Asset protection is an excellent estate planning tool to help ensure the efficient transfer of assets to another party and to protect, with certain limitations, said assets from creditors. The primary restriction on the transfer of assets is the Florida Uniform Fraudulent Transfer Act (FUFTA). Fla. Stat. § 726.105 (2020). If a transfer is deemed fraudulent, a creditor can petition to Court to avoid the transfer or seek payment for the value of the asset. Thus, it is critical to avoid any “badges of fraud.”
Fla. Stat. § 726.105 provides as follows:
(1) A transfer made or obligation incurred by a debtor is fraudulent as to a creditor, whether the creditor’s claim arose before or after the transfer was made or the obligation was incurred, if the debtor made the transfer or incurred the obligation: (a) With actual intent to hinder, delay, or defraud any creditor of the debtor; or (b) Without receiving a reasonably equivalent value in exchange for the transfer or obligation, and the debtor:
- Was engaged or was about to engage in a business or a transaction for which the remaining assets of the debtor were unreasonably small in relation to the business or transaction; or
- Intended to incur or believed or reasonably should have believed that he or she would incur, debts beyond his or her ability to pay as they became due. When determining whether a transfer is fraudulent, the courts look to the following statutory criteria: whether (a) The transfer or obligation was to an insider; (b) The debtor retained possession or control of the property transferred after the transfer; (c) The transfer or obligation was disclosed or concealed; (d) Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit; (e) The transfer was of substantially all the debtor’s assets; (f)The debtor absconded; (g) The debtor removed or concealed assets; (h)The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred; (i) The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred; (j) The transfer occurred shortly before or shortly after a substantial debt was incurred; (k) The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.
Florida Homestead Property
Florida Property Art. X, 4(a), Fla. Const. provides protection for a homestead against the judgement of creditors. Specifically, the section states: There shall be exempt from forced sale under process of any court, and no judgment, decree or execution shall be a lien thereon, . . . the following property owned by a natural person: (1) a homestead, . . . if located within a municipality, to the extent of one-half acre of contiguous land, upon which the exemption shall be limited to the residence of the owner or the owner’s family; (2) (2) personal property to the value of one thousand dollars. Thus, a person’s homestead, within a municipality, it protected up to ½ of an acre, that acre being contiguous and including the dwelling.
If your house is on one parcel or land that is connected to an adjacent vacant parcel of land that you also own, the vacant land might not be protected. Part of your homestead property is vacant land connected to the homestead proper. The Middle District bankruptcy court held that “[t]he Debtor is not entitled to exempt the Second Parcel under the Florida constitutional homestead exemption. The Second Parcel has its own address, house, and driveway and is not used by the Debtor as her residence. So, even though it is contiguous to the Debtor’s home, the two parcels are not used in connection with one another.” In re Fowler, 2016 WL 1444195, *3 (Bankr. M.D. Fla. 2016). In that case, the court found that the separate parcel was not protected “because the Debtor’s home is a separate structure on a separate parcel with another address than the home occupied by the Debtor’s adult daughter. For all legal purposes, it is a separate and distinct residence from the Debtor’s home . . .” However, the homestead protections of the Florida constitution or liberally construed in favor of the debtor. JBK Associates, Inc. v. Sill Bros., Inc., 191 So.3d 879 (Fla. 2016); Lopez; Callava v. Feinberg, 864 So.2d 429 (Fla. 3d DCA 2004); Hospital Affiliates of Florida, Inc. v. McElroy, 393 So.2d 25 (Fla. 3d DCA 1981); In re Yettaw, 316 B.R. 560 (Bankr. M.D. Fla. 2004).
However, in the case of In re Mohammed, 376 B.R. 38 (Bankr. S.D. Fla. 2007), the debtor was able to establish that the vacant lot attached to there was part of their homestead as it was consistently used as the backyard of the property. We recommend putting up a fence around the exterior of the vacant lot, or adding patio furniture/outdoor BBQ area, storage shed, garden…something that shows you use the vacant lot, in its entirety, as one property.
If you are not sure whether you are taking advantage of Florida’s homestead protections, you should contact us immediately to set up a free 30-minute consultation with a qualified member of our team.
Can a creditor take my income?
Under Fla. Stat § 222.11(2)(c), generally only 25% of wages may be garnished. However, whether the wages qualify for exemption depends on whether “a person’s employment is a salaried job or is in the nature of running a business.” Brock v. Westport Recovery Corp., 832 So.2d 209, 211 (Fla. 4th DCA 2002). For instance, where a debtor runs their own business and has control over the timing and amount of compensation, the compensation will not be considered a wage for the purposes of the exemption. However, where “an arms-length employment agreement with his business providing for a set salary or wages, the ‘earnings’ exemption applies.’” In re Bhalla, 2018 WL 3854018, *3 (Bankr. M.D. Fla. 2018). But, where the owner is also an employee; it is near impossible to establish eligibility for the exemption.
