Florida Asset Protection Blog

Wage Accounts: Are They Necessary?

Wages paid to the head of household are exempt from creditors, and the wages remain exempt for six month when deposited in a bank account. Many potential debtors set up separate bank accounts which they title as a “wage account” in which they deposit their wages and salary and no other money. The purpose of the wage account is to segregate protected wages and not commingle wages in accounts with money from other sources. The concern is that if the head of household deposit wages in a checking account owed jointly with the spouse or owned by another entity, such as a living trust, the wage protection would be lost. But, are separate wage accounts always necessary?

The statute that provides for the protection of wages from garnishment does not require deposit of protected wages into a separate wage account. In fact, Section 222.11 (3) states that the commingling of earnings with other funds does not by itself defeat the ability of the head of household to trace protected earnings. As long as someone can clearly trace and identity wages deposited into an account the wages are protected. Wage accounts may be helpful, but a separate wage account is not necessary to protect deposited earnings of the head of household.

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

Asset Protection Scams

Many people who contact me by phone or email present questions about other asset protection tools they read about on the internet or hear from friends. Many asset protection plans sponsored by people who are not attorneys are actually scams. As asset protection becomes more popular, and more people facing lawsuits reach out for help, ineffective and expensive asset protection plans marketed under enticing names proliferate around the country.

There is a website dedicated to uncovering both asset protection and tax avoidance scams, especially offshore planning devices. The website is called “Quatloos” and can be seen at http://www.quatloos.com/new.php (copy and paste on your browser). I suggest that if you hear of an elaborate plan to save substantial taxes in offshore jurisdictions or proposals to hide money from creditors in offshore entities you first see if the plan’s sponsor is found somewhere on the Quatloos website.

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

Homestead Protection From Fraud Judgments

An investor writes by email that he lost money in a fraudulent scheme for “gourmet coffee distribution.” The bad guy says the investors can’t touch his Florida homestead. The victim states that he read somewhere that creditors can put an equitable lien on a homestead if the creditor can a judgment based on fraud. He wants to know if he should sue the bad guy for fraud and put a lien on his house. In this case, I think the homestead would be totally protected even though the investor was defrauded.

The fraud exception to homestead is found in the Havoco case decided by the Florida Supreme Court. In that well-known decision, the Supreme Court said that fraudulent conversion of non-exempt assets into a Florida homestead cannot be reversed or undone, except that in the case of fraud or other egregious acts. When there are no fraudulent conveyances the fraud or egregious circumstances exception does not apply. The Florida Constitutional provisions on homestead protection includes exceptions for several claims including security instruments (mortgages) and construction type liens. There is no exception in the Constitution for civil claims based on fraud. Florida appellate courts previously have stated the homestead protection does not differentiate among claims so that judgments based on bad acts cannot force the sale of Florida homestead.

Are There Fraudulent Transfers After Defendant Wins Trial

A judgment is entered in favor of the defendant and against the plaintiff.. The plaintiff files an appeal. The defendant asks whether transfers of non-exempt assets to his spouse after his win in the trial court could be attacked as fraudulent conveyances in the event he loses the appeal and the plaintiff’s case is reinstated.

I think the transfers after initial victory could be considered fraudulent conveyances if the defendant loses the appeal. The judgment in the defendant’s favor is not final until all appeals are exhausted. The plaintiff still has a viable “claim” against the defendant as long as the plaintiff maintains the appeal. In other words, the defendant is not in the clear until he defends his victory in the appellate courts. Therefore, in the event the claim is reinstated by the appellate court any transfer of non-exempt assets still could be subject to reversal if shown to be intended to avoid the plaintiff’s claims.

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

Homestead Owned By IRA

Is your homestead protected if title is held in a Roth IRA? That is a question asked by a recent caller. I have not seen a case on the issue directly. I believe the answer will be “yes” if the beneficiary of the IRA lives on the property.

The Constitution limits homestead protection to “natural persons.” A property owned by someone’s corporation or family partnership probably would not be homestead protected. Yet, many Florida court decisions have held that a person claiming homestead need not hold legal title to the property so long as he has a beneficial interest. Several Florida courts have held that ownership through a living trust- where the debtor is settlor and beneficiary- qualifies as ownership by a natural person.

I think a Roth IRA is similar to a living trust because the person who sets up and funds the Roth is usually the primary beneficiary. Like a living trust, a Roth IRA has contingent beneficiaries upon the settlor/owner’s death.

Roth IRAs allow people to invest after tax dollars in assets and avoid future gain on the sale of the asset. I would like to know why a person would title his homestead in his Roth IRA inasmuch as federal tax law gives generous tax exemption upon the sale of homestead properties anyway. It seems that only a person sure of substantial home appreciation would title their residence in a Roth; but if they do, in my opinion the house would qualify for Constitutional homestead protection in addition to the statutory protection afforded to IRAs and other qualified plans.

