Buying a Florida Homestead to Protect Assets from Creditors
Florida law permits a person to purchase a homestead with the specific intent of protecting money from creditors. The Florida Supreme Court has confirmed that converting non-exempt cash into an exempt homestead is constitutionally protected, even when the purchaser openly acknowledges that asset protection is the primary motive. This principle makes the Florida homestead one of the most powerful planning tools available to judgment debtors anywhere in the country.
The Havoco Decision: Florida’s Definitive Ruling
The foundational case is Havoco of America, Ltd. v. Hill, 790 So. 2d 1018 (Fla. 2001). Elmer Hill faced a $15 million jury verdict entered in December 1990. Approximately two weeks later, Hill purchased a $650,000 home in Destin, Florida, using non-exempt funds. He later filed Chapter 7 bankruptcy and claimed the home as his exempt homestead.
The creditor argued that allowing the homestead exemption would reward deliberate fraud. The case worked its way through the bankruptcy court, the federal district court, and the Eleventh Circuit Court of Appeals, which certified the question to the Florida Supreme Court. The certified question asked whether Article X, Section 4 of the Florida Constitution protects a homestead acquired with non-exempt funds and with the specific intent to hinder, delay, or defraud creditors.
The Florida Supreme Court answered yes. The court held that the three exceptions to the homestead exemption listed in the Constitution are exclusive: taxes, purchase money obligations, and construction liens. The legislature cannot add exceptions through statute, and courts cannot judicially create a fourth exception based on the debtor’s intent.
The court drew a critical distinction, however. While converting legitimate funds into a homestead is protected regardless of motive, the protection does not extend to funds obtained through fraud, theft, or egregious misconduct. That limitation is discussed in the creditor exceptions article.
What the Conversion Protection Covers
The Havoco ruling protects several specific forms of homestead investment.
A debtor may use non-exempt cash to purchase a new Florida homestead. The purchase is protected even if the debtor already faces a pending lawsuit or an existing money judgment. No waiting period applies. Homestead protection attaches as soon as the debtor occupies the property as a permanent residence.
A debtor may pay down or pay off an existing mortgage on a homestead. Reducing the mortgage balance increases the debtor’s equity in the home, and that equity is fully protected. Courts have specifically held that mortgage paydowns cannot be reversed as fraudulent conversions under Florida’s Uniform Fraudulent Transfer Act because the constitutional protection supersedes the statute.
A debtor may invest money in improvements to an existing homestead. Renovations, additions, and upgrades that increase the home’s value are all protected. The improved value becomes part of the exempt homestead, and creditors cannot recover the amount invested in the improvements.
A debtor may sell one homestead and purchase a more expensive replacement. Florida law protects the sale proceeds of a homestead when the owner intends to reinvest in a new homestead within a reasonable time, provided the proceeds are not commingled with non-exempt funds. This allows a debtor to upgrade from a modest home to a more valuable property, sheltering additional non-exempt funds in the process.
Why the Fraudulent Transfer Statute Does Not Apply
Florida’s Uniform Fraudulent Transfer Act (FUFTA), codified in Chapter 726 of the Florida Statutes, allows creditors to reverse transfers made with the intent to hinder, delay, or defraud creditors. A conversion of non-exempt assets to an exempt homestead would normally appear to fall within FUFTA’s reach.
The Florida Supreme Court resolved this conflict directly in Havoco. Because the homestead exemption is a constitutional provision and FUFTA is a legislative statute, the Constitution takes precedence. The court noted that Florida’s fraudulent transfer laws have no effect on the constitutionally created homestead exemption. A statute cannot override or diminish a right established by the Constitution.
This principle gives the homestead conversion a level of security that statutory exemptions do not enjoy. Statutory protections like the annuity exemption or the head-of-household wage exemption could theoretically be reduced or repealed by the legislature. The homestead exemption, as a constitutional provision, requires a constitutional amendment to modify, which requires a statewide voter referendum.
The Fraud Exception: When Conversion Is Not Protected
The Havoco court drew a clear boundary. The protection applies to the conversion of funds that the debtor legitimately owns, regardless of the debtor’s intent to shelter those funds. The protection does not apply when the funds themselves were obtained through fraud, theft, breach of fiduciary duty, or other egregious misconduct.
