Florida Asset Protection: a Guide to Planning, Exemptions, and Strategies

What Is Asset Protection in Florida?

Florida asset protection is the process of legally structuring the assets of an individual or business to protect them from civil monetary judgments. Asset protection involves safeguarding all assets, including real property, cash, businesses, and investments, to make it much more difficult for a current or future judgment creditor to collect on those assets.

Asset protection planning is made of up three parts: (1) comprehensive review of a person’s assets, (2) determination of what assets are exempt or exposed, and (3) development of a legal plan to protect any exposed assets.

Asset protection helps at any stage of debt. It is rarely too late to protect assets from creditors. Some asset protection strategies are viable even after a lawsuit is filed and or a judgment is entered. Still, the most effective asset protection opportunities are available before potential liability arises.

Understanding Florida Asset Protection

Florida is considered one of the best states for asset protection because of its generous creditor exemption laws. Florida law provides unlimited homestead protection and protects tenants by entireties assets, head of household wages, retirement accounts, annuities, life insurance, disability insurance, and more.

Furthermore, Florida has opted out of federal bankruptcy exemptions, so Florida residents filing bankruptcy can use the broader Florida exemptions in their bankruptcy cases.

How Does Florida Asset Protection Work?

Everyone fortunate enough to accumulate assets in today’s economy needs some form of asset protection.

In the United States, there are more than one million lawyers, each with a license to file lawsuits against deep-pocket defendants. Too often, decisions by judges or juries are based more on emotion than on facts or the law, and the result is a catastrophic damage award that wipes out a lifetime of hard work and investment.

If a judgment is entered against you in Florida, the judgment creditor can find out your financial information and begin to collect on the judgment. Asset protection uses legal methods to better protect what you have and your income from collection on the judgment.

Florida law is considered to be debtor-friendly because of the numerous assets exempt from lawsuits and civil judgments under Florida law. The strength of Florida’s debtor-friendly laws stems from three legal sources:

1. The Florida Constitution.
2. Florida statutes, or laws, made by the state legislature.
3. Florida common law.

Florida Constitution

The Florida Constitution is the fundamental and most consequential Florida legal document, and it sets forth Florida’s most important protections, including Florida’s well-known homestead protection.

Florida Statutes

Next, the Florida legislature has enacted many statutes that protect various types of assets from creditors of Florida residents. There are also statutes providing creditors with tools to collect judgments.

Florida Common Law

Finally, there are protections based on what is referred to as common law or legal tradition. Common law is established by appellate judges in individual cases. Courts define Florida asset protection through their interpretation of Florida’s Constitution and statutes. Consistent interpretations become part of common law legal tradition. Because judges respect legal precedent, common law is applied in courts even though the principles are in the Florida Constitution or Florida statutes.

Fully Exempt Assets in Florida

The generous protections provided by the Florida Constitution, Florida Statutes, and Florida common law make Florida one of the most debtor-friendly states in the country.

Florida’s asset protection laws apply to permanent residents of Florida and people in other states who own property in Florida. People anticipating substantial civil judgments often move from other states to Florida to become Florida residents for asset protection purposes.

Florida Statutes exempt many types of assets from creditor execution. Florida common law protects property owned jointly by a husband and wife from the creditors of either spouse, using a type of ownership called tenants by entireties.

The key assets that are protected from creditors in Florida include:

• A homestead, with some acreage limitations.
• The wages of someone who qualifies as head of household.
• Annuities.
• Life Insurance.
• Retirement Accounts. For example: an IRA or 401k.
• Tenants by entireties property when the judgment is separate.
• Interest in a multi-member LLC with a properly written LLC operating agreement (but still subject to a charging lien).
• Disability income.
• $1,000 of value in a vehicle.
• $1,000 of personal property (or $4,000 if you do not own a home).
• Prepaid college plans.
• Various generic exemptions, such as health aids, medical savings accounts, and unemployment benefits.
• Social security.
• Some properly drafted estate planning trusts protect the beneficiaries’ interest and inheritance from their creditors.

Tenants by Entireties

One of the most straightforward asset protection techniques for Florida debtors is to own property as tenants by the entireties. Tenants by entireties refers to joint property owned by a married couple as an indivisible fictional unit. It cannot be severed without the consent of both spouses in most circumstances.

Tenancy by the entireties was originally developed from British common law and thereafter adopted by many U.S. states in the mid-1800s. However, only a few states nowadays recognize tenancy by the entireties. Some of these states limit the ownership to real property. In Florida, all personal and real property can be held as tenants by the entireties.

Assets held as tenants by entireties are generally immune from collection from a civil creditor of just one spouse.

Mere joint ownership is not enough for property to qualify as tenants by entireties. The ownership must meet the “six unities,” which include unity of possession, unity of interest, unity of time, unity of title, survivorship, and unity of marriage.

