, and he asked how the creditor could apply his judgement which is now over 10 years old to garnish a bank account.

The caller confused judgments and judgment liens. A judgment lien is the recording of a certified judgment with the Florida registry. The recording gives the judgment holder priority over judgments subsequently recorded. Any proceeds from the forced sale of debtor’s property subject to the judgment will go to pay priority judgment liens first, and money left over, if any, is applied to the junior liens. Property such as homestead is not subject to judgment liens. After 10 years the first recorded judgment lien loses its priority standing

Judgments which are not recorded as liens, or are recorded as junior liens, are still valid judgments which can be executed against the debtor’s property. A judgment creditor may garnish the debtor’s bank accounts even if the creditor has not recorded its judgment or has recorded in second place. Florida Statute 55.081 states that judgments are good for 20 years. Therefore, 10 years after this caller’s creditor had obtained a judgment and recorded the judgment the creditor may have lost the priority of his recorded lien, but the judgment was still in effect and could be used to obtain a writ of garnishment.

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

Offshore Planning Requires Tax Reporting

When people use offshore trusts and some offshore limited liability companies for asset protection they are required to submit to the IRS some informational tax filings. For example, US Citizens (including
dual citizenship), who have bank accounts or investment accounts in a country outside the United States, they must file an annual Treasury Department form TD F 90-22.1 every year, or there are civil and possibly criminal penalties for non-compliance. People with offshore accounts must find a CPA who is experienced in international tax to make sure that all required tax forms are being filed.

Thoughts On Partnership Asset Protecton

There is confusion among clients and attorneys regarding asset protection of a general partnership interest. A limited partner’s interest in a limited partnership is shielded from creditors by virtue of the limited creditor remedy afforded by Florida statutes. The statutes provide that the creditor of a limited partner can get only a charging lien against distributions of cash, if any, which the general partner makes to the limited partners. There is widespread agreement and understanding that in a general partnership, where all partners are general partners and equally liable for partnership debts, the charging lien restriction does not apply. The Florida statutes do not limit a creditor of a partner in a general partnership to a charging lien, and court decisions have permitted a creditor to seize and foreclose a partner’s interest in a general partner. What seems to be misunderstood and subject of disagreement is the right of a creditor of the general partner in a limited partnership. Is this interest treated as a general partnership interest or a limited partnerships interest with charging lien protection. Upon researching the issue, I believe that the interest of a general partner in a limited partnership enjoys the same protection afforded to the interest of the limited partners, that is, the charging lien is the creditors only collection remedy. Here’s why:

The Florida Limited Partnership Act (FLPA) states that the creditor of a “partner” can get nothing more than a charging lien against the partner’s interest in the partnership. The same Act defines a “Partner” as “a limited partner or a general partner.” One of the leading cases on partnership protection, the Givens case from the Fifth District Court of Appeals in 1999, discusses the charging lien remedy as applicable to limited partnerships (not limited partners), and the court said that general partnerships (not general partners) do not have the same asset protection status. Therefore, both the express provisions of the FLPA and applicable case law suggests that it is the nature of the partnership itself and not the nature of the partnership interest which determines the creditor’s remedy.

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

Protection of IRA Accounts Opened Outside Florida

I received an email question concerning protection of IRAs from judgments. The questioner asked whether Florida law protected an IRA owned by a Florida resident that was administered in a financial account opened and maintained by the office of a financial institution located in a state other than Florida. My first reaction was that the IRA was protected because the applicable Florida statute does not require that the IRA account be maintained in Florida or that IRA assets be situated in Florida. Also, I know of know case which required that Florida residents maintain their IRA in Florida in order that the IRA be protected from creditors. To be sure, I check with “Professor” Alan Gassman, Esq., who is the premier scholar on Florida asset protection law, and Alan agrees we me. Therefore, I can believe I can state with reasonable certainty that an IRA owned by a Florida resident is an exempt asset regardless of where the IRA account is opened

Tax Reporting For Nevis LLC

Nevis limited liability companies are frequently used as an economical legal tool for basic offshore asset protection. Many Nevis LLCs are formed as single member entities so that the owner can pass through profit and loss and keep tax reporting as simple as possible. Nevertheless, Nevis LLCs, like other offshore entities, entail tax reporting and tax laws which are more complicated than most any domestic entity. It is important for people using LLCs to hire a tax accounting familiar with complex laws about offshore taxation.

As example, the Jacobs Report which is found at offshorepress.com/jacobsreport/ recently published valuable advice about tax reporting requirements for Nevis LLCs. Anyone using a Nevis LLC for asset protection should make sure that their CPA or tax attorney is familiar with the forms and issues mentioned in the Jacobs Report article which follows.

