Asset protection strategies in Florida can help shield your assets from potential judgment creditors after a lawsuit. Each person’s asset protection plan is based upon their particular facts and legal situation. Still, there are ten asset protection strategies that are the basis of most asset protection plans for Florida residents:
1. Risk Mitigation
Do not expose multiple family members to legal risk. If you are married, do not agree with any lender to have your spouse co-sign loan documents including notes and note guarantees. It is more difficult to protect you and your spouse from joint debts.
2. Appropriate Insurance
Some aspects of your life will unavoidably expose you and your spouse to joint debt. An example is car ownership that exposes both the driver and the owner to liability. A good asset protection strategy is to handle potential liability from car, or boat, ownership with umbrella liability policies obtained through your insurance agents.
Appropriate insurance is especially important for professionals. The types of insurance that professionals can obtain includes:
- Malpractice insurance (for attorneys and doctors)
- Personal liability insurance (including an umbrella)
- Fiduciary coverage, such
- Personal disability income insurance
- Personal automobile insurance
- Business non-owned and hired automobile insurance
- Leasing insurance (whether a tenant or landlord)
- D&O coverage
- Business worker’s compensation insurance
These types of insurance can cover your losses when sued should you lose. Even if you win, often the isnruacne policies will pay for your legal defense. The cost of your legal defense can be very high, so the coverage of legal expense costs is significant. Because the insurance kicks in before a creditor goes after your assets, proper insurance is the first line of defense.
3. Florida Homestead
The Florida Constitution protects your primary residence from levy and execution to collect a debt. Homestead ownership is Florida’s best asset protection tool. However, there are exceptions to homestead protection based upon the size of the homestead or the nature of the judgment debt.
To qualify for Florida homestead protection, you must generally establish six things:
- That you intend for the property to be your permanent and primary residence,
- That the home is less than 1/2 acre if it is in a municipality.
- That you actually own the property.
- That the property is located in Florida.
- That you live in the home.
As long as the above conditions are met, you may be able to claim the Florida homestead protection, which provides unlimited exemption of your Florida home. However, the Florida homestead is sometimes not as effective in a bankruptcy setting. Particularly, bankruptcy law states that the homestead exemption is limited to $125,000 if acquired within 1215 days prior to the debtor’s bankruptcy filing, unless the homestead was acquired by a family farmer, or the interest in the homestead was purchased with proceeds from a previously owned homestead.
4. Tenants By Entireties
Jointly owned marital assets are considered to be owned as “tenants by the entireties.” Entireties assets exempt from the creditors of either spouse. Joint marital ownership is the most cost effective asset protection for married couples against individual debts.
The tenants by entireties protection applies to both real and personal property. Essentially, property that is owned as tenants by the entireties is owned by “one person,” and neither spouse is able to sever the property on his or her own. Because neither spouse can divise the property or has a separate interest, a creidtor of only one spouse cannot collect on the entireties asset. However, keep in mind that this protection may not extend to IRS debt and certain other federal debts.
Keep in mind as well that entireties protection may not be helpful when it comes to vehicles and boats. In Florida, due to the dangerous instrumentality doctrine, the owner of a vehicle can be sued in case of a car accident. Owning the vehicle as tenants by entireties, then, needlessly exposes entireties assets to potential creditors.
5. Limited Liability Companies
Chapter 605 and 608 of the Florida Statutes govern the creation and rules surrounding limited liability companies. Using LLCs as a Florida asset protection vehicle is a very common part of overall asset protection plans. The best asset protection practice is to have the LLC or partnership members enter into an operating agreement that contains key provisions that further your asset protection goals. Just as an example, the operating agreement can restrict the transfer of certain interests to creditors of any one member and other third parties as well as prevent a creditor from participating in the LLC business or affairs. Finally, the operating agreement can set limitations and conditions on the priority of distributions, preferences and values on liquidation, voting rights, duties to contribute services and money to the entity, as well as various other provisions that dictate the arrangement among the different members.
