Florida Asset Protection Blog

Entireties Account Protected Even Though Money Deposited By Debtor Spouse

As a general rule if spouse one, the debtor spouse, owns a non-exempt asset and conveys the asset to both spouses as tenants by entireties the transfer could be a fraudulent conveyance by the debtor spouse. A bankruptcy case dealt with the question in terms of the deposit into an entireties account of a tax refund when most of the refund was on account of income earned by the debtor spouse. The court said that the tax refund payable to both spouses is protected entireties money once it is deposited into the joint bank account

The court further explained that when only one spouse works and regularly deposits checks into an entireties account the money is exempt entireties funds when deposited. The court said, “ the same would be true if one spouse received a gift, won the lottery, or, here, possbily has a superior interest in a portion of a federal tax refund." 378 B.R. 371

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

Tenants By Entireties Of Money Held In Third Party Escrow Account

I came across an interesting case involving tenants by entireties. A husband and wife had an entireties account at their bank. They wanted to buy a parcel of real estate and title the property in the wife’s name. Normally, such transfer would not be a fraudulent transfer against either the husband’s or the wife’s individual creditors as the T by E account is exempt. The couple wrote a check from the entireties account to an escrow agent who was handling the real estate closing. They instructed the agent to hold the escrow as tenants by entireties money. The sale closed, and the escrow agent transferred the money to the seller. A creditor of the husband challenged the transaction as a fraudulent conveyance arguing that the money lost its entireties status when it was deposited in the bank account owned by the escrow agent.

The appellate court ruled there was no fraudulent conveyance. The money remained an entireties asset in the bank even though the interim bank account was owned by the escrow agent and not by the husband and wife. The court ruled that the husband and wife through their instructions to the escrow agent clearly intended the money to remain their entireties money when it left their entireties account to be held by the closing escrow agent. The case was decided by the 2nd DCA and is styled Snyder v. Dinardo.

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

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

New Florida Resident Get Immediate Entireties Protection In Bankruptcy

I came across a bankruptcy case which is important for debtors contemplating moving to Florida from another state and filing bankruptcy immediately. In this case, a debtor lived in a state which had little or no homestead protection. In April, the debtor and his wife moved to Florida and bought a piece of property titled in their joint names. Two months later, in June, they filed Chapter 7 bankruptcy, and one month after filing bankruptcy the moved into a house on the same property. The issue was whether the debtor could claim an exemption for the property. The bankruptcy judge said he could exempt the property. Here’s why and how:

The general rule is that a bankruptcy debtor cannot claim Florida exemptions, including Florida homestead, in bankruptcy unless he has been a Florida resident for two years prior to filing. This debtor lived in Florida for less than three months prior to filing bankruptcy. Therefore, his bankruptcy is under the exemptions of his former residence which has little or no homestead protection. Even if the debtor were under Florida exemptions, he would not get homestead protection in bankruptcy because he and his wife did not occupy the house until after he filed bankruptcy.

The judge found that his real estate purchased in April was exempt as tenants by entireties property. Property owned jointly by married couples is deemed to be owned in a tenancy by entireties (T by E). T by E property is not party of the bankruptcy estate and is therefore “exempt”(unless and to the extent the debtor and his non-filing spouse have joint debts). But is not really “exempt” because neither the Florida statutes nor the Florida constitution are the source of T by E protection. In the bankruptcy code, T by E property is not excluded from the bankruptcy estate by the code sections dealing with exempt property, which code sections include the two-year waiting period for new Florida residents. The bankruptcy judge pointed out that T by E property is excluded from the debtor’s bankruptcy property by a different code section which provides exclusion of T by E assets owned by the debtor immediately prior to his filing bankruptcy. The T by E section has no two year waiting period.

The case held that even though the debtor purchased the real estate with his wife just three months prior to filing bankruptcy it was “exempt” as T by E property. The judge found no evidence of fraudulent conveyance; the debtor simply moved to Florida and bought a home to live in. Under the strict language of the statute nothing more is required to exclude the T by E property from his bankruptcy.

This case provides non-resident debtors a possible plan to move to Florida, buy a homestead property or other assets with their spouse, and file bankruptcy immediately upon becoming a Florida resident. Only debtors with no significant joint debts can use this planning technique

For those who require a cite: In re Schwarz 2007 WL 247649

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

Court Challenges Exemption of Inherited IRAs

Most people, including myself, understood that all IRAs were exempt from creditors outside of bankruptcy and were exempt from the bankruptcy estate for debtors who filed bankruptcy. I received an email from attorney Tye Klooster about an Illinois bankruptcy case which holds that some IRAs are not exempt. If followed in Florida courts this ruling would diminish IRA protection for Florida residents.

Illinois, like Florida, has state statutes which exempt IRAs from creditor collection process. The Illinois statute and the Florida statute protect IRAs that are “exempt from taxation” under Section 408 of the Internal Revenue Code. This Illinois bankruptcy judge said that IRAs which a beneficiary inherits after the death of the owner are not exempt from taxation because the inherited beneficiary is not able to make tax deferred contributions to the IRA and cannot roll over the IRA tax free to a subsequent beneficiary. The judge concluded that inherited IRAs are not within the class of IRAs protected by the Illinois statute or the bankruptcy law.

If this reasoning is followed by Florida courts it could significantly impact asset protection planning for Florida residents in or out of bankruptcy.

