Florida Asset Protection Blog

Homestead Or Annuity Purchase After Lawsuit

A reader asked whether it matters if he purchases a Florida homestead or a Florida annuity before being served with a lawsuit, and whether he could purchase these assets even after a judgment is entered against him. The answer is much different for an annuity and a homestead. The purchase of an annuity is subject to challenge as a fraudulent conversion of assets if the annuity is purchased any time within the four year statute of limitations. The closer the annuity purchase is in time to the lawsuit, the harder it would be for the debtor to defend a fraudulent conversion action after judgment. An annuity purchase after judgment, or even after service of a lawsuit, would be very difficult to defend unless the purchase has clear and strong financial advantage.

Homestead purchases are subject to different rules. I have discussed many times on this blog that under ruling of the Florida Supreme Court a homestead purchase, including payment toward the mortgage on an older house, is mostly exempt from fraudulent conveyance attack. In the case of homestead, it generally will not make any difference if this reader invested money in a Florida homestead after being served with a lawsuit.

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

Two Homestead Questions

I received two short homestead questions this week. The first situation involved a homeowner who failed to pay an assessment made by his homeowners association. The Association placed a lien on his homestead for the amount of the unpaid assessment. The homeowner asked if the Association could kick him out of his house. The Association’s lien is in the class exceptions to the Constitution’s homestead protection. The Association can sue to foreclose the lien, and the lien foreclosure would have the same consequences as a mortgage foreclosure.

The second question came from a homeowner whose homestead property was situated on a one-acre lot within a municipality. The homeowner wanted to know the extent of his homestead protection. A creditor with a judgment could force the sale of the property and the homeowner would be entitled to 50% of the sale proceeds. The allocation is based on the ratio the ½ acre exemption and the total lot area. The homeowner cannot allocate his ½ acre exemption to that part of the property on which his residence is constructed.

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

WSJ Article About Florida Homestead Tax

The May 22, 2006, print edition of the Wall Street Journal included an article about higher property taxes assessed to nonresident owners of Florida real property (“snowbirds”). The article stated that a snowbird can become a Florida resident by filing an affidavit of residency in order to qualify for property tax savings. The affidavit may work for establishing residency for tax purposes of Florida’s homestead tax benefits, but establishing residency for protection of homestead from creditors is more complicated than filing an affidavit. I have written previously many blog entries about establishing Florida residency for asset protection and homestead. The Journal article may be accurate as to property taxes, but do not confuse residency for property tax purposes with residency for homestead protection. Protection from creditors requires substantially more evidence of domicile in Florida than merely filing an affidavit

Garnishment of Charity's Bank Account

Creditor obtained a judgment against a charitable organization which had registered with the IRS as a 501(c)(3) organization. The creditor garnished the charity’s bank account. A representative of the charity asked me if the garnishment was legal because the charity’s bank account contained gifts from donors who understood their donation would be used for charitable purposes.

Without researching the issue I responded that the garnishment was proper assuming it was conducted according to the statutory procedures for garnishment. Florida statutes include no exemption for charitable organizations and no exceptions from garnishment for funds donated with charitable intent to an organization.

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

Judge Finding Loophole in Homestead Protection

Can a judge in another state enter a judgment against a Florida resident that circumvents the debtor’s homestead exemption? One of my clients is facing a judgment in the state of his former residence which may effectively take his homestead to satisfy an obligation to the plaintiff in that case. The facts are that my client received funds from a trust which were improperly distributed by the trustee to the detriment of the intended trust beneficiary. There were no allegations of fraud or breach of fiduciary duty against my client. Upon receiving the money from the trustee my client moved to Florida and bought a home with the money. The trust beneficiaries sued the trustee and my client in seeking return of their rightful share of the trust money. The judge found my client liable to return the money , the judge imposed a “constructive trust” on the client’s homestead in favor of the plaintiff trust beneficiaries. Plaintiff’s will domesticate the foreign judgment which will result in a Florida judgment stating that the client’s homestead is subject to a constructive trust for the plaintiff’s benefit.

