Florida Asset Protection Blog

Garnishment of Payments For Non-Compete Agreement

Wages of a head of household cannot be garnished in Florida pursuant to a Florida statute. A caller stated that he agreed to sign a non-compete agreement with his current employer, and that under the agreement the employer was paying him an amount monthly in consideration for the non-compete. The caller asked whether a creditor could garnish payment owned him under the non-compete clause. He believed that the non-compete payments from his employer were not subject to garnishment under the wage exemption statute assuming he was head of household.

I think a creditor could garnish payments from the employer made pursuant to the non-compete agreement. The Florida wage garnishment law does not exempt all payments from an employer. The exemption is for wages, salary, commissions or any similar payment made in consideration for personal services. The statute protects compensation for a debtor’s labor but not the proceeds received for abiding by a contractual obligation, in this example an agreement to restrict one’s work. In my opinion, this caller’s rights to payments for the non-compete are not in the nature of payment for personal labor; rather, the payments are consideration for performance of a contractual agreement and therefore not protected by the wage garnishment statute.

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

Relying Upon Standard Business Forms in Asset Protection

A well- conceived asset protection plan can fail because attorneys use standard, off-the-shelf business forms to create legal entities to hold the debtor’s assets. Case in point is a case I worked on with a creditor’s attorney to penetrate a very complex asset protection plan involving domestic limited liability companies whose membership interests were owned by domestic trusts. The planning attorney used llc forms typically used for operating business and standard estate planning trust forms.

Standard llc forms and estate planning forms are designed to provide current income to the llc owners and trust beneficiaries. These typical forms often provide for mandatory distributions of all current income. In this instance, we convinced the trial judge to compel the llc manager and trustee of the trust to follow the terms of their documents and make current income distributions to the debtor and his family. We were then able to seize the llc required distributions with charging liens and garnishment proceedings.

Asset protection planning is customized. Each and every document must be carefully and intelligently drafted to maximize protection Many clients want legal work and documents to be simple and inexpensive. That approach often works in simple business arrangements; it usually does not provided effective asset protection.

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

Exemption of Income Tax Refunds

I received an interesting question about whether Florida Statute 222.25(3) exempts all income tax refunds. The statute exempts a debtor’s interest in a refund or a credit from a financial institution pursuant to s. 32 of the Internal Revenue Code. I looked up Section 32 of the Revenue Code and found that it applies to the earned income tax credit. Earned income tax credits are exempt from creditors, and in bankruptcy, any portion of a debtor's tax refund which comes from the earned income credit is not part of the bankruptcy estate. All other income tax refunds are non-exempt and are subject to levy by general judgment creditors and bankruptcy trustees.

Can Separate Houses Constitute One Homestead?

An email posed an unusual question about homestead protection of contingent improved residential properties. The writer owned land which initially consisted of separate lots but which he joined legally into a single parcel. On each side of the parcel he built two separated residential buildings. Assume that the lots could be legally separated back to separate parcels. The writer states that he uses both houses as a principal residence although he did not say whether either house was a primary residence. I inferred that both structures were used by the writer and his family for day to day family life. The question is whether homestead protection would apply to both buildings.

In most cases where a debtor owns adjoining buildings one of the buildings is the debtor’s residence and the other is a rental or other investment property. A debtor can only have one house as his primary residence. Houses that are physically connected, even nominally connected by, for example, a fence, are usually considered to be a single connected structure. On the other hand, a debtor who has buildings on a single lot which are all used for residential purposes by the debtor’s family would usually constitute a single homestead.

In this instance, I believe the facts on balance would support homestead protection for both of the buildings on the writer’s property. Although the two houses are detached, both buildings are on what is now a single residential lot, and both buildings together constitute the primary residence of the writer and his family. Homestead protection is generously construed in favor of the homeowner; I think in this unique fact situation homestead should apply.

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