Florida Asset Protection Blog

Protection of Disability Insurance Proceeds

Florida asset protection law sometimes make important distinctions between protected assets and the proceeds of those assets in the debtor’s hands. For instance, Florida Statute 222.14 expressly protects both annuity contract and annuity proceeds. Other laws protecting assets do not deal with proceeds therefrom. Today, a caller inquired whether disability proceeds and proceeds from the refinance of a homestead remain protected in his bank account. Florida Statute 222.18 protects disability income benefits under any insurance contract, but the Statute makes no mention of disability proceeds. Similarly, Florida’s Constitutional homestead provision does not address proceeds from the sale or refinance of homestead property.

Homestead protection is for most purposes the best Florida asset protection. However, Florida courts restrict the protection of homestead proceeds. Proceeds from homestead are protected only so long as the owner intends to reinvest the proceeds in a replacement homestead within a reasonable time. Proceeds from the refinance of a homestead deposited in the owners bank account would lose protection if the debtor intended to remain in his current home.

Florida courts have liberally protected disability proceeds. Although there are few decisions on this issue, appellate courts have interpreted Florida Statute 222.18 to protect disability income proceeds after receipt, without any time restriction, as long as the proceeds remain traceable to disability insurance policies, even though the statute is silent on the protection of proceeds. I am aware of other cases that protect pension and IRA proceeds after distribution to the debtor when the protecting statutes also do not mention protection of distributed proceeds. Florida courts seem to be recognizing a public policy to protect statutorily protected assets in any form so long as they are the debtor’s property.

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

Debtor Pre-Paying His Attorney's Legal Fees

My clients often suggest asset protection techniques that appear clever and effective at first glance, but will not work against an experienced creditor attorney. One such idea is for the debtor to pay his civil litigation attorneys large sums of money in advance of legal services defending the creditor's collection efforts. The theory is that the debtor's money is protected in their attorney’s hands under some variation of attorney-client protections. Another reason for this plan is to make sure the debtor can fund his legal defense against collection efforts. This plan is built on incorrect assumptions and will not protect the debtor’s money against a skilled collection attorney

Attorney client privilege is an evidentiary rule that protects your communications with your attorney and documents you provide to your attorney. Attorney client privilege does not protect money you give your attorney. Money held by your attorney in his trust account, or even in his operating account, which money the attorney is authorized to apply to future bills as services are provided is your (the client’s) money until it is earned. A judgment creditor can serve a writ of garnishment upon the debtor’s attorney. All of the debtor’s funds held by the attorney which have not been earned by the attorney for services rendered are subject to the writ of garnishment. After the writ is served the attorney cannot use the debtor’s funds to pay legal bills and cannot return the funds to the debtor/client. A writ of garnishment served on the debt
or’s attorney are effective creditor tool to make it difficult for the debtor to pay for his legal defense.

The debtor's alternative is to pre-pay his attorney under an arrangement whereby all money paid the attorney is non-refundable whether or not legal services are provided. Non-refundable fees should be considered to be the attorney's asset.

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

Buying a Florida Residence Does Not Make Someone a Florida Resident

An attorney outside of Florida called me about his clients’ plan to protect assets by purchasing a home in Florida. The attorney anticipated that a judgment may be entered against the client within the next few months. The client owned and operated a real estate construction business in Arizona. Arizona is a community property state which has no tenants by entireties ownership for husband and wife. The attorney proposed that the client buy a house in Florida jointly with his wife after which he could protect the house and jointly owned financial assets, and most importantly, his construction business, as tenants by entireties property. The client would obtain a Florida drivers license and voter card.

I told the attorney that the house may be a protected tenants by entireties asset but that this judgment debtor could not protect his jointly owned personal property under the tenancy by entireties immunity.

This issue has been previously addressed on this Blog but warrants repetition. Exemption law for real property is generally based on the jurisdiction where the property is located. In this example, the jointly owned Florida residence would be deemed an entireties asset owned by non-residents. Exemption of personal property- property other than real estate- is based on the laws of the debtor’s residence. Purchasing a Florida residence is not the same as one being a Florida resident. Even though this prospective debtor would have a house, a drivers license, and voters registration in Florida there were not enough other facts that would make him a Florida resident eligible for protection of his personal property under Florida’s laws.

The debtor had no plans to abandon his primary business in his home state. He planned to have his children go to school in his home state, he would spend most of the work week in his home state at his company, his marital furniture would remain where it is, and he would receive most of his mail at his present address. A person is a Florida resident if his Florida residence is his primary residence, in other words, his “family home.” Purchase of a Florida property with not permanently moving to Florida is not a viable asset protection plan.

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

When Does Writ of Execution Expire?

Creditors enforce money judgments by getting a writ of execution from the court allowing them to levy on a debtor’s assets. I received an email from a Blog reader which puts forth an interesting argument that a creditor’s writ of execution is good only for one year. Rather than summarize the argument, I will publish the entire email below for consideration.