The case is In re Taylor, decided May 9, 2006, in the central district of Illinois. Bankruptcy Case No. 05-93559

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

Homestead: Equitable Lien and Loss of Bankruptcy Discharge

I recently read a case issued by the federal Court of Appeals which illustrated again the different treatment of homestead protection under Florida state law and in bankruptcy law. In this case a debtor obtained a money award through the settlement of her personal injury lawsuit to recover for personal injuries sustained in an accident. She never took possession of her share of the award. Instead, she directed her personal injury attorney to pay her award directly to the bank that held a mortgage on her homestead property. During the personal injury suit the debtor had been sued by American Express for her non-payment of credit card debt. The debtor stated that she had the personal injury award paid directly to her homestead mortgage in order to protect the award from American Express by virtue of Florida’s homestead protection laws.

A few months later the debtor filed bankruptcy. The bankruptcy trustee sought to put an equitable lien on her home. Under Florida law, paying extra money to reduce a mortgage, even if done to protect the money from current creditors, cannot be undone or reversed with one exception. If the money was invested in the homestead to protect it from creditors was the result of fraud or other egregious circumstances courts can give a creditor an equitable lien on the homestead for the amount of the creditor’s debt. This bankruptcy trustee argued that what this debtor did with her personal injury proceeds was either fraudulent or egregious and warranted the imposition of an equitable lien on the homestead.

There are separate rules in bankruptcy applicable to this transaction. In bankruptcy, if a debtor converts money to a homestead or other exempt asset within a year or two of filing bankruptcy in an effort to defraud creditors the bankruptcy court can deny the debtor its discharge of unsecured debts pursuant to Section 727 of the U.S. Bankruptcy Code.

The appellate court issued a split decision. The court said that the debtors assignment of her personal injury settlement to pay down her homestead mortgage did not warrant an equitable lien under Florida law. The money was not obtained by the debtor’s fraud or wrongdoing, and even if she intended to protect the money from creditors by using her homestead protection, her actions were not egregious. The court implicitly distinguishes pay down of a mortgage which may be a fraudulent conversion from actual common law fraud which is egregious and could warrant invasion of homestead rights.

In the bankruptcy case, the court said that the conversion of funds into the homestead did run afoul of Section 727 of the Code. Therefore, the court did deny this debtor its bankruptcy discharge of unsecured debts. In the end, the debtor kept the homestead free and clear of any liens, but the debtor got no relief from unsecured debt in bankruptcy.

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

Entireties Account Decision

An Orlando Florida bankruptcy judge issued a decision in one of my client’s cases which included interesting holdings and valuable instructions on the issue of tenants by entireties bank accounts. My client and her future husband opened a joint bank account. They proceeded to marry. The money in the bank account on the date of their wedding was spent, and over the years it was replaced with new money acquired during their marriage up until the time the wife filed bankruptcy. The question was whether the money in the account was exempt as a tenants by entireties asset.

Tenants by entireties requires that the joint property in question is acquired under certain circumstances, one of which is that the property is acquired at the time the spouses were married. In this instance, the joint account was opened prior to the marriage, but the money in the account on the date of bankruptcy was acquired and put into the account after the marriage date. The question was whether it’s the bank account or the money in the bank account that has to be acquired during marriage. I argued that so long as the money in the account was acquired during marriage it did not matter that the money was deposited in an account set up prior to marriage. The Court disagreed. The Court said that the debtor and her husband should have signed new signature cards after marriage to convert the account to an entireties account. Having failed to do so, all money deposited in the unprotected, non-entireties account became non-exempt upon deposit. In other words, the tainted account removed tenants by entireties protection from jointly acquired marital money.

If you and your spouse had already established joint financial accounts before you were married you should re-sign the signature cards after your marriage, or open new accounts after marriage, in order to have exempt tenants by entireties accounts.

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

Tenancy By Entireties Ownership of Personal Property: Summary of Court Rulings

The Beal Bank decision by the Florida Supreme Court in 2001 established a presumption that all bank accounts owned jointly by a husband and wife were presumed to be owned as tenants by entireties and protected from the judgment creditors of either spouse, individually. No protection afforded against joint creditors. Since Beal Bank different courts in different jurisdictions have addressed whether the presumption afforded bank accounts in the Beal Bank case extends to other forms of personal property. While these court decisions are not uniform, most courts have held that all jointly owned personal property is presumed to be held as tenants by entireties.

In the 2002 case of Cacciatore v. Fisherman's Wharf Realty Ltd. Partnership Florida’s Fourth District Court of Appeals held that brokerage accounts titled jointly by husband and wife are presumed to be tenancy by entireties accounts under the rationale of the Beal Bank case. In 2005, The Fifth District Court of Appeals, in Xayavong v. Sunny Gifts, held a rebuttable presumption of tenancy by the entireties to financial accounts, and apparently to other personal property, held by married couples, provided the property in question is imbued with the requisite unities of possession, interest, time, title, survivorship, and marriage.

Two bankruptcy courts have followed the Cacciatore holding. A bankruptcy court in the Middle District of Florida concluded that, “Accordingly, this court finds little basis or reason to distinguish among the various types of personal property in applying the tenancy by the entireties presumption. Where the required unities are present, the court concludes that Beal Bank's presumption can and should be extended to include all marital personal property, not just financial accounts” In re Daniels 309 B.R. 54. In the case of In re Kossow, 325 B.R. 478, a bankruptcy judge said that, “The Court finds that the policy justifications offered by the Florida Supreme Court in Beal Bank should be applied to all personalty.” This case applied the presumption of protection to household furniture and joint tax refunds.

Only one bankruptcy court reached a contrary conclusion, holding that “the Court declines to extend the holding set forth in Beal Bank, and finds that a presumption of tenancy by the entireties does not extend to all personal property” In re McAnany 294 B.R. 406.