In that situation, a creditor may seek an equitable lien or constructive trust on the homestead for the amount traceable to the wrongful conduct. The creditor must prove two things: that the debtor obtained the specific funds through egregious behavior, and that those funds can be traced into the homestead purchase or improvement.
The distinction is between motive and source. A debtor who moves money into a homestead to avoid paying a judgment is protected. A debtor who steals money and uses the stolen funds to buy a home is not. The intent to shelter assets is irrelevant. The origin of the funds is what matters.
Florida state courts have generally limited the fraud exception to cases involving criminal fraud, traditional common law fraud with intentional deceit, and Ponzi scheme proceeds. Bankruptcy courts have applied a broader definition that includes funds received through fraudulent transfers from third parties, even when the homeowner did not participate in the original fraud.
Bankruptcy Limitations on Homestead Conversion
The Havoco decision governs state court proceedings. Federal bankruptcy law imposes separate and more restrictive rules on homestead conversions that override Florida’s constitutional protection within the bankruptcy context.
Under 11 U.S.C. § 522(o), the bankruptcy court can reduce a debtor’s homestead exemption by the value of any non-exempt property converted to homestead within ten years of filing bankruptcy if the conversion was made with intent to hinder, delay, or defraud creditors. This provision directly targets the type of conversion that Havoco protects in state court.
Under 11 U.S.C. § 522(p), if the debtor acquired the homestead within 1,215 days (approximately three years and four months) before filing bankruptcy, the homestead exemption is capped at $189,050 (as periodically adjusted). The cap applies regardless of the debtor’s intent or the source of funds. A debtor who has lived in the home longer than 1,215 days is entitled to the full unlimited Florida exemption in bankruptcy.
Additionally, under 11 U.S.C. § 727, a bankruptcy court may deny the debtor’s entire discharge of unsecured debts if the debtor converted assets to a homestead with the intent to defraud creditors. The debtor keeps the homestead but remains liable for all pre-bankruptcy debts.
| Scenario | State Court | Bankruptcy Court |
|---|---|---|
| Convert cash to homestead with intent to shelter from creditors | Fully protected under Havoco | Exemption reduced by amount converted within 10 years (§ 522(o)) |
| Purchase homestead less than 1,215 days before filing | Fully protected | Exemption capped at ~$189,050 (§ 522(p)) |
| Purchase homestead with stolen or fraudulently obtained funds | Equitable lien for traceable amount | Equitable lien plus potential discharge denial |
| Pay down mortgage on existing homestead after judgment | Fully protected | Amount paid within 10 years may reduce exemption |
These bankruptcy restrictions are a primary reason that asset protection attorneys often counsel clients to avoid bankruptcy when possible. A debtor who defends creditor collection in state court retains the full benefit of Havoco and the unlimited homestead exemption.
Practical Considerations for Homestead Purchasers
The timing of a homestead purchase matters, though not because of any waiting period under Florida law. A debtor who purchases a homestead before creditor problems arise faces fewer challenges than one who purchases after a judgment has been entered. The earlier purchase reduces the likelihood that a creditor will argue equitable lien or constructive trust theories, and it eliminates the bankruptcy timing issues entirely if the purchase predates the 1,215-day window.
Title must be held in the name of a natural person or a revocable living trust. A homestead purchased in the name of an LLC, corporation, or irrevocable trust will not qualify for the exemption. This is one of the most common mistakes in homestead planning and one that cannot be corrected after the fact without risk.
The debtor must actually occupy the property as a permanent residence. Intent alone is not sufficient. Courts look for physical occupancy combined with residency indicators such as a Florida driver’s license, voter registration, vehicle registration, and the debtor’s tax return address. A vacant property awaiting move-in does not qualify.
The property must comply with the acreage limitations: one-half acre within a municipality or 160 acres outside a municipality. There is no dollar cap on value. A debtor may purchase a $10 million home and protect the entire value, provided the lot does not exceed the applicable acreage limit.
For a complete overview of how the homestead exemption works, see the Florida homestead law guide. For information about how proceeds from a homestead sale can be reinvested, see the discussion of selling a homestead.