Your stock ownership in a corporation can be taken by your judgment creditor. After levying you’re your corporation stock the creditor can take all cash and other assets held by the business. On the other hand, your membership interest in certain limited liability companies is generally not subject to levy, foreclosure, or most other collection remedies, although the creditor may be able to obtain distributions assigned to you.
6. Salary Exemption
In Florida, a wage garnishment is the legal remedy that a creditor uses to obtain salary or wages that are owed to the judgment debtor. However, Florida law allows a debtor to sometimes stop or delay a wage garnishment. Wages and salary constitute a debt owed by an employer to the debtor employee. A writ of wage garnishment enables the judgment creditor to take a portion of wages owed to the debtor. Wage garnishment is a special type of garnishment writ provided by Florida Statutes.
A creditor can file a Motion for a Continuing Writ of Garnishment in the case where the creditor obtained the judgment against you. Typically, a creditor will file this motion without notifying you in advance. The Court then issues the Writ of Continuing Wage Garnishment, and the debtor then has this document served onto your employer.
Florida statutes exempt the wages, bonuses, and commissions earned by a head of household from wage garnishment. There are important exceptions to this protection in the case of business owners or government creditors. Generally, a head of household is one that provides more than 1/2 support for a dependent, though there are exceptions.
7. Financial Products
Typical asset protection strategies often involves products that are exempt under Florida law. For instance, annuities of any variety and cash value life insurance enable ownership of investment securities through asset protected financial products.
For example, under Florida law, a creditor cannot attach the proceeds of an annuity. However, under bankruptcy law, this exemption may be limited to a 730-day residency requirement. To best protect annuity proceeds, these payments should be separated out from other assets. In this way, there will be less of a question as to whether certain funds are annuity proceeds or from another source.
Another asset protection financial product involves life insurance. Specifically, Florida law protects the cash value of some life insurance policies. Again, however, this protection is subject to additional requirements if you are claiming the protection in bankruptcy. An added benefit of life insurance policies as an asset protection tool is that these proceeds are not subject to probate when the policy names a beneficiary. However, if the beneficiary has creditors, you must take additional steps to protect these proceeds from those creditors–the policy alone is not enough.
8. Offshore Planning
It is possible to open and maintain bank accounts at banks located in the European Union or asset protection jurisdictions closer to the U.S. Using limited liability companies or trusts with foreign managers and trustees may remove your financial assets from U.S. court jurisdiction.
However, remember that some people have a too-optimistic view of offshore planning for asset protection. Many attorneys and financial professionals publish a lot of books and websites to promote offshore asset protection tools, which are often complicated and expensive. Clients then see these offshore asset protection as the best, though expesnive, solution to their creditor exposure. However, just because a financial product is expensive does not mean it is the best or even applicable to your situation. In reality, offshore asset protection is usually not the best asset protection technique for a Florida debtor. Because of Florida’s laws friendly to debtors, most Florida residents can limit their exposure without resorting to offshore planning. That being said, sometimes offshore planning may very well be appropriate, but it is important to understand how specifically an offshore asset protection vehicle will help you above and beyond what Florida law already provides.
9. Estate Planning
Typical estate planning uses legal tools that protect assets from the potential creditors of the heirs or trust beneficiaries. Property left to children outright has to pass through formal judicial probate, and the creditor’s of any heir could levy on the heir’s share of the probate estate. The better strategy is to leave one’s assets in a testamentary spendthrift trust for the benefit of the next generation. A beneficiary’s creditors cannot reach assets left to them in a properly drafted trust.
Whether or not you are using estate planning for asset protection, most people will need a will a living trust to provide instructions as to how your family should handle your assets after your death. Wills generally must be probated, but a living will does not need to go through probate. In terms of asset protection, an irrevocable trust is the most common tool to allow your estate planning to boost your protection from creditors. With an irrevocable trust, the grantor transfer assets to a trustee in the name of the trust and directs that trustee to follow the specifc instructions in the trust document.
10. Domestic Bank Accounts and Trusts
One key asset protection strategy is to use a bank located within the United States that is not subject to writs of garnishment. These bank are FDIC insured accounts with typical online access and banking features. Some states also have laws enabling domestic asset protection trusts to provide asset protection for the trustmaker as well as the beneficiaries.