For planning purposes, the weight of authority supports the presumption that any tangible or intangible property owned jointly by husband and wife is protected tenants by entireties property.

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

Court Upholds Homestead Protection For Living Trust Property

I have written previously about whether a residence owned by a debtor’s living trust is entitled to protection against creditors afforded by the Florida Constitution. The Constitution protects homesteads owned by “natural persons.” Some creditors have argued that a homestead occupied by the debtor but legally titled in the name of the debtor’s testamentary living trust is not protected because it is owned by an entity (the trust) other than a natural person. Several years ago a bankruptcy court denied homestead protection to a debtor’s property titled in a living trust. However, a subsequent Florida appellate case from the Third District Court of Appeals reached the contrary conclusion an upheld homestead status to a property held in a living trust.

Just last month, February, 2006, the Fourth District Court of appeal in the case of Engelke v. Engelke held that a residence owned by a living trust is entitled to homestead protection. The Court said that a property held in a debtor’s living trust is owned by a “natural person” for purposes of Constitutional homestead protection. There are now two state court cases from different districts decided after the previously mentioned bankruptcy case which have sustained homestead protections to properties held in a testamentary revocable trust.

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

Homestead Protection Denied For Rented Duplex

I had previously written a post about homestead protection of a duplex where one half is owner occupied and the other unit is rented. The issue is whether the constitutional homestead protection includes a rental unit attached to the dwelling where the two units cannot be subdivided. The prior post cited precedent that the constitution protects dwellings and businesses located on the same property outside a municipality but that homestead properties within a municipality are limited to the actual dwelling unit. Other cases have protected dwellings and attached units used for business where the property could not be subdivided.

A recent bankruptcy decision in the Middle District of Florida dealt with the claimed exemption of a debtor’s duplex situated within a municipality . The two units are not legally divisible. The bankruptcy court denied homestead protection of the duplex. The court pointed out prior to 1968 the Florida Constitution protected the residence and business house of the owner, but a 1968 amendment deleted the reference to “business house.” Although a minority of prior bankruptcy decisions protected the entire duplex where the units were not divisible the majority of prior bankruptcy cases denied homestead protection to rental units attached to the residence. The court recognized that this ruling may force the debtor to lose the house and speculated that the Florida Legislature may not have contemplated this unfortunate result when drafting and enacting the 1968 amendment to the Constitution. Nevertheless, the court found that denial of homestead protection of that part of the property rented for income is mandated by the law.

There ruling may have been different if the debtor’s duplex was located outside a municipality because, as stated above, courts have previously protected businesses on homesteads located in the county. Secondly, all the cases cited by the bankruptcy court were prior bankruptcy decisions, and state courts may reach a different conclusion when homestead protection of duplexes is considered outside of the bankruptcy context. This was a tough case to decide, and in my humble opinion, the decision was technically correct because the duplex was within a municipality. (Memorandum Opinion, In re: Angela D. Bornstein)

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

Homestead Ownership in Partnership

The Third District Court of Appeal held this month in the case of Buchman v. Canard that a debtor could not claim homestead protection of his residence which was titled in the name of a partnership. The court ruled that partnership properties are not entitled to the homestead exemption even if a partner resides in the property. Previous posts on this blog have expressed the importance of owning homestead properties in the name of the natural person (individual) who lives in the property.

Florida Judge Upholds Homestead Cap

A prior blog post reported that an Arizona bankruptcy judge had ruled that because of a glitch in drafting the new bankruptcy law the $125,000 cap on homestead protection under the new law applied only in two states: Texas and Minnesota. Under the rationale of the Arizona decision bankruptcy debtors in states such as Arizona and Florida continued to enjoy unlimited homestead exemption in bankruptcy courts.

In an oral ruling late September a judge in the Southern District of Florida reached a contrary decision. The judge concluded that no rational person could reasonably believe that the Arizona decision reflected the intent of Congress in drafting the new bankruptcy law. The Florida judge refused to follow the reasoning of the Arizona bankruptcy court, and he upheld the new law’s $125,000 homestead limit. Other bankruptcy judges in Florida have heard argument on this issue in different cases; their future rulings should clarify the law in Florida.

In re Elona Caplan, Case No 05-14491-RAM

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

Protection of Partnership/LLC Interest in Bankruptcy

Family partnership and limited liability companies provide asset protection in state court collection proceedings because creditor’s collection tools are limited by Florida statute to a charging lien on distributions. Less clear is how a debtor’s partnership interest or LLC interest would be treated if the debtor filed bankruptcy. The bankruptcy trustee is not necessarily limited to collection tools set forth in Florida’s partnership and LLC statutes.

In a case where a bankruptcy debtor own a minority LLC or partnership interest, could the trustee force the partnership/LLC to sell all of its assets at a “fire sale” after which the trustee would take that part of the net sales proceeds allocated to the debtor’s minority interest, or could the trustee sell only the debtor’s interest subject to the provisions of the partnership/LLC agreement without disturbing partnership assets. The value of a minority interest in a partnership/LLC subject to the provisions of the agreement and rights of other partners would most likely be much less then cash proceeds from a liquidation sale. Also, a partnership/LLC agreement may give other partners the right to purchase the debtor’s interest for cash at the fair market value of the minority interest, thereby preserving partners’ interest in the entity and the assets.

