An attorney sent me a question regarding the exemption of money his client received from the sale of his Florida homestead. The client deposited the homestead proceeds in a separate and segregated bank account. The client began searching for a new home in Florida. Florida courts have protected homestead sale proceeds for a “reasonable time” while debtors seek a new home to live in. In this case, the debtor’s employer notified him that his job was being transferred to another state. The debtor will have to move out of Florida. As a result, the debtor has stopped looking for a new home in Florida, and the debtor no longer intends to reside in the state. The issue is whether the debtor loses protection of his “homestead account” once he changes his future plans. There are no court decisions on this point.
There are bankruptcy court decisions which make clear that a debtor may spend money from a homestead account on things other than the purchase of a homestead while the homestead search in ongoing. Therefore, it would seem that debtor could transfer or convert part of his homestead proceeds to an alternative protected asset or to another person during the time the debtor is, or was, searching for a new Florida homestead. It will be difficult for either the creditor or debtor to prove if and when this debtor abandoned plans to live in Florida. It is possible the debtor may have anticipated the employer’s decision to move him out of the state long before he received written notification.
After it had become clear because the employer’s written notice or the debtor’s own actions that the debtor intended the leave Florida I think the creditor could garnish the homestead sale proceeds. If the debtor had taken other steps to protect the money prior to a clear change of plans the debtor has an argument that the money is protected. However, the debtor’s transfer of money out of the homestead account creates a logical argument for his creditor. Once the debtor makes plans to transfer or convert any part of his homestead proceeds he, the debtor, by definition, has changed his intent to reinvest that same money in a new homestead so that the money being transferred or converted is no longer exempt and its transfer or conversion is fraudulent as to his creditors.