Florida Asset Protection Blog

Florida Repeals Joint and Several Liability

This week the Florida legislature voted to eliminate the common law doctrine of joint and several liability. The Governor promised to sign the bill. Under the current law, joint and several liability applies in modified form to economic damages but it had been previously dispensed with for noneconomic damages in favor of a comparative fault approach. The new law eliminates joint and several liability completely.

Joint and several liability is the legal theory by which plaintiffs go after “deep pockets” in lawsuits for negligence and other torts. Under this long standing legal principal all defendants are individually liable for the total amount of the plaintiff’s damages regardless of their proportionate degree of fault. This principal encourages plaintiffs to sue every possible defendant because if any defendant is found liable to any degree, for any reason, they are subject to pay the entire amount awarded to the plaintiff. . Under this theory each defendant is made the guarantor of the obligation of all persona found to be at fault for a particular injury. Under the new law, one’s degree of liability would be limited to one’s degree of fault. For example a defendant found 10 percent at fault wold be 10 percent liable for damages.. This bill is an important step in reducing businesses’ exposure to lawsuits and makes Florida a more attractive state for business formation.

posted by Jonathan Alper, asset protection and estate planning attorney, Orlando, Florida

Tenancy By Entireties Ownership of Personal Property: Summary of Court Rulings

The Beal Bank decision by the Florida Supreme Court in 2001 established a presumption that all bank accounts owned jointly by a husband and wife were presumed to be owned as tenants by entireties and protected from the judgment creditors of either spouse, individually. No protection afforded against joint creditors. Since Beal Bank different courts in different jurisdictions have addressed whether the presumption afforded bank accounts in the Beal Bank case extends to other forms of personal property. While these court decisions are not uniform, most courts have held that all jointly owned personal property is presumed to be held as tenants by entireties.

In the 2002 case of Cacciatore v. Fisherman's Wharf Realty Ltd. Partnership Florida’s Fourth District Court of Appeals held that brokerage accounts titled jointly by husband and wife are presumed to be tenancy by entireties accounts under the rationale of the Beal Bank case. In 2005, The Fifth District Court of Appeals, in Xayavong v. Sunny Gifts, held a rebuttable presumption of tenancy by the entireties to financial accounts, and apparently to other personal property, held by married couples, provided the property in question is imbued with the requisite unities of possession, interest, time, title, survivorship, and marriage.

Two bankruptcy courts have followed the Cacciatore holding. A bankruptcy court in the Middle District of Florida concluded that, “Accordingly, this court finds little basis or reason to distinguish among the various types of personal property in applying the tenancy by the entireties presumption. Where the required unities are present, the court concludes that Beal Bank's presumption can and should be extended to include all marital personal property, not just financial accounts” In re Daniels 309 B.R. 54. In the case of In re Kossow, 325 B.R. 478, a bankruptcy judge said that, “The Court finds that the policy justifications offered by the Florida Supreme Court in Beal Bank should be applied to all personalty.” This case applied the presumption of protection to household furniture and joint tax refunds.

Only one bankruptcy court reached a contrary conclusion, holding that “the Court declines to extend the holding set forth in Beal Bank, and finds that a presumption of tenancy by the entireties does not extend to all personal property” In re McAnany 294 B.R. 406.

For planning purposes, the weight of authority supports the presumption that any tangible or intangible property owned jointly by husband and wife is protected tenants by entireties property.

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

Court Upholds Homestead Protection For Living Trust Property

I have written previously about whether a residence owned by a debtor’s living trust is entitled to protection against creditors afforded by the Florida Constitution. The Constitution protects homesteads owned by “natural persons.” Some creditors have argued that a homestead occupied by the debtor but legally titled in the name of the debtor’s testamentary living trust is not protected because it is owned by an entity (the trust) other than a natural person. Several years ago a bankruptcy court denied homestead protection to a debtor’s property titled in a living trust. However, a subsequent Florida appellate case from the Third District Court of Appeals reached the contrary conclusion an upheld homestead status to a property held in a living trust.