The 11th Circuit Court of Appeals issued a decision on this issue in April, 2005. The court decided that a bankruptcy trustee may not force partition of a partnership and a liquidation of partnership property in order to convert to cash the interest of a minority partner who filed bankruptcy. The court found that the trustee’s right to partition is governed by state law, and that the state statutes did not provide for forced partition. The bankruptcy trustee was not allowed to force sale of partnership property, and the trustee’s remedy was limited to sale or recovery of fair market value of the debtor’s minority interest subject to the terms of the partnership agreement. The case is: Leo v. Powell (In re Powell), 2005 W.L. 1155176 (Bankr. N.D. Ala., April 20, 2005)

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

Florida Supreme Court Issues Doc Stamp Decision

A recent blog post discussed the Department of Revenue’s position on documentary stamps for transfers of real property in asset protection planning. Asset protection often involves conveyance of real property you own individually to your partnerships and limited liability companies . In the past, the Department was insisting on your paying documentary stamps where the legal entity that received the property was owned by the same individuals who owned the property to begin with. Recently, according to the recent post, the Department has retreated from its position and had imposed tax on such transfers only to the extent of a mortgage balance, if any, encumbering the property.

Last week, the Florida Supreme Court issued a legal opinion which affirmed the more liberal ruling of the documentary tax statute. The Supreme Court said that, “the transfer of property between a grantor and its wholly owned grantee, absent any exchange of value, is without consideration or a purchaser and thus not subject to the documentary stamp tax in section 201.02(1).” Transfers to wholly owned entities will be taxed on the amount of mortgage liability consistent with prior rulings of the court. This decision makes asset protection planning less expensive for people who own Florida real property. Crescent Miami Center, LLC v. Florida Department of Revenue No. SC03-2063.

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

Is Commercial Activity on Florida Homestead Permissible?

Waiting for a hearing to be called in bankruptcy court I had a conversation with an attorney who was litigating a Florida homestead issue. The question was whether a debtor who owned a duplex and occupied one of the two units could exempt the entire property under Florida’s homestead exemption. The general issue is whether homestead protection is lost when an owner uses part of the property from rental or other income producing commercial purposes.

The answer to the question may depend on whether the homestead is located in a municipality or in the county. Although the most important city/county difference is the permissible size of the homestead property ( ½ acre city and 160 acres county). the location difference also affects the extent of permissible commercial uses. The Fourth District Court of Appeal decided a case in 2004 on point. The Court found that the Florida Constitution limits the definition of homesteads within a city to properties used as the residence of the owner and the owner’s family; inside a municipality any part of a property used commercially may not qualify as homestead. The Court explained that properties outside a municipality are not limited in use to the residence of the owner and his family. In the particular case, the Court granted homestead protection to a large mobile home park located in the county because the park’s owner resided on a small portion of the property.

Davis v. Davis 864 So 2d 458

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

Fifth District Court Rules That Fraudulent Conveyance is Not A Tort

Committing a tort in Florida subjects the tort doer to the jurisdiction of Florida courts under Section 48.193 of the Florida Statutes. The Florida Fifth District Court of Appeal issued an opinion on April 28, 2005, stating that a fraudulent conveyance is not a tort. The Court cited a same conclusion by the Third District and a consistent opinion by the Florida Supreme Court. The Supreme Court said that Florida’s fraudulent conveyance statutes provide for recovery of transferred property but do not create the basis for an independent action for damages; damages are an essential element of any tort. Based on this precedent, the Fifth DCA said that a corporate officer whose corporation receives fraudulent conveyed property does not commit a tortious action in Florida. This conclusion further cements the Florida law to the effect that fraudulent conveyances are distinct from common law tortious fraud, and that third parties cannot be held liable for assisting a transfer later reversed under Florida’s fraudulent conveyance statutes.

The Fifth DCA stated at the end of its opinion that it would, “leave it to the Legislature to remedy what appears to be an oversight in the enactment of the legislation.” It is unclear whether the Court suggests changing Section 48.193 provisions concerning jurisdiction or changing the remedies provided under the fraudulent conveyance statutes. The cite is Brown v. Nova Information Service. Case No. 5D04-3774.

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

Another Florida Court Strengthens Homestead Protection

Florida’s Third District Court of Appeals has upheld Florida’s homestead protection against creditors in Conseco Services v. Cuneo. The Third District Court opinion also clarified some issues and questions raised about the Supreme Court’s important homestead decision in Havoco v. Hill, 790. So 2d 1018.

Conseco Services obtained a civil judgment in Indiana against the Cuneos for their failure to repay a large loan, and after judgment Cunseco filed a proceedings supplementary alleging that the Cuneos transferred assets to other family members to hinder, delay and defraud their creditors. Subsquent to the judgment and the fraudulent conveyance complaint the Cuneos liquidated $8 million in investment securities and took out a $2.45 mortgage on a second home in Connecticut. The invested $10.2 million in a home in Florida which they proceeded to declare as a Florida homestead. Conseco filed an action in Florida attempting to put a lien on the Florida homestead.

The Third District Court of Appeals held that the Cuneos’ Florida homestead was protected against Conseco’s collection actions. The Court pointed out that none of the funds used to purchase the homestead was funds obtained from Conseco, and therefore, based on Havoco v. Hill, Conseco failed to meet the threshold for imposing an equitable lien on the home.

This decision substantiates several common asset protection techniques employed by debtors moving to Florida to escape judgments in other states. First, the Cuneos invested in a Florida home after a judgment was entered and after the creditor first alleged fraudulent conveyances pertaining to other transactions. Second, the Cuneos successfully stripped equity from another property, in Connecticut, and sheltered the loan proceeds in a Florida homestead. Third, the Court found that regardless of the Cuneos’ blatant and unapologetic strategy to avoid paying their debts by injecting funds from various non-exempt assets in a Florida homestead, there is no basis for an equitable lien on the homestead when the funds protected were not obtained by fraud or egregious conduct directly from the complaining creditor.