A constructive trust is a statement of ownership granting to the beneficiaries, in this case the plaintiffs, an equitable right to the homestead. The issue is whether the judgment of constructive trust determining ownership rights effectively circumvents Florida’s constitutional homestead protections. There are Florida cases imposing equitable trusts or equitable liens on homestead in situations with different facts. Most of these cases are prior to the Havoco decisions which limited equitable rights against a debtor’s homestead to cases of fraud or egregious circumstances. However, the Havoco case involved fraudulent conveyance which is not an issue in this case.

My initial research did not find a Florida case directly on point. In my client’s defense, it is not clear whether a judge in a different state has jurisdiction to determine equitable ownership interests in Florida real estate by virtue of constructive trust or otherwise. Additionally, there are Florida cases which describe a constructive trust as a remedial tool. In that event, a Florida court may not permit imposition of a tool to collect money owed the trust beneficiary plaintiffs which contravenes homestead protections in our Constitution. Yet, it is possible a Florida court may simply enforce the finding of the foreign court after the judgment is domesticated. If the judgment were upheld it would provide judges around the country a way to craft a money judgment in appropriate cases that cannot be avoided by the debtor’s purchase of a Florida homestead.

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

Homestead Protection For Aliens

I get frequent questions about what is required to become a Florida resident in order to benefit from Florida homestead protection and other creditor protections under Florida law. Not infrequently, this question comes from people who are not U.S. citizens but who reside in Florida. Several bankruptcy court decisions have held that people without “green cards” which entitled them to permanent U.S. residency are not entitled to homestead protection. The bankruptcy courts ruled that non-citizens without green cards cannot by law intend to make their Florida residence a permanent residence until they have the legal right to remain in Florida permanently under immigration laws. There have been relatively few decisions on this issue in Florida’s appellate courts. However, during the first week of May, 2006, the Second District Court of Appeal (“DCA”) issued an opinion consistent with prior bankruptcy court opinions.

The DCA held that a debtor with a temporary visa could not form the requisite intent to become a permanent Florida resident for purposes of the homestead exemption. The Appellants immigrated from Switzerland and have legally resided in Florida for five years. They had social security numbers and drivers licences, paid income tax, and had filed a Declaration of Domicile in Florida. Nevertheless, the DCA held that they were not permanent residents of Florida. The Court cited a 1963 case by the Florida Supreme Court which held that an alien residing in the U.S. with a temporary visa does not have the legal ability to convert a temporary residence into a permanent home. The decision went further to discuss various guidelines of permanent residency provided by different Florida statutes and by the Florida Administrative Code. The DCA case has not been assigned a citation reference. The DCA Docket No. is 2D05-1880.

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

Question From Reader

A reader seeking help asked me to post a question on the Blog to see if any other reader may help him. I don't provide legal advice by email to people who post comments, but this seemed to be an interesting and not uncommon situation. If you have an opinion, please email the reader at the email at the end of the question.

Here's the question (unedited)

In Sep 1998 a standard revocable trust was established for my parents who resided in Boca Raton.Florida (I reside in New York).
The name of the trust was "John Doe and/or Jane Doe(my mother who died 5 y ago) and/or Stanley Doe(my name) as trustees of the John and Jane Doe revocable trust dated Sep 17th,1998" I am one of the co-trustees.
The trust as well as the will stipulated that I will inherit all assets .Recently my 96 y old father who although understandably somewhat cognitively impaired is MENTALLY COMPETENT, met a woman 25 years his junior who convinced him to marry her and to change his will which will make her the sole beneficiary of his small estate(less than $100.000 in CD’s,checking accounts and US Gov EE series bonds).