Are assets that I own jointly with my spouse protected from creditors?
What is “Tenants by the Entirety”?
Tenants by Entirety Property is a unique type of title where husband and wife own the property jointly. According to the Florida Supreme Court’s holding in Beal Bank, SSB v. Almand & Associates, 780 So.2d 45 (Fla. 2001), the mere presence of both spouses’ names on the account is sufficient to create the presumption of tenants by the entirety. Property held as tenancy by the entirety is protected from the creditors of a single spouse. Winters v. Parks, 91 So. 2d 649 (Fla. 1956). Again, Florida law provides that any property owned by the spouses as tenants by the entireties is protected from a judgment creditor of either of the individual spouses.
Tenants by the entirety’s protection exists to the extent a creditor has a claim against only one of the spousal owners. Transferring all assets so that they are held as tenants by the entirety can provide great asset protection. However, the appearance of impropriety could make such a transfer deemed fraudulent and/or invalid and it can lose its creditor protection.
Under Florida judicial law, in order to qualify as a tenancy by the entirety, property in question must have the following characteristics:
- joint ownership and control,
- the spouse must have identical interest in the property,
- the spouse’s interests in the asset must have originated in the same instrument,
- the spouse’s interests must have commenced simultaneously,
- the joint owners must have been married at the time they acquired the property, and
- the surviving spouse will own the property after either spouse dies.
When entireties ownership of joint property is questioned, both spouses must have evidence that they intended to take title as tenants by entireties. Additionally, Florida Statute 655.79 of Florida Statutes states that any bank account owned by husband and wife is presumed to be a tenants by entireties account unless there is clear and convincing evidence of their contrary intent. A creditor could rebut this presumption of entireties bank accounts by showing that the spouses intended to own the account property in some other manner of joint ownership. Incorrectly filling out a bank account application or signature card may prevent entireties ownership. If your financial account application indicates an alternative form of ownership a court may find that you and your spouse did not want a TBE account.
If you have questions about how your assets are titled and/or if they are titled correctly, call the Horton Law Group to schedule a free 30-minute consultation with a qualified member of our team.
Are my retirement accounts protected from Creditors?
An IRA presents an asset which is potentially protected from creditors under Florida statute. Fla. Stat. § 222.21(2)(a) provides that “any money or other assets payable to an owner, a participant, or a beneficiary from, or any interest of any owner, participant, or beneficiary in, a fund or account is exempt from all claims of creditors of the owner, beneficiary, or participant . . .”
Three requirements must be met for this protection:
(1) the IRA’s plan or governing instrument must have been initially determined by the IRS to be exempt from taxation under the provision of the Internal Revenue Code;
(2) over time, the IRA must have been maintained in accordance with that plan or governing instrument; and
(3) there must have been no final and non-appealable proceeding subsequently determining that the plan or governing instrument is no longer exempt from taxation under that provision of the Internal Revenue Code. Assuming the above three prerequisites are met, the assets of the IRA are protected from creditors. Thus, it is imperative that you continue to follow the three prerequisites above. Do not take any unauthorized distributions or take other action which would jeopardize the creditor exempt status of the IRA.
However, any distribution from the plan will lose their protected status. Universal Physician Services, LLC v. Del Zotto, 2016 WL 6902354 (M.D. Fla. 2016). To this end, it will be best to defer distributions under the plan for as long as possible. Under the SECURE Act, distributions must begin at 72 years of age.
Other retirement assets retain the same type of protection. 401ks are entirely protected from creditors. So are 403b accounts, IRAs, inherited IRAs, Roth IRAs, Simple IRAs, among others.
Florida is a debtor friendly state. However, it is our philosophy that it is better to be safe than sorry. We highly recommend proper estate planning BEFORE there is even a hint of being sued – in any capacity.
Asset protection strategies include:
- Properly incorporating your business (limited liability)
- Obtaining the proper type and amount of insurance,
- Utilizing Florida Homestead protections
- Utilizing Tenancy by the Entireties if applicable
- Estate Planning
Why choose the Horton Law Group?
At the Horton Law Group, we treat our clients like family. We are actively involved in the community. We are well respected in the courtroom, and we have a stellar reputation in the community. We take pride in our work. We like what we do, and we are good at it. We are confident that you will be happy with your decision to hire the Horton Law Group to represent all of your asset protection needs. Please contact the Horton Law Group, P.A. at 561-299-0018 or email email@example.com to schedule a free 30-minute consultation with a qualified member from our team.