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

Garnishment Protection For Owner/Employee

Previous blog entries have discussed issues concerning wage exemption from garnishment for single owner businessmen or professionals. In short, there are cases in Florida that say that creditors can garnish wages paid to a person who is the sole owner of his employer. These cases pertain to doctors/lawyers/dentist who are solo practicioners and who draw a salary form their professional corporation or businessmen who are the sole owners of their own corporations or LLCs even when the debtors are head of family. The Florida cases held that the sole owner has too much control over his business and distributions to qualify for wage garnishment protection which, the cases say, is designed to protect people who earn compensation from an arms length relationship with an employer. The cases previously discussed in other blog post involved “bad facts” including lack of a written employment agreement and varying amounts to distributions to the debtor rather than fixed amounts of periodic payments usually associated with arms length employment.

Anyway, I came across a reference to a New Jersey court case which supports salary exemption for small businessmen and professionals taking distributions from their corporation. The New Jersey case of Zavodnick v. Leven, 773 A 2d 1170, said that distributions (not salary) from a law firm partnership to one of the partner attorneys should be afforded the same garnishment protection under New Jersey law. The court said that even though profit distributions are not technically wages they play the same role in the partner’s life as wages paid to the firms’s employees in that the partner and his family depend on his distributions to purchase food, shelter, and other basic necessities for himself and his family. The debtor should not be denied protection from garnishment just because of the profession he has chosen to earn his living. Hopefully, this case will be used to persuade a Florida court to extend the statutory protection form garnishment afforded heads of families to professionals or people who work through their own single owner companies.

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

Homestead Protection Against Collection of Alimony

The homestead protection defeats almost all creditors, but there are narrow exceptions (IRS debt being the most common). Occasionally, people asks whether an ex-spouse can force the sale of or impose a lien on a homestead to enforce the collection of past-due alimony. This issue was discussed in the case of Robles v. Robles, 860 So 2d 1014 (Fla. Dist. 3 2003). This appellate court decision said that the general rule is that an ex-spouse may not impose a lien on a homestead property to collect alimony. There are exceptions where the party owing the alimony is found to have engaged in affirmative fraudulent or reprehensible conduct which interfered with the spouse’s ability to collect the alimony award. Some examples of such conduct are where a husband was found in contempt of court multiple times and would only pay alimony if subject to incarceration or when a husband purchased the homestead subsequent to divorce and lived there with and supported a girlfriend. In such instances, a court may either order the homestead sold to pay alimony or impose an equitable lien on the homestead so that alimony is recovered when the debtor’s homestead is sold.

Discovery of Personal Financial Information Pre-Judgment

I have been asked many times whether a creditor can demand production of and inspect a debtor’s personal financial information after a lawsuit is commenced but before the creditor gets a money judgment against the debtor. The general rule in Florida is that discovery of personal financial information in civil cases– other than divorce– is irrelevant and usually prohibited before final judgment. See Friedman v. Heart Inst. of Port St. Lucie, Inc, 863 So 2d 189, 194 (Fla 2003). In a very recent case issued December 8, 2004, the Fourth District Court of Appeal allowed a plaintiff to review a defendant’s personal financial information prior to judgment. All About Cruises, Inc. v. Cruise Options, Inc., 2004 WL 2823244 (Fla .App. 4 Dist.,2004). The appellate court said that financial discovery may be limited t an in camera inspection or may require the proponent to post bond, but neither of these conditions are required and the terms of such financial discovery are in the trial judge’s discretion.

Court Gives Snowbirds Florida Residency

Florida residency is required to take advantage of Florida’s asset protection laws including Florida’s broad homestead protection from creditor judgments. Whether a person is a Florida resident depends on their lifestyle and their contacts to Florida. Many people who originally lived and worked exclusively in northern states spend part of each year in Florida during retirement. Floridians refer to these people as "snowbirds."

A Florida appellate court in the case of Margaret Roach and Thomas Roach v. State Farm Mutual Automobile Insurance Company, 2004 WL 2532959, recently considered whether a pair of Indiana snowbirds had established Florida residency for purposes of their taking advantage of certain Florida laws relating to motor vehicles. The court’s analysis is important for other snowbirds seeking protection of Florida’s property exemptions from creditor execution.

The relevant facts were that the snowbirds and defendants, a Mr. and Mrs. Hodges of Indiana resided in Florida typically each November through the following April. Mr. Hodges had an Indiana drivers license whereas Mrs. Hodges maintained a Florida license and applied for Florida homestead tax reduction. Mr. Hodges used their Indiana address for tax filings and voting. The court found that even through Mr. and Mrs. Hodges each year spent more time in Indiana than in Florida their presence in Florida was not, “the transient or temporary presence of an occasional or regular visitor” . The court said that, “The Hodges established a significant degree of permanency in Florida by owning a home in Florida..., returning to reside in Florida for approximately five and on-half month every year ..., and by garaging [a car] in Florida....” Noting that residency is a malleable legal concept that depends on its context and use, the court found that the Hodges were Florida residents for the purposes of the automobile law at issue. This case illustrates that there are no universal tests to determine Florida residency, and that residency depends on the context and the parties’ demonstrated intent.

