Asset protection planning requires knowledge of many different areas of the law. The multi-disciplinary nature of asset protection is what makes it difficult and why relatively few attorneys have the breadth of experience to practice competently in this field. Today, I encountered another example. One of my asset protection clients owed substantial money to a former business partner. The client owned a private corporation with significant value. He had signed a promissory note to his former partner and they had a security agreement pledging the stock in his corporation as collateral. The client was concerned that neither he nor his former partner ever filed a UCC-1 on the public record which he thought necessary to perfect his partner’s interest against subsequent judgment creditors. The client wanted to pledge the stock to secure his relatively friendly former partner and protect the stock against adverse judgment creditors.
I explained that the former partner’s security may have priority against all future creditors even though there was no UCC-1 filed. Generally speaking, a lender’s security in real estate is perfected by recording a mortgage. A lender’s security in personal property is perfected by filing a UCC-1. But, UCC-1 forms are not required to perfect security interests in all types of personal property.
Security perfection in personal property is governed by the Uniform Commercial Code as adopted in the Florida Statutes. The Code and Statutes provide that a lender perfects security priority in corporation stock by possession of the original stock certificates. A UCC-1 is not required. If this client had given his former partner the stock certificates at the same time he executed the note and security agreement the former partner’s priority against this stock would date back to the date of the note.
If you seek to protect non-exempt personal property by pledging the property to a bona fide preferred creditor make sure you research the proper procedures to perfect the security interest.