Florida Asset Protection Blog

Deferred Compensation Is Not Protected As Pension Or Wages To Head Of Household

Retirement plans are protected from creditors in Florida, except when the "retirement plan" is not a retirement plan. Consider, for example, a client who told me about his "Senior Executive Retirement Plan (SERP)." Initially, I told him his plan is protected from creditors as a retirement or pension plan. Upon further review, it turned out that this employer benefit plan is not protected by Florida law.

Florida Statute 222.21 protects tax deferred retirement and pension plans including most IRAs. The statute refers to specific IRS Code sections, and the debtor’s benefit plan must fit under one of the listed Code sections. After our initial meeting, this client sent me written information about his SERP. It turned out that the Senior Executive Retirement Plan was actually a deferred compensation plan. The employer withheld parts of the client’s salary until after retirement. The company’s plan did not fall under any of the IRS deferred taxation retirement plans listed in the applicable Florida Statute 222.21. The client suggested that his deferred compensation might be protected under Florida Statute 222.11 which protects from garnishment wages of a head of household. His current compensation consist of wages, and therefore, he argued that the same compensation paid after his retirement is also a form of protected wages.

Florida courts have not protected money paid or payable to a debtor as deferred compensation. A Florida bankruptcy court rejected attempts to protect a debtor’s deferred compensation either as wages under F.S. 222.11 or as a form of a pension under F.S. 222.21. (221 B.R. 537). This example illustrates the importance of examining statements and underlying documents of your financial plans to make sure they are protected under Florida law.

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

Deed From Husband To Himself And Wife Creates Entireties Ownership Per Florida Statute

Tenancy by entireties ownership requires certain characteristics. One requirement is that husband and wife must acquire their interest in the entireties asset simultaneously. For instance, suppose a single man has a bank account. He gets married, and after marriage he adds his wife’s name to the account as a co-owner (not just an authorized signer). The account is not an entireties account because the husband and wife acquired their interests in the account at a different time and the man opened the account before being married. This week I encountered an exception to the rule about simultaneous ownership of entireties property. In this instance, my client purchased primary residence when he was single. After marriage deeded the property from his name to him and his wife jointly. The property exceeded ½ acre within a city so did not qualify for homestead protection. The issue was whether the residence could be considered a tenancy by entireties asset when the husband and wife did not acquire their interest at the same time in the same deed.

Florida statutes provide an exception to simultaneous title in the case of married persons owning real property as tenants by entireties. Florida Statute 689.11 provides that if one spouse owns a property in his own name and conveys the property by deed to both spouses the conveyance creates an estate by the entirety. Prior to the enactment of this statute an individual owner of homestead or other real property would have to convey the property to an unrelated third party and then have the intervening owner make a separate deed to the spouses jointly in order to establish entireties ownership of the property. In my client’s case his deed to his wife created ownership by the entireties, and his homestead would be thereafter protected from his individual creditors even if it was not fully protected under the homestead umbrella.

Tenants By Entireties Does Not Depend Upon Florida Residency

"Assets owned jointly by married Florida residents is exempt from the individual judgment creditors of either spouse because the joint assets are owned tenants by the entireties." Most people consider the foregoing sentence to be a correct principal of Florida law. The sentence is true, but it is also misleading. The issue is that the quote suggests that tenancy by entireties is an "exemption" applicable to "Florida residents" and the quote does not consider the nature or location of property in question. Actually, tenants by entireties is not a Florida creditor "exemption." Florida exemptions from creditor levy and in bankruptcy proceedings are set forth in Chapter 222 of Florida statutes. These statutory exemptions are applicable only to Florida residents. Tenancy by the entireties is not a statutory exemption; is a principal established by the traditions of Florida case law. Florida residency is not a prerequisite for tenants by entireties protection. More specifically, you do not have to be a Florida resident to enjoy the protection of jointly owned real property (land) or tangible personal property under the entireties umbrella if the same assets are situated in the state of Florida.

Consider, for example, a married couple residing in Georgia and owning jointly a parcel of real property in Florida. A judgment creditor of either spouse cannot levy on the Florida real estate owned by the Georgians because it is owned by the entireties under Florida’s property laws. A Florida married couple cannot protect as entireties property jointly owned real property situated in Georgia because Georgia property law does not recognize T by E. However, if the same Florida couple has a joint stock account or a partnership interest (or other intangible personal property) at a New York brokerage house the account may be protected from either spouse’s creditors because the law applicable to intangible personal property is the law of the debtor’s residence (Florida). The law applicable to physical assets (such as automobiles and boats) is the law where the asset is situated. Florida married residents cannot protect under the T by E umbrella a boat docked in Georgia.