Tenancy by Entireties Strengthened in Bankruptcy

In what it described as a case of first impression, the U.S. Court of Appeals for the Eleventh Circuit (the Federal appeals court covering all of Florida and other states) upheld tenancy by entireties protection in bankruptcy cases. This case was important in light of a 2002 decision by the United States Supreme Court (U.S v. Craft) holding that the IRS had the authority to invade tenants by entireties property to satisfy the tax obligation of either spouse individually. The Federal Appeals court refused to extend the Craft decision to the bankruptcy context finding that creditors in bankruptcy do not enjoy the same authority the IRS has to divide tenants by the entireties property.

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The circuit court pointed out first that the nature of a bankruptcy debtors interest in property is determined by state law. Next, the Court pointed to the Florida Supreme Court’s decision in Beal Bank v. Almand where it held that in Florida tenancy by entireties property cannot be seized or divided to satisfy the creditors of just one spouse. The court said that Florida law on the subject is clear and there is no basis in the Craft decisions or otherwise to make tenancy by entireties property subject to creditors of a bankruptcy debtor. Tenancy by entireties remains a strong form of asset protection planning for people in stable marriages.

My thanks to Mr. Tye Klooster, Esq. of Holland and Knight in St. Petersburg for bringing this case to my attention

Tenants by Entireties Ownership of Automobiles Not Possible

It may be impossible to own a automobile as tenants by entireties in the State of Florida based on a decision entered December 3, 2004, by the Fifth District Court of Appeal in the case of Vongsack Xayavong and Damomonh Xayavong v. Sunny Gifts, Inc. (cite not yet available). In this case, the creditor, Sunny Gifts, seized an automobile titled in the Xayavongs’ names as husband or wife. The appellate court in this case held that the presumption established by the Florida Supreme Court in favor of tenants by entireties ownership of all jointly owned marital property does not apply to cars. The reason for the court’s holding was that a Florida statute, F.S. 319.22, states that when co-owners title a vehicle using the conjunction "or" the vehicle shall be held in joint tenancy (not tenants by entireties). The court said that the statute eliminates uncertainty about the form of ownership, and therefore, the presumptions in Beal Bank are not needed to resolve ambiguity of the owners’ intent.

Interesting, the same statute says that when a married couple owns a car as husband and wife, then upon the death of the first spouse to die ownership does not automatically pass to the survivor. Automatic transfers upon death to a co-owner are known legally as "survivorship" of title. In Beal Bank the Supreme Court said clearly that survivorship of title is a necessary element of tenancy by the entireties. Therefore, a car owned by husband and wife also cannot be owned as tenants by entireties because by statute the essential element of survivorship is absent.

So, after the Xayavong decisions of the Fifth DCA and the Supreme Court’s Beal Bank decision neither ownership of a car by husband or wife or ownership as husband and wife produces a tenancy by entireties car title. Those choices, and & or , are the only two options presented on Florida’s car registration form. These decisions logically make it impossible for a married couple to own a car as tenants by entireties.

Court Decision Bolters Tenancy By Entireties

A decision by the Fourth District Court of Appeals strengthens asset protection afforded by tenants by entireties ownership. The issue presented to the court was whether proceeds from the sale of an asset owned as tenants by the entireties retains its character as entireties property when deposited in an attorney’s trust account. The creditor argued that once the sales proceeds were deposited in an attorney’s trust account the property no longer had all six unities necessary to constitute a tenancy by the entireties. The appellate court held in the case of Passalino v. Protective Group Securities, Inc., 2004 WL 2534222 (Fla. App. 4 Dist) that transferring entireties property to a trustee for the benefit of the husband and wife does not terminate the unities of title or posession, where the parties clearly intended their property to be held as a tenancy by entireties by their jointly exercising beneficial ownership of the property and jointly controlling the property’s ultimate disposition. Even where the husband or the wife, unilaterally, could order the disposition of the money held in trust the entireties characteristic is preserved.

Liability of Transferee for Creditor's Attorneys Fees

If a debtor fraudulently conveys property to a third party, and the creditor expends legal fees recovering the property in a proceeding supplementary, can the creditor recover its attorneys fees from the third party who received and was in possession of the property. The answer, is "no" according to the decision of Florida’s Fourth District Court of Appeals in the case of Gaedeke Holdings, Ltd. v. Mortgage Consultants, Inc., 877 So. 2d 824. The court said that attorneys fees may be taxed against the debtor, and the applicable statute has no provisions for assessing fees against third party transferees

Gambling Debts Can Be Discharged in Bankruptcy

A debtor who borrows money on credit cards in order to gamble the money may still discharge these credit card debts in bankruptcy according to the court decision in In re Rembert, 141 F. 3d 277. The fact that a debtor takes available cash, or borrows money, and then proceeds to lose the money at the gambling table is not by itself indicative of fraudulent intent. The court decisions stated, "The fact that Rembert later admitted that it probably was not reasonable to believe that she would win enough money to repay the Appellants does not indicate a subjective intent not to repay her debts in this case. Accordingly, under the totality of the circumstances, we conclude that the bankruptcy court clearly erred in determining that Rembert possessed the necessary fraudulent intent for purposes of § 523(a)(2)(A). We thus agree with the district court's findings that at the time Rembert incurred the debts at issue she intended to repay them and believed that she would have the means to do so from her gambling winnings. Accordingly, the district court properly reversed the judgment of the bankruptcy court.

According to this decision, debtors subject to a judgement may attempt to pay the judgement by gambling their available liquid assets or even borrowing more money to wager.

