An attorney and his non-attorney spouse owned a company that grew a valuable agricultural product through their separate non-legal limited liability company. They asked if they would lose homestead protection if they leased part of their homestead to the LLC to grow their product.
The first issue is whether a homeowner may operate a commercial enterprise on a homestead. There is some disagreement among bankruptcy courts. There are decisions in southern Florida denying homestead because of partial commercial use while courts in other areas of Florida allow commercial enterprises on homestead located outside of a municipality. I think state courts would not deprive homestead protection just because the owner/debtor conducted a business on the property. I do not think a home-based business forfeits homestead status in most courts.
The particular issue in this question was whether the fact that the business was operated through an LLC that was making rental payments to the owners individually would risk homestead status. Homestead laws are designed to protect the owner and his family. I think that so long as the LLC is principally owned by the homestead owner, or his family, a court would not take away homestead protection. The fact that the LLC is making rent payments can be explained as part of tax planning or other business considerations.
Keep in mind that bankruptcy courts seem to be less tolerant of commercial activity on homestead property than state courts. I find that state court judges are reluctant to let creditors take a debtor’s house for technical legal reasons. Be careful about filing bankruptcy if you have a home-based business.
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