Maximizing Homestead Protection From Two Properties

Money from the sale of a homestead, if not invested in a new homestead, can still be protected after the sale if invested directly from the closing in otherwise exempt assets. There is no fraudulent conveyance or fraudulent conversion if exempt money is invested or transferred directly to protected assets or third party ownership. Consider a client who told me last week that he had moved from his former homestead into a new house and had put the old house up for sale. The new home was titled in the name of a limited liability company rather than in the individual names of the client and his spouse. The client had concerns about liability and potential litigation from a real estate investment. His question was how he could maximize homestead protection between the two properties given he was willing to reside in either house.

His current residence does not have homestead protection. Even though the house is his principal residence, homestead protection is available to property owned by natural persons. An LLC is not a natural person, and residences owned by an LLC does not qualify for Florida homestead. Proceeds from the sale of the former residence will not be protected because that property is no longer homestead. After the client moved the house is investment property.

To optimize protection I suggested that the client move back to the former residence owned in his personal name and establish that again as his primary residence. If and when the house is sold he can move back to the LLC’s house, pay down some of the LLC’s mortgage, and convey the house from the LLC to his individual name. The transfer of title to homestead and paying off the mortgage should not be a fraudulent conveyance or conversion. Any sale money from the first house not applied to the LLC house could be directly invested in protected financial assets such as annuities or life insurance.

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