LLC Fails To Protect Owner Against Negligence

A limited liability company does not provide blanket protection against personal liability. According to a recent decision by Florida’s Second District Court of Appeals the managing member of a LLC can be held personal liability for negligent actions without a piercing of the corporate veil. Estate of Canavan v. National Healthcare Corp, 2004 Fla. App. LEXIS 10998 (Fla. 2d DCA, July 23, 2004)

This case involved a negligence action brought against an LLC who owned a nursing home and the LLC’s sole member and manager who operating and managed the nursing home. The plaintiff alleged that the owner was personally negligent for approving the home’s budget, that the functioned as sole member of the nursing home governing body, that he ignored complaints of residents made to him personally, and that his mismanagement caused medical problems and damages to the residents. The owner argued that he could not be held personally liable since the nursing home was owned by the LLC.

The appellate court held that personal negligent is tortious conduct which is not shielded from personal liability, hence it was not necessary to pierce the corporate veil in order to make the alleged individual tortfeasor/member as a party defendant. The case is a reminder that LLC protection is not absolute. A LLC member or manager can be held personally liability for his or her own personal negligence or other tortious conduct while acting on the LLC’s behalf.

Some Annuities May Not Be Protected

Florida Statute 222.14 protects annuities owned by Florida residents from creditor claims and judgments. Some people have asked whether variable annuities are included under the same statutory protection. Variable annuities are similar to investment accounts which at the option of the annuitant convert to a fixed annuity some time in the future. The issue was whether the variable annuities prior to their “maturity date” when they start paying out an income stream liked a fixed annuity were intended to be included in the statutes’s definition of protected annuities. In 2001, the Florida Supreme Court considered this issue in the case of In Re Alan L. Goldenberg. Dr. Goldenberg was a physician who filed for bankruptcy to escape malpractice judgments and claimed exemption of several variable annuities. The Court concluded that Dr. Goldenberg’s variable annuities were protected under Florida Statute 222.14. The Court stated that, “the proceeds of an annuity contract where there is a surrender penalty are exempt from legal process....”

A “surrender penalty” is a fee the investor must pay if the annuity is cashed in within a certain amount of time after purchase. Some annuities, such as “no-load” annuities do not impose surrender penalties. The Court’s decision seemed to indicate that annuities that do not have surrender penalties may not be exempt. If you own annuities that never had a surrender penalty, and you anticipate creditor claims, it may make sense to covert these annuities to different type of annuities or to other protected assets.

Bankruptcy Decision: Tenants by Entireties

I received an email for an attorney about a bankruptcy court decision in Michigan which held that filing bankruptcy destroyed a tenancy by entireties. The decision was described as an indication of the end of tenants by entireties protection. Actually, such description is indicative more of the end of common sense than the end of tenancy by entireties protection, at least as far as Florida is concerned. Florida has a long and strong tradition of common law tenancy by entireties protection most recently championed by the Florida Supreme Court in the 2001 Beal Bank decision discussed elsewhere in previous post. Secondly, regardless of what happens in Michigan bankruptcy courts, the great majority of Florida debtors never come near any bankruptcy court in the protection of their assets. No Michigan bankruptcy decision should be interpreted as a retreat by Florida’s state court judges, including the Florida Supreme Court , from the concept of tenants by entireties ownership protecting against creditors of each individual spouse.

Bankruptcy Judge Attacks Entireties Ownership of Automobiles

In the case of In re Shilo, Case No. 03-9358, Judge Jenneman issued an Memorandum Opinion which held that a car owned by married couple as husband or wife with rights of survivorship is not legally owned tenants by entireties and is not exempt from the husband's individual creditors. The general rule in Florida is that both real and personal property owned tenants by entireties is exempt from the creditors of either spouse individually, although it is not exempt from any joint creditors

The Court recognized that the Florida Supreme Court decision in the Beal Bank case created a presumption that all personal property owned by husband and wife is owned tenants by entireties. The Judge found that Florida Statute 319.22 essentially pre-empts the Beal Bank decision as to jointly owned motor vehicles. The Statute says that a motor vehicle can be owned by husband "and" wife or by husband "or" wife- the choice is up to the married couple. Under the statute, when a car is owned husband "or" wife, either spouse may alientate title to the car. The Court held that because either spouse can transfer title to a car titled husband "or" wife, the creditors of either spouse can likewise access the individual's spouse's interest in the motor vehicle

Good Judge Makes Wrong Decision

As you many readers of this blog already know, the Florida Supreme Court declared that personal property owned jointly by a husband and wife is presumed to be tenants by entireties property which is immune from the creditors of either spouse individually. The Supreme Court made this holding in the case of Beal Bank, SSB v. Almand and Associates in 2001. The Supreme Court conldued that there is a strong policy favoring the presumption of tenants by entireties title when a married couple jointly own personal property. The Court said that the well-recognized presumption of tenants by entireties ownership of real property owned by married couples should extend to personal property as well.

The ruling seems clear, but it apparently is not clear to everyone. In a recent case in Orange County Circuit Court, of Sunny gifts, Inc., v. Vong Corporation, Judge Thomas Mihok entered an order stating specifically that the Beal Bank decision and its presumption of tenants by entireties does not extend to the attachment of a motor vehicle owned jointly by husband and wife. The judge permitted a creditor to levy on a jointly owned automobile.

The ruling in the Vong case not only contradicts the Florida Supreme Court, but it also ignores a unanimous three-judge decision of a Florida Appellate Court which held that the Beal Bank decision applied to jointly owned stock certificates. The debtor’s attorney, David Cohen of Orlando, Florida, stated that the judge based his ruling on a prior opinion of a Jacksonville bankruptcy judge. Apparently, the judge readily accepted the opinion of a single bankruptcy judge over the ruling and opinion of six Florida Supreme Court justices and three appellate court judges.