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

Entireties Account Decision

An Orlando Florida bankruptcy judge issued a decision in one of my client’s cases which included interesting holdings and valuable instructions on the issue of tenants by entireties bank accounts. My client and her future husband opened a joint bank account. They proceeded to marry. The money in the bank account on the date of their wedding was spent, and over the years it was replaced with new money acquired during their marriage up until the time the wife filed bankruptcy. The question was whether the money in the account was exempt as a tenants by entireties asset.

Tenants by entireties requires that the joint property in question is acquired under certain circumstances, one of which is that the property is acquired at the time the spouses were married. In this instance, the joint account was opened prior to the marriage, but the money in the account on the date of bankruptcy was acquired and put into the account after the marriage date. The question was whether it’s the bank account or the money in the bank account that has to be acquired during marriage. I argued that so long as the money in the account was acquired during marriage it did not matter that the money was deposited in an account set up prior to marriage. The Court disagreed. The Court said that the debtor and her husband should have signed new signature cards after marriage to convert the account to an entireties account. Having failed to do so, all money deposited in the unprotected, non-entireties account became non-exempt upon deposit. In other words, the tainted account removed tenants by entireties protection from jointly acquired marital money.

If you and your spouse had already established joint financial accounts before you were married you should re-sign the signature cards after your marriage, or open new accounts after marriage, in order to have exempt tenants by entireties accounts.

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

Fraud Liability For Financial Statements

A client had been sued by bank for default under business promissory note. He stated he was concerned that when he got the loan he submitted to the bank a financial statement that exaggerated his assets. He fears that the creditor will prosecute him for fraud because he submitted a false financial statement to procure a loan. In this case, the loan was secured by collateral.

In most cases, filing an exaggerated financial statement will not result in lenders bringing fraud charges. One reason is that the lenders rely on other than personal financial statements when they evaluate loan request. For example, a lender typically will rely on a borrower’s credit score, this banking relationship, and most important, the security for the loan. I believe most people discount the value of financial statements because they are self-serving and biased in favor of the borrower. An action for fraud requires proof of may legal elements including the creditor’s reasonable reliance on an intentional misrepresentation and damages as a result of the reliance. When a lender relies on factors such as security or credit scores it may be difficult for the lender that the borrower’s financial statement was a material reason for making a loan. Also, the lender has the opportunity to request documentation for a financial statement, and if the lender fails to do so, he legally may have waived an argument that the financial statement was material.

I do not mean to suggest that borrower have freedom to intentionally make gross exaggerations of their assets on financial statements. Where there is a clear intent to deceive a lender by making up assets a court will more likely receive the creditor’s allegation of fraudulent misrepresentation. Relatively small overstatements of assets typically do not expose the borrower to fraud actions.

My advice has always been to understate your assets on financial statements. If your credit is good and security is ample you will get the loan you request. A bloated financial statement will be hard to explain in the event you default on a loan and the creditor is attacking your assets as listed on your financial statement.

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

Asset Protection of Professional License

A client has a professional license in Florida. The license is a valuable asset to the client. The client asked whether his judgment creditors can levy on his license. The answer is no. Professional licenses are personal to the licensee and are not assignable. The judgment creditor cannot have the license put in the creditor’s own name nor can the license be sold to anyone other than the licensee. The debtor’s license has no value to anyone other than the debtor/licensee. Other licenses, such as liquor licenses, are subject to execution and levy because these licenses not personal.

Finding Good Asset Protection Help

People living in states other than Florida occasionally ask for my help in finding asset protection advice in their state. Its not easy. Generally, larger law firms are reluctant to provide asset protection planning for several reasons that I have discussed in previous posts. Attorneys working in asset protection are concentrated in a few states including New York, California, and Florida (because of Florida’s liberal homestead laws). People in lesser populated states and in states whose laws provide fewer asset protection options will find it more difficult to get asset protection advice.

As an example, I received a call today from a physician in a southern state who was being sued for events unrelated to the practice of medicine. He said he had been receiving contradictory advice; some of the advice seemed incorrect. The physician had no desire to move to Florida. I told him I was unable to provide advice about his situation under the laws of his state. He asked how he could get competent legal advice where he lived.

I suggested that he stop looking for advice in the larger firms and instead seek “second opinions” for smaller law practices or solo specialist. If people are unable to locate attorneys who specialize in asset protection per se the next best source of advice is from bankruptcy attorneys who represent primarily debtors. Bankruptcy attorneys are sources of information because they understand and have experience with exemption laws of their states. They are also experienced in fraudulent conveyance issues which are usually the most important issues in asset protection. The shortcoming of the typical bankruptcy attorney is in the areas of tax and estate planning. Asset protection plans often have income tax or estate planning ramifications. If you seek asset protection guidance from an attorney specialize in bankruptcy make sure you review his suggestions with your CPA, or if your business is complicated, with a tax attorney.

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