Two clients in the past week have owned homestead properties in a municipality on lots greater than ½ acre in size. Both clients were judgment debtors and were asking if there was a way to protect their entire residence under Florida’s homestead protection. One situation was particularly interesting. This client owned 3/4 acres within a city on which he build a main house and a guest house. While remodeling the main house, the client and his family temporarily lived in the guest house. Local zoning and land use laws permitted the client to further subdivide the property. The client understood that Florida’s homestead law protected two-thirds of his 3/4 acre homestead within the city limits. The client asked if he could convey one-third of the homestead lot to a family partnership which itself offers some asset protection reserving ½ acres under the homestead umbrella.
The client, his spouse, and his children would be partners in the partnership. The client proposed that the land transferred to the new partnership would not include the main house or the guest house.I told this client that I did not think his solution would work. When a debtor owns more than ½ acre in a municipality the homestead protection is pro-rata as to the entire property. The Constitutional homestead protects a proportion of the total value rather than a proportion of the underlying real estate. In this case, two-thirds of the property value is protected and one-third of the value is not protected.
If the debtor conveyed one-third acre to a family partnership, I think a court would hold that two-thirds of the land transferred was an exempt asset and one-third of the transfer pertained to non-exempt assets. A creditor could challenge the transfer as a fraudulent conveyance as to one-third of the value transferred to the partnership. In past bankruptcy court cases the courts have not permitted bankruptcy debtors to carve out a protected ½ acre of land under the homestead protection when the entire parcel inside a city exceeded the allowable ½ acre homestead.