The email received is as follows:

"A couple of years back two Florida lawyers wrote this Bar Journal article in which they argued that Florida Judgments could be executed on forever:
http://www.floridabar.org/DIVCOM/JN/JNJournal01.nsf/76d28aa8f2ee03e185256aa9005d8d9a/079d4a7ab47ebb2b85257029006f2e54?OpenDocument&Highlight=0,Judgment*
They based their argument on the 1967 repeal of a 20 year limitation statute that was never replaced (although courts have been acting as though it was still there).

Here's a kooky thought for the day: Florida executions may be limited to one year as follows,

"Dormancy. At common law, because the law presumed that a judgment would be satisfied within a year and a day of its entry, it became dormant on the 366th day. The Florida Legislature, by limiting “actions on judgments” to five and 20 years, has in effect said that after the running of those time periods the judgments are “dormant” and cannot be used to create new judgments."

IMHO, it's quite possible that at least with respect to executions, Florida reverted to common law, and now judgments might be only subject to executions for one year.

The article's authors say:
"The legislature must have known that the statute it was repealing had been interpreted to place a 20-year lifetime on executions. It repealed that statute and to this day has not replaced it with a statute or court rule limiting the time within which the execution option must be exercised. The courts are not permitted to judicially enact a statute about which the legislature has clearly spoken, even by its inaction."

So they believe that Florida judgments can be executed on forever. I say it's more plausible to say they can only be executed on for one year. In the absence of a statute, the common law applies.

I don't believe anyone has made this argument yet, but what else can apply in the absence of a specific statute? Would the Florida Supreme Court have to find that "emanations" from the statutes that establish a 10 year and 20 year limit for liens on personal and real property establish a limit? If so, which period would they choose and why? "

Can Foreign Court Impose Equitable Lien or Constructive Trust On Florida Homestead?

I have previously written on this blog about out-of-state courts trying to stop debtors from evading money judgments by moving to Florida and buying a house. Judges in other states are issuing orders imposing an equitable lien or a constructive trust on the debtor’s Florida house in favor of the creditor on the theory that the debtor has “fraudulently” used money owed to the creditor to buy a Florida homestead. A recent opinion by a Florida bankruptcy judge explains Florida law’s requirements to impose a constructive trust and equitable lien on Florida real estate.

The Florida court pointed out that an equitable lien may be imposed only to capture money that was obtained through fraud or egregious conduct. The fact that money was rightfully obtained and then used for improper purpose is not enough to impose an equitable lien. The court points out that an equitable lien on homestead is not warranted when a debtor uses money lawfully obtained to buy an exempt asset for the purposes of avoiding and defrauding creditors.

A constructive trust requires the plaintiff to demonstrate four elements: a promise from defendant to plaintiff, a transfer of property based on the promise, a confidential relationship, and the defendant's unjust enrichment. These four elements are rarely found in a debtor's use of non-exempt assets to purchase a Florida homestead.

This ruling indicates that out-of-state court orders which attempt to impose an equitable lien or a constructive trust of recently acquired Florida homesteads will should not impair title to the debtor’s homestead absent a judgment based on common law fraud.

2006 WL 3913440

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

Tenancy By Entireties: Furniture And Financial Accounts

I read a relatively recent bankruptcy court ruling that examined in unusual detail a debtor’s claim of tenancy by entireties protection of a variety of assets owned jointly with his wife. The decision upheld entireties protection of the debtor’s furniture and other personal household property but denied tenancy by entireties ownership of a joint mutual fund account. The facts and holding are instructive for other Florida debtors relying on tenancy by entireties.

The court found that the debtor’s household belongings were exempt entireties assets. Among factors cited by the court were: 1. There was no evidence of any property purchased outside the marriage, 2. No purchases predated the marriage and most were obtained early in the marriage, 3. The furniture was paid for with checks from the couple’s joint bank account funded with joint earnings, 4. The household furnishes were insured under a single insurance policy naming both spouses as insured parties, 5. Both spouses participated in the decisions to buy the household belongings, and 6. The couple’s wills left all property to the surviving spouse.

The court found that the debtor’s joint mutual fund account was not protected as tenants by the entireties property in spite of the presumption under Florida law that financial accounts owned jointly by husband and wife are entireties accounts. The application form for the mutual fund account required the debtor and spouse to list their choice of ownership. Boxes were provided for “joint tenant” and another box for “tenants by entirety”. The debtor checked the “joint tenant” box. The court found that because the debtor had a clear choice of tenancy by entireties ownership and instead checked the box for another ownership option, the debtor had expressly disclaimed entireties ownership with his spouse. This holding is technically correct, and it shows how careful one must be when filling out forms to open financial accounts if one expects tenancy by entireties asset protection.

Cite: 2007 WL 174162.

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