Florida Asset Protection Blog

Protection From Self Settled Irrevocable Trust

A prospective client had established several years ago an irrevocable trust. The trust provided that all income be paid to the client, settlor, during his lifetime, and that upon his death the balance of trust property went to other named beneficiaries. The trust agreement had a spendthrift provision which says the settlor’s income interest could not be assigned or attacked by his creditors. The prospective client thought that his interest was protected because the trust was irrevocable and because of the spendthrift agreement. I advised him that this trust would not protect him from creditors and that it would not survive a bankruptcy.

This trust is a “self settled trust” because the settlor established the trust for his own benefit during his lifetime. Florida courts have held that spendthrift protection set forth in self-settled trusts is invalid against creditors. The courts have found that public policy prohibits debtors from putting money in a trust and retaining a beneficial interest in the money. That the trust is irrevocable, or that the ultimate beneficiaries are people other than the settlor, does not solve the problem. A creditor or bankruptcy trustee could take the settlor’s lifetime income interest. The income interest could be sold for its present value based on the settlor’s age and the amount of monthly income.

One solution would be for the trustee of the trust to invest all the trust property in an annuity which pays current income. The trust distributions would represent proceeds of an annuity which proceeds are exempt from creditors under Florida statutes.

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

Tenancy By Entireties Protection of Property Outside of Florida

A husband and wife own an investment real property in Florida as joint tenants with rights of survivorship and a vacation home in Tennessee also titled as husband and wife, tenants with survivorship. Both spouses are Florida residents. Florida law, generally, is that all property owned by married couples as joint tenants with rights of survivorship are presumed to be owned by the entireties. Entireties property is immune from the individual creditors of either spouse. The married couple they presumed both properties are protected from a judgment against the husband only. I advised them that the Florida property is protected, but that the creditor can force the sale of the Tennessee vacation home and claim 50% of the net sale proceeds.

The exemption law applicable to real property are the law of the state where the real property is located regardless of the residence of the debtor who owns the property. In this instance, the Florida property’s exemption is under Florida law and the Tennessee property’s exemption is under Tennessee law. When I researched Tennessee law I found their law on entireties much different than Florida. There are cases in Tennessee which hold that a conveyance of real property to husband and wife is presumed to be owned by the entireties unless there is contrary evidence of intent on the instrument itself. Applied to this example, a deed to husband and wife expressly as joint tenants would defeat the entireties presumption in Tennessee. I also saw Tennessee case which said that state that entireties ownership consist of two distinct interests: a present right of possession and a separate survivorship interest. The right of possession is protected from creditors whereas the creditor can levy on the survivorship right.

I am not qualified to interpret Tennessee law, especially as to complex issues like tenancy by entireties presumptions. The point is that if a Florida debtor owns real property in other states he should consult an attorney in the state where to property is situation to determine its protection from creditors. Do not assume that just because you are a Florida resident you can transport Florida’s asset protection laws to other states where you may own an interest in real property.

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

Interesting Question About Tenancy By Entireties Accounts

I am involved in two cases which present an interesting issue about tenants by entireties bank accounts. Property owned by married couples as tenants by the entireties is exempt from the creditors of either individual spouse, but not from joint creditors. The Florida Supreme Court said that in most cases bank accounts owned jointly by spouses are presumed to be owned as tenants by the entireties. The Supreme Court, and previously other appellate courts, pointed out that there are facts which must be established in order for any property to be owned as tenants by the entireties. One such requirement is that the spouses must take title to the property simultaneously during their marriage in order to establish a tenancy by the entireties.. This requirement raises an interesting issue in certain instances.

Suppose that a man and a wife, unmarried, open a joint account with a small opening deposit. Subsequently, the same couple marries and over the years deposits significant money into the same account. The issue is whether this account is protected from their separate liabilities as tenants by entireties property. One view is that since the account was opened before their marriage the account cannot be a T by E account and all money in the account is unprotected joint property. The alternative argument is that while the initial deposit made prior to their marriage is not T by E any money deposited into the account after their marriage is T by E property acquired jointly during their marriage.