To understand tenancy by the entireties you must understand that T by E is not truly an "exemption" created by Florida statutes for the exclusive benefit of Florida residents.

Liability For Dog Bites

"Every dog is entitled to one bite." This saying refers to a legal tradition that a dog owner cannot foresee his dog is dangerous before the dog has actually bitten someone. The first dog bite puts the dog’s owner on notice to protect the public from his dog. Prior to the dog’s first bite, the tradition is that the dog’s owner cannot be held liable to foresee his dog’s poor behavior. Many people discount legal risk from their dog because they see their own dog as peaceful and well-behaved. People do not contemplate that their well-behaved dog could ever get them in legal problem prior to that "first bite." In Florida, the law is different. There are Florida statutes on dog liability that holds owners liable prior to the dog’s first bite.

Florida Statute 767.04 states that the owner of any dog that bites any person while the person is in a public place, or lawfully in a private space, is liable for damages of dog bits regardless of the former viciousness of the dog or the owners’ knowledge of such viciousness. If your dog bites, you pay. What makes matters worse is that many standard homeowner insurance policies and umbrella liability policies do not cover dog bites. Citizens Liability Insurance, the state insurance company, does not protect homeowners from liability on account of their pets. Check your liability policy.

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

Tenancy By Entireties Protection Different In Some Other States

Tenants by the entireties protection from creditors is not the same in all states. Some states do not recognize the concept of tenancy by entireties ownership between married couples. Some states recognize entireties ownership of real property but not personal property. A client today claimed that a parcel of real property he owned in another state was protected from his individual creditors because the deed said it was owned as tenants by entireties. When I researched the laws of the state in question I found that the state laws did recognize entireties ownership of real property. However, the ownership had asset protection consequences different from Florida law.

In Florida, tenancy by entireties real property and personal property is completely exempt from the creditors of either spouse. The laws of my client’s state were different. The state’s case law held that entireties property is exempt from forced sale, but that a creditor could still put a lien on the debtor’s interest in the entireties property. When the entireties ownership terminates by divorce or by the spouse’s death the creditor can foreclose its lien against the debtor’s interest. Just because you own property in a state that recognizes entireties ownership do not assume that your property has the same degree of asset protection afforded to entireties assets by Florida’s laws.

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

Careless Paperwork Can Forfeit Tenants By Entireties Protection

Another attorney told me about a hearing where his client, a judgment debtor, lost $4,000 he had held in a tenants by entireties account because the debtor failed to verify all the documents which were signed when he and his wife opened the bank account. The debtor and his wife together went to their bank to open a tenants by entireties checking account . They signed bank forms. Subsequently, they received written bank statements which were titled as husband and wife, tenants by entireties. A judgment was entered against the husband. The husband’s judgment creditor garnished the joint account, and the creditor issued a subpoena of all bank records regarding the account. The debtor’s attorney filed a motion to dissolve the writ of garnishment on the grounds that it was clearly titled as a tenants by entireties account. The court denied the motion and sustained the creditor’s writ of garnishment.

At the court hearing on the motion to dissolve the writ the judgment creditor produced the debtor’s bank signature card which had boxes to be checked corresponding to different forms of account ownership. On the signature card the only box checked was that for "joint tenants with rights of survivorship." There was a box for "tenants by entireties", but that box was not checked. The creditor argued that the debtors intended account ownership with survivorship, but not as tenants by entireties, because they chose to check the survivorship box in leave unchecked the entireties box. The debtor’s attorney argued that regardless of what box had been checked the bank account was titled as "tenants by entireties" and that the actual title take precedence over what appears on the account application.

The court held that the account was not a tenants by entireties account because the debtors intended to open an account with rights of survivorship based on what they checked on the account application. In my opinion, the debtors’ intent is ambiguous. The Florida Supreme Court has ruled that where the ownership of joint marital accounts is unclear the law presumes that married couples’ financial accounts, and other personal property, is owned tenants by the entireties. The debtor’s attorney is considering an appeal. The small amount of money at stake may prevent this case from being resolved by an appellate court.

This story illustrates how important it is for married couples to pay attention to details when they open financial accounts which they intend to be tenants by entireties accounts.

