Florida Asset Protection Blog

Income Tax And Asset Protection

I recently read seminar materials about asset protection from income tax debt which had been published by Larry Heinkel www.taxproblemsolver.com. Larry is an expert in the area of income tax debt in bankruptcy. His article pointed out some common misunderstandings about tax debts. First, Florida’s homestead law does not protect homeowners from income taxes. A tax lien attaches to your homestead unlike a civil judgment. Next, Florida’s statutes prohibiting creditors from garnishing wages of the head of household does not protect against IRS collections. Also, a divorce decree which specifies which spouse is responsible to pay tax liability is not binding on the IRS. The IRS can go after either divorced spouse for the full amount of tax debt.

Homestead Purchased With Money Stolen From An Estate

I received an email from a prospective creditor located in Georgia. Allegedly, one of her family members serving wrongfully took money from an decedent’s estate. The same family member moved to Florida and purchased a Florida homestead. A Georgia judge has ruled that the executor committed fraud. Can the family members who are beneficiaries of the estate get a lien on the executor’s Florida homestead?

If the homestead was purchased with the same money taken from the estate then I believe a Florida court would grant the family an equitable lien on the homestead. Fraud committed by someone in a fiduciary capacity, such as an executor of an estate, should be the type of egregious circumstance which warrants an equitable lien on homestead. The equitable lien does not give the aggrieved family members the power to force the sale of the executor’s homestead, but it does give them a lien on proceeds from the sale or refinance of the homestead.

Some judges in other states in similar cases have issued orders imposing a constructive trust on a Florida homestead purchased with funds fraudulently obtained from an estate or trust. It is not clear whether a Florida court would uphold a foreign trust imposed on Florida property by a judge in another State’s court.

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

Asset Protection Using Reciprocal Irrevocable Trusts

One of my new clients told me about an asset protection tool he implemented upon the advice of another attorney. The attorney had told him the protection was “ironclad.” I disagree. The client and his girlfriend each established an irrevocable trust for the benefit of one another. The trusts were identical, and each person funded the trust with the same amount of money. The trust documents had spendthrift provisions which prohibit a creditor from levying upon the interest of the respective beneficiaries. Each person served as trustee of their own trust and had the discretion, but not the requirement, to make distributions of income or principal.

I think a court would find that the debtor’s transfer of money into a trust for the benefit of his girlfriend is a fraudulent conveyance where the girlfriend had made a reciprocal transfer into trust. The debtor’s “gift” to the girlfriend was conditioned upon her reciprocal gift. In effect, the debtor received access through his girlfriends trust to the same amount of money he conveyed out of his name. There is no actual, irrevocable gift where the gift is conditioned or matched by a gift back. I don’t know of any court decision on this fact pattern. I think a court would rule that the debtor’s conveyance was to what is in effect a self-settled trust.

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

Enforcement Of Divorce Judgments Against Mobile Debtor Spouse

Someone called me today about protection from alimony and support judgment emanating from a divorce. The question was whether a spouse can avoid contempt for non-payment if the spouse’s normal job requires constant travel and relocation around the United States. The general rule is that most asset protection tools do not protect against marital decree liability. Marital courts have equitable powers to change ownership rights in property otherwise exempt from general judgment creditors. A judge can hold a divorced spouse in contempt simply for not paying court prescribed marital debts.

In this instance, the practicality of enforcing a marital decree against a debtor-on-the-move may offer practical protection. The creditor spouse would have to domesticate the marital judgment in whatever state the debtor spouse is currently working and residing. Locating a moving debtor and serving him with process can be very difficult. If the debtor spouse returned to Florida where the original marital judgment was entered the court could hold him in contempt and incarcerate him for failure to comply with prior court orders.

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

Is Social Security Protected From Government Debt

The general rule is that social security benefits are exempt from garnishment. There are exceptions to most rules. One of my clients had retired from a government agency, and the government claimed the client owed the government money. The agency represents that they have the right to a lien on all government benefits, including social security payments. The agency did not cite a statute or contract right. However, the government’s position makes sense. If you owe money to the IRS you cannot receive a tax refund. Similarly, if you owe money to another government agency it seems reasonable that agency have a lien on government pensions and other benefits. As with tax debt, asset protection rules are often different when the creditor is the U.S. government.