The following advice was published in the Jacobs Report:

"The disregarded entity election with Form 8832 will eliminate
some complicated tax reporting that would otherwise be required for a
controlled foreign corporation, but the IRS now requires taxpayers
with disregarded entities to file a Form 8858 with their tax return.

The tax treatment of foreign hedge funds depends on whether they are
partnerships or corporations for US tax purposes. If they are
partnerships, the income and expenses flow through to the US partners,
but the partners are required to file a Form 8865 -- which is
comparable to a domestic partnership return Form 1065.

If the hedge funds are corporations, then they are subject to the
Passive Foreign Investment Company (PFIC) rules."

The Jacobs Report offers free subscriptions to those who are interested. Thanks to attorney Bernard Singer of Hollywood, Florida for providing this information about Nevis LLCs and about the Jacobs service. Mr. Singer himself is very experienced and competent in offshore asset protection planning.

Interesting Question About Salary Exemption

Interesting question from a client today about salary exemption. Florida statutes exempt from creditor claims salary and other compensation from services of the head of household. To be head of household you have to be providing more than 50% of the support of another person for whom there is a moral support obligation. The supported person does not have to be a child or spouse, and there is no age limitation. Supporting an elderly parent may qualify you as head of household.

This particular client said he paid his father’s ongoing living expenses including medical and other personal care. His father, however, also had substantial liquid assets which if liquidated would more than pay for his own care. The client supported the father on an ongoing basis because the client had far more assets and income. The issue was whether the client could be head of household by virtue of his support of this father when his father had no income but had sufficient assets.

I am not sure of the answer, and I do not know of any cases on point. The statute does not refer to any financial criteria of dependency and does not refer to the net worth of the dependent. My interpretation of the statute is that the test is based on who is paying, out of pocket, the ongoing support expenses regardless of net worth. The statute does not specify that the person being supported demonstrate that he needs all the support he is receiving, or that the head of household is the sole source of support. Based on a literal interpretation of the statute, the client in this instance probably would qualify as head of household by virtue of his payments of his father’s daily living expenses.

On the other hand, a literal reading of the statute may not be fair in this type of case. If a creditor challenged salary exemption in this type of situation a court could find that the client was not entitled to salary exemption because his father was not his dependent, or that he was not morally obligated to pay his father’s living expenses, since his father had assets sufficient to pay for his own maintenance and support.

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

Big Law Firms Don't Do Asset Protection

Many of my clients own successful business and use large law firms for their business legal work. The clients often say that their big firm attorneys provide excellent advice about business planning and tax planning, but that they do not seem able or willing to provide help with their personal asset protection planning (which is why they seek help from me). I have talked to many “tall building” attorney about asset protection, and I find that most do not feel comfortable helping even their best individual clients in this area.

In my opinion, there are two principal rational explanations why big firms do not provide asset protection advice. First, big firms represent, or want to represent, banks, insurance companies, and other similar institutional clients who loan money and most often find themselves trying to collect money from debtors. Attorneys may feel that doing even a small amount of creditor protection work may antagonize these potential institutional clients. Second, there is case law in Florida that attorneys and other third parties cannot be held liable for assisting in what is later deemed a “fraudulent conveyance.” Other states do not have case law which is similarly protective of asset planning. In fact, there are cases in some states including California and New Jersey that have held attorneys liable for their clients’ fraudulent conveyances. If one attorney in a large firm is held liable, the entire firm may be held accountable. Therefore, attorneys around the country, in general, fear providing asset protection advice that involves transactions which could later be challenged under fraudulent conveyance law. Most Florida attorneys avoid asset protection because they believe, incorrectly, that they may be civilly liable for assisting with asset protection.

As a result, most asset protection attorneys practice by themselves or they are members of very small law firms. Business people who seek asset protection advice from their large business law firm are likely to get watered down legal advice that protects the law firm as much as it protect’s the client’s assets.

posted by Jonthan Alper, asset protection and bankruptcy attorney, Orlando, Florida

Recreational Vehicle As Homestead Property

I researched an interesting homestead issue today for a client who is considering selling his current single family home and using the proceeds to buy an expensive recreational vehicle which would become his principal residence. The question is whether a recreational vehicle can qualify as a protected homestead under Florida statutes and case law.

There is a Florida Statute (222.05) which discusses what may constitute a dwelling for homestead pruposes. Pursuant to the Statute the term dwelling includes a mobile home. Chapter 320 of the Florida Statutes pertains to motor homes. The Florida Statues do not address the issue of whether a recreational vehicle which has the facilities for residence, such as cooking and toilet, can be considered a “mobile home” for purposes of Section 222.05 and thus eligible for homestead designation.