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

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

Reader Question About Joint Bank Account

I received an email from a Blog reader who asked me to post and answer the following question. Although I do not often post questions (usually because they are too long) this one is precise and interesting:

"My son (John) lives with and supports a woman (Mary) and their young children in Florida. Recently, SunTrust setoff $8000 from a bank account they jointly own for an old deficiency amount debt on a car loan in Mary's name alone. The monies in the account are from John's earnings. I know they cannot rely on tenants-by-entirety protection. Does the Head of Household prevent this set-off like it would a garnishment?"

The reader correctly points out that the bank account is not tenants by entireties because her son and Mary are not married; only married people can have entireties property. The money in the account may be protected from John’s creditors as John’s earnings because the question states that John supports Mary and their children. John is head of household, and earnings of a head of household are protected by Florida statute even after deposited in a bank account. However, John’s earnings in the account are protected only from own John’s creditors under the Florida statute earnings exemption. The earnings have no exemption from Mary’s creditors.

The joint account presumably is owned equally by John and Mary. Mary’s creditor correctly garnished the account and is entitled to Mary’s interest, if any, in the account funds. If John and Mary show to a court that John deposited all the money in the account, as the question states, a court may dissolve the garnishment. The creditor could argue to the judge that even if John put the money in the account, when he did so he made a gift of 50% of the money to Mary by virtue of this being a joint account. If John did gift half the money to Mary the money gifted would thereafter lose any protection as earnings of a head of household. Mary’s ability to write checks from the account supports the creditor theory that John has gifted half of the money to Mary.

The question states that SunTrust “setoff” the money. A setoff is not a garnishment. The question does not state the name of the car creditor. If SunTrust made the car loan and holds the deficiency judgment against Mary then SunTrust may have other grounds to claim the money in the account. The bank’s account agreement or car loan agreement may give it, the bank, setoff rights to recoup any car loan deficiency from money in the account at the same bank.

These people will need an attorney to sort this out. If SunTrust is not the car creditor I still think the car creditor has the strongest argument under these facts based on an implied gift by John to Mary of 50% of John’s deposited earnings.

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

Tenants By Entireties Ownership of Household Furnishings

A frequent question concerns protection of a debtor’s furniture, cloths, and other property located in the debtor’s primary residence. Personal property located within the homestead is not protected by Florida’s homestead laws which pertain only to real property. Built-in household appliances are usually considered part of the real property and are protected by homestead law. Furniture, electronics, artwork and other moveable tangible personal property is not under the umbrella of homestead protection. Personal property owned by a husband and wife may be tenants by entireties property, and if so, it is protected from the creditors of either spouse but not joint creditors. Household furnishings are not “titled” and their ownership is not registered with the government as is real estate and motor vehicles. The issue I am often asked is what does the individual debtor need to show a court to prove that his household tangible property is owned by the debtor and spouse as tenants by the entireties.

All tangible property owned by a husband and wife is presumed to be owned tenants by the entireties as long as it was acquired during the marriage. Other factual issues courts may consider to determine if household furnishings are owned by the entireties include whether the property paid for with a check from a joint checking account, whether the couple’s estate planning documents leave their household furnishings to the surviving spouse (most do), and whether the household furnishings are insured under a single insurance policy naming both spouses as insured parties. The debtor’s testimony that both spouses participated in the decision to purchase all household furnishings is also evidence of entireties ownership. There are exceptions to the general rule. Each spouse’s cloths and jewelry is probably individual property.

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

Workers' Compensation Benefit Protection From Creditors

I consulted today with a client who is the beneficiary of a workers’ compensation award. He currently receives monthly workers’ comp payments, and he expects an additional lump sum settlement in the near future. A creditor recently received a large court judgment against this client. The client wanted to know if the judgment creditor could garnish monthly workers’ comp payments or could levy upon the lump sum settlement after it is received and deposited in the debtor’s bank account.

Chapter 222 of the Florida Statutes included Florida’s property exemptions. None of the sections in Chapter 222 pertain to workers’ compensation benefits. However, the Florida Statutes treat workers’ compensation in a separate Chapter. Section 440.22 of the Florida Statutes provides that, “compensation and benefits shall be exempt from all claims of creditors, and from levy, execution and attachments or other remedy for recovery or collection of a debt.” At least one bankruptcy court stated that compensation benefits remain protected if they are deposited in a financial account as long as the money is traceable to the workers’ comp payment.

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