Since his future wife, a classical gold digger, is likely to spend all his money and then to abandon him, is there anything I could do considering the fact that I am still a co-trustee to prevent my father’s wife from spending his money when he is still alive and/or inheriting his assets upon his death.?My father will probably get married in the next few weeks. I suppose that if he revokes the trust I will loose all my rights and keeping his money over his objection would be probably illegal(breach of trust) for me to do. I might add that I have his power of attorney to take care of banking transactions,bonds transactions and all other matters. but it is probably unimportant since I believe that the trust replaces the power of attorney. Could I transfer the money which is in the name of the trust to my personal account, perhaps as a loan, to which I believe I am entitled to, as stipulated in the trust.This at least may buy some time. although eventually I suppose that I will have to return money to him if and when he revokes the current trust and establishes a new one

Thank you for your assistance in this matter.

Sincerely,

(name withheld)

E mail address: mopamopa1@aol.com

Aggressive Creditor Collection Tactic

Some creditors are smart; some are devious, and others are both smart and devious. Here is an example of the latter type of creditor from an inquiry I received this past week. Creditor files a lawsuit. Defendant hires an attorney to defend the lawsuit. The creditor wins a large judgment against the defendant. When creditor tries to collect the judgment he finds that the defendant has no collectible assets. Creditor tells the defendant that defendant’s attorney “screwed up”, and that absent the negligence of defendant's attorney the creditor states that the defendant would have won the case. This makes the debtor/defendant angry at his attorney so he sues attorney for malpractice. The attorney has malpractice insurance. After the suit is filed the creditor did one of the following ( it wasn’t clear from conversation) : the creditor either levies upon the defendant’s cause of action against his own attorney or any insurance proceeds therefrom, or he joins forces with defendant to help fund and prosecute malpractice action against defendant’s attorney in exchange for a share of insurance recovery. The creditor now has the attorney’s insurance policy as a source of money to recover what he could not otherwise recover from the judgment proof defendant.

This story illustrates an important lesson of asset protection. Never assume your creditors or their attorneys are stupid, lazy, or moral. This is an example of a very clever strategy by a creditor to turn an uncollectible debt into a cause of action against a new defendant backed by a significant insurance policy available to pay claims. Debtors trying to defend collection of a judgment must always be vigilant. The debtor must try to anticipate and prepare for the most aggressive collection tactics. If you relax your asset protection effort you may find yourself unable to repel the type of aggressive collection tactics illustrated by this example.

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

Homestead Inquiry From Snowbird

A reader ask whether she can claim Florida homestead protection on a Florida condominium when he works in New York but plans to live in the Florida condo for six months of the year. The reader states that most of his life is in New York.

This situation does not appeal to qualify for Florida homestead. I infer that the reader does not work in Florida. In order to be sure that his condo qualifies as homestead the reader must create a set of facts from which it is clear that Florida is his primary home. Retirement from the New York job and giving up the New York drivers license and voter registration would help. It is not necessary for this reader, or anyone else, to sell their northern home. Florida is full of “snowbird” residents who maintain a home in their state of origin. Residence in Florida does not require you sever your ties elsewhere, but it does require you to demonstrate an intent to make Florida your primary residence and the place you call home.

Domestic Checking Accounts For Nevis LLC

Some of my clients who formed Nevis limited liability companies report difficulty opening bank accounts at their local banks in the name of their LLC. The bankers stated that they are reluctant to open an account for a foreign entity because of “9/11 issues.” Clients have encountered problems opening accounts for their Nevis LLCs even at banks where the client has a long standing banking relationship.

Some things make it easier to open domestic financial accounts for a Nevis LLC. First, try not to emphasize the foreign situs of the LLC. It is simpler to request an account for a new LLC of unspecified location than it is to approach the banker about a Nevis LLC. Few bank clerks have ever heard of Nevis. Second, obtaining a federal tax number for the LLC should facilitate opening a financial account. Single member Nevis LLCs are disregarded for federal tax purposes so long as you elect disregarded status by filing IRS form 8832. Disregarded entities do not need a federal tax number, but they may elect to apply for a tax number. Having a tax number does not mean the Nevis LLC has to file a federal tax return, but banks will find it easier to open an account for a new business which has its own tax number.

I understand that Bank of America , Wachovia Bank, and CNL Bank all accommodate Nevis LLC checking accounts. CNL is a small bank in the Orlando, Florida area- you should asks to speak with their international specialists at their Winter Park office.

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