The Supreme Court discussed in great detail ownership of bank accounts and other personal property as tenants by entireties but the Court did not clearly consider the question of whether the bank account must meet requirements of T by E or whether money deposited in the account must demonstrate T by E characteristics. I find credible argument on both sides of this issue, and it will be interesting to see how courts resolve the question.

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

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Debtor's Liability To Pay Creditor's Attorneys Fees In Collection of Judgment

A frequent asset protection question is whether engaging in a transfer of assets later found to be a fraudulent conveyance subjects the debtor to an award of additional damages. Neither the Florida Statutes, nor case law, provides that a creditor can add damages to the amount of its underlying judgment for damages because the debtor attempts to transfer or convert assets to avoid collection of the judgment. On the other hand a relatively unknown statute provides that a fraudulent conveyance can trigger a creditor’s right to collect attorneys fees.

As a general rule, a creditor cannot collect attorneys fees spent to collect a money judgment. However, Florida Statute 57.115 provides that a court may, but is not required to, award attorney fees a creditor incurs in connection with execution on a judgment especially when the court finds the debtor attempted to avoid or evade payment of the judgment. A fraudulent conveyance after or soon before a judgment is entered provides a good basis for the creditor to seek attorneys fees to undo the fraudulent conveyance and to collect the money judgment.

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

Proceedings Supplementary

Occasionally, I will help creditors collect a judgment from debtors who are trying to hide assets. Working for the “dark side” once in a while helps me design better asset protection plans because I can see the collection process from a creditor’s vantage point.

When a debtor has made fraudulent transfers or conversions to evade collection, I find that one of the most effective collection techniques is a “proceedings supplementary” under Florida Statute 56.29. The statute provides that upon the creditor making a motion the court may order the debtor to appear in court and testify under oath before a judge or magistrate. If upon examination it appears that within a year before service of process the debtor transferred money or property to a spouse, friend or relative the debtor must prove at the hearing that the transfer was not made to defraud creditors. Friends or family members who may have received fraudulent conveyances may be called as witnesses. If the court concludes that there has been a fraudulent conveyance the court shall order the sheriff to take possession of the property conveyed. Costs and attorneys fees may be taxed against the debtor.

I have found that debtors who attempt to evade or partially answer questions at a deposition are more honest and straight forward when testifying in court when the judge has the right to order the sheriff to immediately repossess property from the hands of the debtor’s family members or friends who were the recipients of his fraudulent conveyances. In addition to a proceeding supplementary the creditor can file and serve upon the debtor’s fraudulent transferees a fraudulent conveyance complaint naming the recipient family members and friends as defendants. Potential debtors need to understand the weapons at the disposal of skilled and aggressive creditor attorneys.

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

Can A Boat Be Your Homestead?

A man buys a 35 foot sailboat. He removes the onboard motor, and docks the boat. He attaches a generator to the boat and moves onto the boat as his principal residence. He maintains the boat permanently at the docking facility, never sailing the boat for commercial or recreational purposes. The question is whether the boat qualifies as his homestead for purposes of creditor protection.

A state appeals court in Miami issued a decision in 1994 which held that a debtor’s houseboat qualified as homestead property. Other court decisions have broadly applied homestead protection to all sorts of legal or equitable interests in a variety of residential arrangements. However, several bankruptcy courts have narrowed homestead exemption as applied to boats. Many bankruptcy decisions is that homestead protection should be afforded only to boats designed and built as residences: houseboats. On the other hand, a decision in bankruptcy court of Florida's southern division protected a boat which ws equiped to function as a dwelling, was permanently docked, and was the debtor's only residence. To be conservative, however, a Florida debtor should assume that boats designed for recreational or commercial use do not qualify as homestead even if these boats cannot sail without repairs or improvements and even the debtor attaches the boat to a dock and uses the boat as his primary residence. In other words, the majority, but not all, of bankruptcy courts are saying that even if a boat is used as a homestead its not a homestead unless it looks like a homestead.

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