Florida Asset Protection Blog

Several Interesting Issues Involved In Debtor's Relocation In Florida

Many real estate professionals have large commercial development loans which they are having difficulty repaying in today’s real estate environment. One such client and his wife are planning to move to Florida to protect their wealth in the likely event that the bank calls a large commercial loan personally guaranteed by the husband. The non-debtor wife has already moved to Florida and purchased a home with her husband where the wife now resides with her children. She and her children travel up north each weekend to visit her husband The wife has a Florida drivers license and other indices of Florida residency. The debtor husband remains “up north” where he is trying to salvage his company’s loans and sell the couples’ jointly owned real estate. The couple wanted to know how they can safely finish liquidating their home-state property and protect their money in Florida.

The couple want to sell they jointly own up north and protect the sales proceeds until they can protect the money in Florida. Asset protection law of personal property, such as financial accounts, depends on the law of the state where the debtor resides, or in this case, the law of the debtor’s current residence up north. Property owned jointly by husband and wife is not considered protected entireties property in the state where the husband still resides and where the family used to live because this state does not recognize tenants by entireties protection. If they sell their property up north they cannot protect the sales proceeds in their existing joint bank accounts. If the jointly owned money were deposited in a joint, or entireties, Florida account, the debtor husband still would not enjoy tenants by entireties protection of this money until he becomes a Florida resident.. Once the husband himself moves permanently to Florida the couple’s joint financial accounts could have entireties protection in a Florida bank. They should maintain the sales proceeds from the sale of their joint property up north in a joint account in Florida at a bank that does not have branches outside of Florida. I do not think this transaction would be a fraudulent conveyance to a Florida entireties account because the property sold was jointly owned.

These people asked whether the money from the sale of their current assets outside of Florida would be protected as a Florida homestead asset if they intended to use the money to buy a new Florida homestead. The answer is, “no.” Homestead bank accounts are protected to the extent they contain funds from the sale of a Florida homestead which funds are intended to be reinvested in a new Florida homestead. Money in a financial account from a source other than a Florida homestead cannot be protected as a “homestead account” just because the owners intend to buy a Florida residence.

Another issue is whether the husband’s interest in the Florida house currently occupied by the non-debtor wife and owned jointly by the two spouses is protected from the husband’s creditors as a Florida homestead by virtue of the wife’s occupancy. In general, the husband is not entitled to Florida homestead protection until he becomes a Florida resident. The husband may have a life estate in his wife’s Florida homestead, and his wife cannot convey an interest her homestead without her husband’s signing the conveyance instrument. The husband’s life estate interest may be protected from his creditors, but I do not think his full 50% ownership interest is protected until he moves into the property. The same property is protected from the husband’s current creditors as entireties property even though the husband is not a Florida resident. Laws regarding real property are generally based on the laws of the state where the property is located; in this instance, Florida. Tenants by entireties does not have residency requirement. If two married Florida residents jointly own real property in a state that does not recognize entireties ownership the property is not protected from either spouse’s creditors. Likewise, Florida property jointly owned by husband and wife should be protected even if the debtor spouse does not reside in Florida.

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

Bank Calls Loan By Seizing Money Deposited In Entireties Acouunt At Same Bank By Non-Debtor Spouse

Just because the law protects an asset or an account from creditor does not mean your creditors will not try to levy on the asset or garnish the account. Consider this example reported by a current client. The client, who is married, borrowed money in his own name from a large bank. The bank called the loan and demanded payment in full. The client ignored the call and continued to make timely monthly payments. The client and his wife had a joint account at the same bank. All money in the account was deposited from his wife’s earnings. The wife did not sign the note or any guarantee of the note. Without warning, and without filing a law suit to enforce the note, the bank invaded the account and took all of the wife’s money to pay off the loan.

The bank account is exempt from the husband’s judgment creditors as a tenants by entireties accounts. It is possible that the loan agreement with the bank may have given the bank the right to invade the account in order to pay all amounts due under the loan. The client has to look at the loan papers. Even so, such agreement would not give the bank the right to invade a joint account unless the non-debtor spouse signed the same agreement assuming she did not guarantee the note. This Blog has previously posted examples of large banks invading bank accounts without notice to enforce credit card payments where the credit card agreement gave them such right.

This client will have to retain an attorney to carefully review the loan papers to see if the bank had the right to take the money out of the joint account. If such right was not provided in the loan documents, the client will have to go to court to ask a judge to reverse the seizure. In such event, the attorney could seek damages for wrongful garnishment or breach of the loan agreement.

Before you sign a credit card agreement or commercial loan with a bank make sure you understand what rights you are giving the lender to force repayment. If you bank at the same bank that is giving you money, make sure you are not pledging your bank account balances to guarantee repayment. The best advice is to not deposit where you borrow. Some lenders want to see that you maintain accounts at their bank when you apply for a loan. If you anticipate any default under the terms of the loan (as this client received a demand for payment in full) you should transfer most, if not all, of your funds from the lending bank to another bank. During this recession people who owe money to banks must be vigilant and use common sense to protect their money.

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

Fraudulent Divorce: Can A Property Settlement Agreement Be Reversed As Creditor Fraud?

Generally, if a husband transfers non-exempt property to his wife in the face of a creditor’s claim or lawsuit, the transfer will be reversed a a fraudulent conveyance. From time to time people who anticipate a legal problem tell me that in the event they lose a lawsuit they will divorce their wives and give their property to their wife as part of the divorce. The legal issue is whether there can be a fraudulent divorce to avoid or delay creditors. Does the fact that the divorce settlement is approved by a court protect property transfers made pursuant to the settlement agreement?

I think most courts would find that there can be a fraudulent divorce and that transfers made as part of a divorce settlement can be set aside. The answer depends on the facts of each case. The court would have to decide if the divorce is an arms-length divorce or part of a marital conspiracy to protect family assets. Certainly, if the spouses continue to live together and or not maintain separate lives there is less chance of the property transfers surviving challenge. Transfers in exchange for release of marital rights such alimony are on firmer ground.

This question involves competing public interests. Courts protect dependent spouses. Property transfers to provide the dependent spouse sufficient assets to maintain their lifestyle serves that public purpose. Courts also tend to enforce their own judgments and grant creditors equitable remedies to collect their judgments.

I have not seen any Florida cases setting aside a divorce as a creditor fraud.

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

Homeowner Mortgage Mitigation in Final Rescue Bill

I have previously posted on this Blog information about homeowner mortgage benefits in the initial bailout bill that was rejected by the House on September 29, 2008. I have reviewed the final, revised bill signed into law on October 3, 2008. The final bill contains essentially the same mortgage modification provisions. The bill directs the Treasury to encourage mortgage service companies to mitigate foreclosure by adjusting the interest rate, payment terms, as well as the mortgage balance of certain home mortgages. The law is written generally and without details. The Treasury Department likely will issue federal regulations which state whom is entitled to benefits and the procedures to request mortgage modification.