Mr. Cohen stated that he intends to appeal the Vong decision to the Fifth District Court of Appeals. If there is to be consistency in Florida case law one expects Mr. Cohen’s appeal to be successful and that Judge Mahok’s decision will be reversed.

Debtor Defeats Fraudulent Transfer Claims

It is possible to successfully defend allegations that you fraudulently conveyed assets to avoid creditors. Take the case, for example, of Thomas J. Meyer who filed bankruptcy in the case of In re Meyer, 2004 WL 527860 (Bkr. N.D. Ill). The bankruptcy trustee alleged Meyer conveyed assets to his wife within one year of filing bankruptcy to evade creditors and the bankruptcy trustee. Mr. Meyer said the transfers were part of estate planning and were done on the advice of his estate planning attorney. The court found in Mr. Meyer’s favor. The court said that the bankruptcy trustee had to prove that Mr. Meyer intended to make transfers to defeat creditors. As matter of fact, the court was convinced that the reason Mr. Meyer transferred assets to his wife was because his wife had just lost her job and had become pregnant; the transfers were designed to protect his wife financially by putting sufficient assets in her name. The judge also accepted Mr. Meyer’s explanation that the transfers were made in part upon the advice of his estate planning attorney who suggested balancing the ownership of assets between Meyer and his wife. Also, the court noted that all transfers were fully disclosed on the debtor’s bankruptcy schedules which showed good faith. The court did not find sufficient evidence that Mr. Meyer’s transfers of non-exempt assets were designed to hinder, delay or defraud his creditors.

Supreme Ct: no liability for fraudulent transfer

In May, 2003, The Eleventh Circuit Court of Appeals certified to the Florida Supreme Court the question of whether under Florida's Uniform Fraudulent Transfer Act or FUFTA there is a cause of action for aiding and abetting a fraudulent transfer when the alleged aider-abettor is not a transferee. The Supreme Court's unanimous answer in Lewis B. Freemen, etc., et al., vs. First Union National Bank ( decided January 29, 2004 ) was an unqualified “No.”

After considering legislative intent, the Supreme Court stated that, There is simply no language in FUFTA that suggests the creation of a distinct cause of action for aiding-abetting claims against non-transferees. Rather, it appears that FUFTA was intended to codify an existing but imprecise system whereby transfers that were intended to defraud creditors were to be set aside. The Court further stated, “Consistent with this analysis we conclude that FUFTA was not intended to serve as a vehicle by which a creditor may bring a suit against a non-transferee party (like First Union in this case) for monetary damages arising from the non-transferee party=s alleged aiding and abetting of a fraudulent money transfer.

This unanimous decision impacts all lawyers, accountants, bankers, and any other person who provide services to people transferring their assets. While Freeman v. First Union involved a banking institution, its legal principles apply to any situation where a client=s asset transfers elicit a claim under Florida's Uniform Fraudulent Transfer Act. Lawyers, accountants and others whose client is, or may become, a debtor cannot be held liable for simply aiding and abetting their clients’ asset transfers found to be reversible under the FUFTA. Freeman v. First Union is another milestone in the ongoing balancing of creditor remedies and debtor rights under Florida law

Tenants by Entireties

In March, 2001, the Florida Supreme Court decided the case of Beal Bank v. Almand where the Court adopted the presumption of tenants by entireties ownership for bank accounts owned jointly by husband and wife. Since then most attorneys assumed that all personal property owned jointly by spouses was presumed tenants by entireties property. This is important because tenants by entireties property is exempt from levy by creditors of either the husband or the wife individually. However there is one bankruptcyopinion which has taken a different view, and which has limited the Beal Bank decision to apply only to bank accounts.

I am referring to the bankruptcy case in the Jacksonville Division In Re McAnany where the court held that Beal Bank created a T by E presumption only as to bank accounts. However, the Supreme Court in Beal Bank specifically stated that, "we conclude that stronger policy considerations favor allowing the presumption in favor of a tenancy by the entireties when a married couple joinly owns personal property." The Supreme Court discussed in detail the titling of bank accounts in particular only because that was the only personal property at issue in this case. But the better view is that the Supreme Court wherever possible thoughout the opinion made its ruling as to personal property in general, and nowhere in the opinion did the Court specifically restrict is ruling to just one item of personal property, ie, bank accounts. Asset protection planning should continue to assume that any personal as well as real property owned jointly by spouses is presumed to be protected tenants by entireties property.

Liability for Fraudulent Transfer

On January 29, 2004, the Florida Supreme Court issued an opinion in the case of Freeman v. First Union Ntl Bank which is important to attorneys and others involved in Florida asset protection planning. Some creditors and their attorneys have attempted to thwart asset protection planning by attacking debtor’s attorneys and their financial institutions for their part in assisting fraudulent conveyances. The Supreme Court held that the Uniform Fraudulent Conveyance Statute (UFTA) as enacted in Florida does not provide a basis for claims against third parties of aiding and abetting a fraudulent conveyance. .

These attacks have been consistently rejected by Florida’s applellate courts. BankFirst v. UBS Paine Webber, Inc, 842 So. 2d 155 (Fla 5th DCA 2003), issued February 10, 2003.The Supreme Court also rejected arguments that the UFTA could be used to impose liability on anyone other than the recipient of a fraudulent conveyance. The Court held that the UFTA is a statutory device to undo a fraudulent conveyance, but it is not intended to service as a vehicle by which a creditor can sue anyone other than the transferee of the conveyance for the return of the property or its value.