Asset protection is a process of protecting estate assets against attack by creditors. A well-designed asset protection plan builds a protective fort around the client's estate and guards family wealth from external creditor attack. The most effective asset protection fortress contains multiple layers of protection, so that even if a creditor can defeat one protective device, there are other impediments to the creditors attack which surround the family’s nest egg. Asset protection is, therefore, a fundamental building block of estate planning.

Constitutional Protections

Under the Florida Constitution one’s home is truly his castle, a castle that is impenetrable by creditors. Florida courts have liberally expanded definitions of homestead property which legally includes more than just a single family house. Condominiums are afforded full homestead protection as are almost any other type of primary residence such as a manufactured home or even a mobile home. In whatever form, a person’s equity investment in his primary residence cannot be seized by a creditor for any reason.

Article 10, Section 4(a)(1) of the Florida Constitution protects a person’s homestead residence from forced sale under process of any court. That section clearly states that no judgment or execution shall become a lien on homestead property. The Constitution defines homestead as one’s principal place of residence up to one-half acre within a municipality and up to 160 contiguous acres in any county in Florida. To qualify for homestead protection, a debtor must be a Florida resident and must reside on the homestead property.

What makes Florida’s homestead protection such a powerful asset protection feature are it’s geographical scope and its unlimited monetary protection. So long as a person’s primary residence is located outside the geographical limits of a municipality, the constitution protects homestead properties up to 160 contiguous acres. All property contiguous to the primary residence is under the homestead umbrella, even if the property comprises multiple lots and separate legal descriptions. A Florida resident can invest millions of dollars in large estate homes and farms and protect the full value of these luxury residences under the protection of Florida’s homestead provisions. The most noteworthy feature of Florida’s homestead law is its lack of any monetary cap on homestead protection. While many states around the country have homestead protection in their law, almost all other states have some level of valuation limit of homestead protect.

Common Law Protection: Tenants by Entireties

Common law refers to law established through the precedent of case decisions by judges. Common law decisions in Florida, and in many other states, have afforded creditor protection to property which is jointly owned by a husband and wife as tenants by entireties. Any two individuals may own property, real or personal, as joint tenants with rights of survivorship. Either joint tenant may sell or alienate his interest in the joint property while both joint tenants are alive. After the death of one joint tenant, ownership is vested by operation of law in the surviving joint tenant(s). Because a joint tenant can voluntarily dispose of his property while he is alive, a creditor is able to execute on a joint tenant’s interest to satisfy the debts of such individual joint tenant.

Married persons may own property as joint tenants with rights of survivorship. In fact, most married couples purchase and own their assets in this form. Bank accounts and financial instruments owned by married persons are often designated as being owned jointly with rights of survivorship. A creditor of either spouse may seize the interest the debtor spouse holds in joint tenant property. Courts will presume that the debtor spouse owns a 50% interest in joint tenant property unless the facts demonstrate a different allocation of ownership. If the creditor seizes the debtor spouse’s interest, the creditor would become a tenant in common with the non-debtor spouse.

Unlike joint ownership with rights of survivorship, tenants by entireties ownership affords asset protection benefits. Tenants by entirety (“TE”) is a special form of joint tenancy ownership which is available only to married persons under the common law. This common law concept relates back to 18th century English concepts that a husband and wife were joined as a unit which unit is separate and distinct from either spouse acting individually. The tenancy by entirety is, conceptually, a separate entity of ownership which can act only with the consent of both spouses. While tenants by entireties has been abolished in England, it survives under the common law of many jurisdictions in the United States, including Florida, where it is well established in a long line of Florida case law decisions.

Both tenants must join in any transfer or alienation of TE property, and one spouse cannot transfer his interest in TE property without the joinder of the other spouse. A creditor of one spouse cannot seize involuntarily an interest in TE property which the spouse cannot transfer voluntarily. Therefore, a creditor of a single spouse cannot involuntarily seize property held by the debtor as tenants by entirety with his spouse. In the case where both spouses are jointly indebted to a particular creditor, that creditor can involuntarily seize TE property owned by the two spouses. TE protection exists only if a creditor has no rights against one of the spousal owners.

Any type of property, including all real property, tangible personal property, and intangible personal property, may be owned by a married couple as tenants by entireties. Whether a married couple owns property as joint tenants with survivorship or as tenants by entireties depends on the intent of the spouses. Married couples in Florida must formulate and also demonstrate their affirmative intent to own a joint property by the entireties in order to place the subject property under the umbrella of asset protection. The most prevalent issue in TE protection is proving the fact of entireties ownership.

In the case of real property the Florida courts presume that real property titled jointly between a husband and wife is intended to be owned as tenants by the entirety. Even where the deed to property does not state “tenants by entireties”, Florida courts presume that the real property is owned TE so long as the husband and wife are both listed as owners and no alternative form of ownership is designated on the face of the deed. For this reason, even where a husband and wife jointly own non-homestead property, that property will be protected against the creditors of one spouse on the theory that the property is owned by the entireties.