Just last month, February, 2006, the Fourth District Court of appeal in the case of Engelke v. Engelke held that a residence owned by a living trust is entitled to homestead protection. The Court said that a property held in a debtor’s living trust is owned by a “natural person” for purposes of Constitutional homestead protection. There are now two state court cases from different districts decided after the previously mentioned bankruptcy case which have sustained homestead protections to properties held in a testamentary revocable trust.

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

A Different Equity Stripping Plan

Equity stripping involves encumbering equity in an asset such as real estate or receivables in order to secure a loan. In some instances equity stripping may not be available because, for instance, the assets sought to be protected are not acceptable to lending institutions as collateral or the debtor’s credit does not warrant a loan regardless of the nature of collateral offered. Another problem with standard equity pledging is that the loan proceeds received become a pot of non-exempt cash in the debtor’s hands. One of my existing clients presented an interesting variation of equity stripping protection that could work in some otherwise difficult situations.

The client’s idea was for him and an associate to create a new business in the form of a limited liability company. The business could be an operating business or an investment enterprise. The business agreement would require each of the partners to guarantee a substantial amount of future capital contributions. To secure their future capital contributions the debtor and his associate each pledge non-exempt assets to the business entity and file a UCC-1. If the business entity can demonstrate validity, and if the parties demonstrate bona fide consideration for the pledge to make capital contributions, the proposed arrangement could effectively protect equity in the assets pledged. The debtor/client does not receive non-exempt cash in return for the asset pledge which cash would create a new asset protection challenge. Instead, the client gets only a LLC membership interest which is somewhat protected from judgment creditors by virtue of the limited charging lien remedy provided by Florida law.

I am not aware of any court decision concerning the validity and asset protection of a lien on non-exempt assets to secure a future capital contributions. As in the case of most asset protection tools, this solution works to the extent of its underlying business validity.

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

Does Prison Time Forfeit Homestead Protection?

A Florida resident can temporarily move out of his Florida residence and still claim the residence as his homestead as long as he demonstrates the intent to return to the property as his permanent home. What happens if a Florida resident has to leave his house to serve prison time for a criminal offense ? Someone inquired whether they could maintain homestead protection if after moving to Florida they were sentenced to prison in another state for a term of about six months. The question is whether forced incarceration out of the homestead constitutes the abandonment of the homestead property.

I don’t know of any cases addressing this issue. Most cases of homestead abandonment involve a debtor who purchases another home and either rents out or lists for sale his former homestead. Any facts showing an intent never to return to the original homestead, or the occupancy of a new permanent residence indicates the intent to abandon the former homestead. In my opinion, the length of incarceration would be an important factor in the above hypothetical. Certainly, life or long-term imprisonment would probably strip the debtor of homestead protection. On the other hand, a debtor sentenced to prison for a year or less, even outside of Florida, could probably convince a court of his intent to return to his permanent Florida residence.

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

Equitable Lien on Homestead

The Florida Supreme Court has ruled that debtors can purchase a homestead in Florida to avoid creditors’ judgments and the creditor cannot undo the home purchase under Florida’s fraudulent conveyance statute. This well-known exception to fraudulent conveyance liability has exceptions. The Court stated that if a judgment arises from acts of fraud or other egregious circumstances then the creditor can have placed an equitable lien on the homestead for the amount of money fraudulently converted into the debtor’s home. The equitable lien cannot force the debtor to sell his homestead, but if an when he does sell, the creditor gets paid the amount of his judgment lien.

There are few, if any, court decisions about what acts constitute egregious circumstances justifying an equitable homestead lien under the Supreme Court’s pronouncement. Recently, I consulted with a client whose actions as alleged probably fits under the definition of egregious circumstances. The debtor in this case was appointed personal representative of an estate. The will declared that the same personal representative could live in the decedent’s house as long as he wanted, but when he sold the house the proceeds were to be held in trust for other heirs. The personal representative sold the house, and believing that the other heirs had waived their interest in the home, invested most of the sale proceeds in a Florida homestead. Although the facts alleged in this case may not constitute fraud, they sufficiently allege a breach of fiduciary duty which is a close relative of common law fraud. Allegations in a complaint are a far distance from proof, yet the situation alleged probably is an example of a situation where a Florida homestead is not a viable asset protection solution.

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