Only one Florida case has dealt directly with this issue in the bankruptcy context. The Court said that wether an RV is a motor vehicle or a motor home depends on its use as well as its physical characteristics. If the owner permanently parks the RV, lives in the RV, and has no other residence then the RV has the characteristics of a “motor home” and should be protected as homestead property. On the other hand, a recreational vehicle used more for transportation would be more like a “motor vehicle” not eligible for homestead protection rather than a “motor home.” Other court cases have held that a houseboat used as a primary residence can be a dwelling house and a principal residence because a houseboat is similar to a mobile home. Although houseboats can be moved they are not primarily used for transportation.

As in many homestead issues, the facts of any particular case would determine the result. If an RV owner wanted to use the RV as a principal residence and protect the investment under Florida homestead laws he should arrange for a permanently available rented lot with utility facilities has the RV’s permanent location. The more the RV is used as a touring vehicle the less likely homestead protection would apply.

The applicable cases are In re Mangano, 158 B.R. 532, and Miami Country Day School v. Bakst, 641 So. 2d 467.

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

Is Life Estate Protected Homestead Interest?

What type of legal interest in a house qualifies for homestead protection? For example, a caller asked about a situation where a parent was living with a child and paying some of the household expenses as a form of rent. The parent was being chased by their creditors. The caller was concerned that if a creditor claimed the parent was renting the house the creditor could levy upon the parent’s leasehold interest and cause the parent to be evicted. He suggested that he give the parent a life estate interest in the house by quit claim deed.

I think that the parent’s right to stay in the house would be protected from the parent’s creditors if the parent had a recorded life estate and continued to reside in the house. Homestead protection is broadly construed to protect Florida residents, and a partial ownership interest should qualify as a legal interest protected by homestead. On the other hand, it is unlikely, though possible, that the parent’s right to reside in the house with the child’s permission would be taken by a creditor because the leasehold would also probably be protected under homestead law. I haven't researched the protection of either type of legal interest so my opinion is an educated guess.

Change in Florida Partnership Law

The Florida legislature passed this session a new Revised Uniform Limited Partnership Act. The Act was signed by Gov. Bush on June 20, 2005, and the Act became effective July 1, 2005. The new law potentially affects all family limited partnerships. The purpose of the new law is incorporation of reforms of the model parternship act developed by the National Conference of Commissioners on Uniform State Laws. The main practical effects concern mergers of different business entities. I have not read the full text of the bill, but summaries of the new law indicate no change in asset protection features of limited partnerships in Florida. The new bill is CS/SB 1056. More information is available at Florida's government website: http://www.leg.state.fl.us/Welcome/index.cfm

What is Nevis?

Much of my offshore asset protection work involves legal entities in the island of Nevis, West Indies. Nevis has the best foreign limited liability company statute, and its offshore trust laws are considered among the best offered by foreign jurisdictions. Many of my clients who have used Nevis legal entities know little or nothing about this small country. This past week I made my first trip to Nevis to learn more about this island. Here are some things I learned about Nevis:

The correct pronunciation emphasizes the “e”: The country is called “knee-vis” , not “neh-vis”

Charlestown , the capital of Nevis, is the only city on the island and it is very small. Charlestown is about three blocks long and two blocks wide. Nevis probably has a government and a judicial system, but I walked all around Charlestown and saw no government buildings. I could not find the courthouse.

Nevis has one national bank called the Bank of Nevis. I went inside the lobby where I saw many people lined up to do banking transactions. The lobby is very small and not air-conditioned. The bank has recently appointed an English banker to handle offshore accounts. His office is in a separate building, and this office is air-conditioned.

There is one two-lane highway which circles the island. All other roads are in horrible repair, filled with potholes.

I presume the national symbol of Nevis is the goat. There are wild goats everywhere. There are goats along the side of most roads; there are goats in the middle of the smaller roads; goats roam people’s yards. I heard there are more monkeys than goats, but the monkeys stay in the forest.

There are fantastic places to stay in Nevis. There is a Four Seasons resort, and there are old plantations converted into resorts even more luxurious than the Four Seasons.

In addition to the nice vacation resorts there seems to be a small number (probably less than 50) very nice, modern homes. Everyone else is poor by U.S. standards.

The people of Nevis are extremely friendly and trustworthy. You feel very safe in Nevis.

Nevis opened a new airport in 2002. Its horrible. There is almost no air-conditioning. No food. The water fountain in the waiting area does not work. Security is not up to U.S. standards- one scanning machine and one security guard, and the guard was off talking to a friend when I got to the security machine.

All things considered I like Nevis, and I feel comfortable using the county in asset protection planning. Most importantly, if you decide to create a Nevis trust or a Nevis LLC and actually transfer money to offshore accounts under these Nevis entities you should first visit the island yourself, meet the people you’ll be doing business with, and make sure you too feel comfortable with a Nevis based plan.

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