The nature of spousal ownership of personal property is more difficult to determine because (unlike real estate) there is no presumption in Florida case law favoring entireties ownership. Spousal ownership of personal property rests on the intention of the spouses which, in turn, must be inferred from available evidence. When an ownership of personal property is registered on a formal title, the nature of ownership is easily ascertained. Automobile ownership, for example, is determined by the designation on the title instrument. Where the car title reads “husband/wife, tenants by the entireties”, it is clear that the parties intend to own the automobile as TE.

For married persons, TE is attractive because it is the quickest and simplest form of asset protection against the creditors of either spouse individually. This form of ownership, however, does not provide secure asset protection over the long term. First, a divorce between the spouses immediately converts the TE into a joint tenancy between the two former spouses. In that case, the assets of the debtor spouse would immediately be exposed his or her creditors. Likewise, a death of one spouse terminates the TE and vests the property solely in the surviving spouse. If the surviving spouse has creditors, the protection afforded by the TE ownership is lost. Secondly, TE ownership creates problems in the areas of estate planning and estate tax avoidance. A married couple that owns most of their assets as TE may lose the ability to take full advantage of each spouse’s estate tax credit. This happens because, upon the first spouse’s death, all TE property passes to the surviving spouse by operation of law. Another estate planning disadvantage of TE ownership is that when the first spouse dies, he or she loses the ability to control the ultimate disposition of TE property. This occurs because the surviving spouse becomes the outright owner of the property on death and thereafter has the power to control the ultimate disposition of the property.

Statutory Asset Protection

The greatest number of asset protection weapons is contained within the Florida Statutes. Over the years, the Florida legislature has established numerous classes of assets which are statutorily exempt from claims of creditors.

• 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. Effective October 1, 1993, Florida limited this exemption to $500 per week of net disposable earnings. Disposable earnings are defined as that part of earnings of a head of household remaining after the deduction of amounts required by law to be withheld. If gross wages an salaries in excess of $500 per week are protected under the statutes so long as the net disposable earnings which the wage earner takes home is less than $500 per week. Even the excess over $500 per week of disposable earnings cannot be attached unless the debtor agrees in writing. Thus, from a practical standpoint, the vulnerability of head of household wages applies only to the extent that a creditor requires a debtor to waive protection of his excess earnings in return for the extension of credit.
  
  
• Life Insurance Policies and Annuity Contracts Insurance and other financial products are protected from creditors’ claims by Florida Statutes. These statutory exemptions make it possible for clients to invest well in financial products which afford asset protection as well as financial planning and tax planning and tax planning benefits. One class of protected financial investments is life insurance. Section 222.13(1) of the Florida Statutes provides as follows: "Whenever any person residing in this state shall die leaving insurance on his life, the said insurance shall inure exclusively to the benefit of the person for whose use and benefits such insurance is designated in the policy, and the proceeds thereof shall be exempt from the claims of creditors of the insured...” Notwithstanding the foregoing, whenever the insurance, by designation or otherwise, is payable to the insured, his estate, or to his executors, the insurance proceeds shall become a part of the insured’s estate for all purposes and may be subject to claims by the creditors of the deceased. In other words, where a debtors owns insurance on his own life and designates the beneficiary of said policies, upon the debtors death, the full death benefit shall be paid to the designated beneficiaries and shall be protected from the claims against the deceased.
  
  While a Florida resident is alive, the cash value of any insurance policy he owns on his life or on other Florida residents is exempt from creditors claims. This exemption is true whether the policy is issued on the life of the owner or upon the life of a third party provided the third party is a resident of the State. Florida Statute 222.14 provides “(t)he cash surrender values of life insurance policies issued upon the lives of citizens or residents of the state... shall not in any case be liable to attachment, garnishment or legal process in favor of any creditor of the person whose life is so insured..., unless the insurance policy... was affected for the benefit of such creditor.” The protection afforded to the cash surrender value of a life insurance policy is only for the benefit of the owner/insured of said policy.
  
  Perhaps the most popular financial products for asset protection planning are annuities. Florida Statute 222.14 provides that proceeds from an annuity contract issued to residents of Florida are not subject to attachment, garnishment or legal process in favor of any creditor of the beneficiary of the contract, unless the annuity contract was effected for the creditor’s benefit. 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 a structured personal injury settlement deposited into the debtor’s bank account. Bankruptcy court decisions in Florida have held that lottery winnings are exempt from levy if the winnings are paid in the form of an annuity to the recipient. Because of their relatively high interest rates, safety, an tax deferral features, annuities are a favored asset protection vehicle in Florida. There is no dollar limitation on the amount of assets which can be sheltered from creditors in the form of annuities.
  
  
• Pension and Profit Sharing Plans, IRAs To prepare for retirement and to defer income taxation, more and more individuals, whether they be economically middle class or affluent, direct significant wealth into IRA accounts and other qualified retirement plans. In Florida, retirement money not only avoids current income taxation, but is protected from creditors as well. Florida Statute 222.21(2)(a) provides that any money or other assets payable to participant or beneficiary in a qualified retirement or profit sharing plan is exempt from all claims from creditors of the beneficiary or participant.