Many asset protection benefits for Florida residents are contained within Florida Statutes. These statutory exemptions are available only to people who permanently reside in Florida.
Salary or Wages
Wages, earnings, or compensation of the head-of-household which are due for personal labor or services, including wages deposited into a bank account (provided they are traceable and identified as such) are exempt from garnishment under Section 222.11 of the Florida Statutes. A debtor is head-of-household if he financially supports someone for whom he has a legal or moral support obligation, such as a spouse, child, or parent. The dependent does not have to reside in the debtor’s primary residence. When a husband and wife have a joint judgment debtor, only one of the spouses can be head-of-household. It is not enough, for instance, that a debtor earns more than his dependent spouse; the debtor has to earn enough money from all sources that the debtor is the dependent’s primary source of support considering the dependent’s income from all sources.
Head-of-household should not be confused with any rule regarding tax dependents. You may support someone for purposes of establishing head-of-household status even if you do not claim that person as a tax dependent on your federal income tax return.
A debtor can waive his wage exemption provided the waiver is informed and done in writing. Be careful when you sign promissory notes and other loan documents as many lenders include head-of-household exemption waivers inside their loan documents. A debtor may be surprised when a creditor garnishes wages to execute a judgment even though the debtor is a head-of-household.
Head-of-household protection may not be available to business owners. There are court cases holding that money designated as “salary” paid to the sole owner of an LLC or corporation is not “earnings” for purposes of garnishment exemption, but the payments are in the nature of profit distributions because the sole owner controls the amount and timing of the payments. Business owners need to carefully plan and design compensation to avoid falling into the same fact patterns involved in these adverse court decisions.
Life Insurance Policies and Annuity Contracts
Cash value in insurance policies and all annuities is protected from creditors’ claims by Florida Statute 222.14. While a Florida resident is alive, the cash value of any insurance policy she owns on her life or on another Florida resident is exempt from creditors’ claims. The protection afforded to the cash surrender value of a life insurance policy is only for the benefit of the owner/insured. Death benefits are not protected from the creditors of the policy beneficiary. The law does not protect the cash value of life insurance when the insured is someone other than the debtor; for instance a husband cannot exempt the cash value of a policy issued on the life of his spouse or child.
Perhaps the most popular financial product for asset protection planning is an annuity. Annuities are exempt from creditors pursuant to Florida Statute 222.13. Florida courts have liberally construed this statutory exemption to include the broadest range of annuity contracts and arrangements. Private annuities between family members are entitled to the exemption as are the proceeds of personal injury settlements structured as an annuity. Additional protection is available by purchasing international annuities. Particularly, Switzerland and Liechtenstein have laws which guard annuities from attack by creditors for outside countries including the United States
The protection of cash value of life insurance and annuities extends to proceeds of these assets after receipt. Florida courts have held that funds withdrawn from the cash value of a life insurance policy and annuity payments received by a debtor remain protected after they are deposited in a financial account as long as the funds can be accurately traced back to the exempt assets. The money does not have to be segregated in a separate account so long as it is traceable.
Only annuities issued to Florida residents in Florida are exempt. A current Florida resident who purchased an annuity in another state prior to moving to Florida may find that his annuity is not exempt from creditors when neither the prior state’s laws nor the terms of the annuity contract protect the annuity and its proceeds.
Pension and Profit Sharing Plans, IRAs
To prepare for retirement and to defer income taxation more and more individuals direct significant wealth into IRA accounts and other tax qualified retirement plans. In Florida, retirement money not only defers income taxation, but it is protected from judgment creditors as well. Florida Statute 222.21(2)(a) provides that any money or other assets payable to a participant or beneficiary in a qualified retirement or profit sharing plan is exempt from all claims from judgment creditors of the beneficiary or participant. There is strong public policy in favor of protecting retirement plans to avoid having debtors become dependent upon the State because a creditor has left them without any means of support after they retire. Florida Statutes specifically includes under the protection umbrella pension plans designated for teachers, county officers and employees, state officers and employees, police officers, and firefighters. IRAs are also exempt from creditors. A 2011 Florida statute expanded the definition of an IRA to include both rollover and inherited IRA accounts. Florida’s statutory protection of inherited IRAs take precedence over a U.S. Supreme Court ruling that inherited IRAs are not exempt under bankruptcy law.
As discussed further below, IRA accounts are best maintained in a Florida financial institution or branch to be covered by Florida’s exemption law
Disability income benefits under any disability insurance policy are exempt from legal process in Florida under a specific Florida Statute. The exemption includes health, life, and accident disability insurance. Federal law protects Social Security Disability benefits from judgment creditors.
Florida has one of the lowest automobile allowances in the country. Florida residents may protect up to $1,000 of equity in an automobile pursuant to Florida Statutes. The fact that a debtor needs his automobile to go to work does not protect the vehicle from creditors to the extent that the debtor’s equity (value less loan amount) exceeds $1,000. Leased vehicles are not at risk because the debtor does not own the automobile. There are no exemptions for other motorized vehicles such as boats or airplanes.
Prepaid College Plans
Florida prepaid college tuition plans and Florida’s 529 College Saving Plan are protected from creditors by Florida Statute 222.22.
Florida Statutes include several narrow asset exemptions such as professionally prescribed health aids, hurricane savings accounts (with restrictions), medical savings accounts, and unemployment benefits. A debtor’s bank account held in a custodian financial account for the benefit of a minor child under the Florida Uniform Transfers To Minors Act is also protected from the debtor’s creditors because the account is considered property of the minor beneficiary.
Federal Statutory Exemptions: Social Security
Social security benefits, including both social security income and disability, are exempt from creditor garnishment under Section 207 of the Social Security Act. Social security benefits retain their exemption after being deposited in to the beneficiary’s financial accounts. If a creditor actually attempts to garnish social security income, or even threatens garnishment to collect a debt, the creditor is in violation of federal law, and the debtor may be entitled to damages.
There are exceptions to the general rule about social security receipts. The U.S. Government may garnish up to 15% of your social security checks to collect money owed to the federal government for an over payment of benefits or some other cause. The same amount of social security may be garnished to enforce a court award of alimony or child support. In addition, the Internal Revenue Service may levy upon social security to collect a tax debt.
Application of Florida’s Exemptions In Other States
While federal law exemptions apply in all states, Florida’s state exemptions have no extraterritorial effect. Florida residents cannot export Florida exemptions to protect tangible and intangible personal property located in states other than Florida, especially against a judgment obtained or domesticated in another state’s court. Florida residents who work and maintain accounts or other property outside of Florida are subject to the exemption laws of the state where the work is performed and the property is situated.
Financial accounts are situated at the branch office where the account is maintained. For example, if a Georgia resident opens an IRA account at a Georgia branch of a national brokerage and subsequently moves to Florida, the IRA account may not be exempt because it is deemed to be anchored at the branch where it was opened. This person should move the account to a Florida branch of the same brokerage house or to a new broker with Florida offices.
Another example is a Florida debtor who works out of state. A judgment creditor may try to garnish the debtor’s wages though a writ of garnishment issued by the court in the state where the creditor can obtain personal jurisdiction over the debtor including a state where the debtor works or owns property. A judge in the foreign state who is enforcing a judgment entered or domesticated in that state would not apply Florida’s exemption of wages earned by the head-of-household in a wage garnishment proceeding.
Florida exemptions are applicable to any assets located exclusively within Florida such as a Florida homestead or other Florida real property. Both the judgment and the debtor’s assets must be located in a foreign state for the foreign state’s exemption law to supersede the debtor’s Florida exemptions.