So long as there is not an existing creditor issue, couples should consider re-transferring any assets held jointly or individually before marriage to themselves as tenants by entireties.

One of the most common errors that clients make in terms of tenancy by the entireties protection has to do with bank accounts. A bank account that is not opened jointly at the same time, in the same document, is not an entireties account. Furthermore, if the bank offered a box on the signature card for tenancy by the entireties ownership, then the married couple must have checked that box in order to gain entireties ownership.

Once an account fails to be owned by the entireties, it cannot be fixed. The couple must open a new account—while keeping in mind fraudulent conveyance considerations.

For LLC interests, special provisions in an LLC operating agreement can ensure that the interests are held as tenants by entireties. With real estate, and sometimes bank accounts, tenancy by the entireties ownership is presumed even if there is no language specifying tenancy by the entireties ownership. But this is not necessarily true with LLCs, partnerships, or corporations. These business entities strongly benefit from specific language in their governing agreements and certificates to indicate entireties ownership.

Note that assets held as tenancy by the entireties can be freely transferred to a non-debtor spouse without incurring fraudulent transfer liability. One relevant case is In re Blatstein, 192 F.3d 88 (3rd DCA 1999).

Life Insurance and Annuity Contracts

The cash value of life insurance proceeds is protected from the creditors of the policy owner. The policy must be on the owner’s own life in order for the protection to apply.

Unlike with inherited pension plans and IRAs, life insurance proceeds are not protected in the hands of a beneficiary from that beneficiary’s creditors, simply because they were paid pursuant to a life insurance contract. With life insurance, the law protects the life insurance owner, not the ultimate beneficiary, from judgment creditors.

With annuities, not only is the annuity itself protected but even the proceeds or payments from the annuity are protected. However, the judgment debtor must take care to segregate the annuity payments or otherwise be able to clearly trace funds in a bank account to the annuity.

Homestead Protection

The Florida homestead is one of the most protected assets in the entire country. The protection is provided by Article X, Section 4 of the Florida Constitution.

One key feature of the Florida homestead exemption is that a judgment debtor can at any time make transfers or conversions into a protected homestead without regard to fraudulent transfer liability.

In other words, a judgment debtor in Florida can, even after a judgment, purchase and move into a large homestead in a clear effort to avoid collection from creditors, and the creditor cannot do anything about it.

The protection is of unlimited value, but there is an acreage limitation:

• 1/2 acre within a municipality
• 160 acres in the unincorporated county (applies even if the property started off in the city limits but was later annexed)

In addition to the constitutional protection of homestead property, married couples often naturally acquire homestead together, giving them protection with tenancy by the entireties ownership.

For families that own a house greater than 1/2 acre inside the city limits, some advanced asset protection techniques can allow a judgment debtor to protect the entire equity using a series of transfers and leases.

Homestead protection requires actual residence in the home. Most importantly, it is not enough that a judgment debtor intends to live in the property at some point in the future (for example, if the property is under construction).

Proceeds from the sale of a homestead are exempt from creditors so long as the judgment debtor intends to reinvest the proceeds into a new Florida homestead within a reasonable amount of time.

Head of Household Wages

Other than tenants by entireties and homestead, the other major protection from creditors in Florida is the unlimited head of household wage exemption.

The wages of a debtor who is head of household are exempt from creditor collection. This exemption extends to wages deposited in a bank account for up to six months so long as the bank account only contains the wages of the debtor. If the account contains non-wage money as well, the debtor will have to show which funds are actually wages in order to claim the exemption.

A head of household is someone who provides more than 50% of the support for someone else. The debtor must have a moral or legal obligation to support the other person. Common examples are a spouse, child, parent, or another relative.

When the debtor is earning wages from his or her own company, protection of the wages becomes more difficult. It’s critical in these situations to document the employment relationship with an arms-length employment agreement and to pay actual wages periodically.

Retirement Accounts

Pension plans (401k) and IRAs are exempt from creditors under federal and Florida law. The protection has an added benefit in that the funds in the accounts enjoy tax-deferred growth.

For business owners, consult with a financial advisor or an accountant to determine what type of retirement plan is available. The answer may be different depending on the number of employees in the business.

Some states other than Florida do not exempt IRAs from creditors. Individuals in these states can still exempt IRAs in bankruptcy. Often this means that non-Floridians resort to bankruptcy in order to protect sizeable IRA accounts because the accounts would otherwise not be protected against their creditors.

What about inherited IRAs? Florida law protects inherited IRAs from creditors. However, sometimes people in Florida have children in other states that do not protect inherited IRAs. In these situations, children that have their own creditors would most likely not be able to use Florida law to protect the inherited IRAs.

The solution is often to change the beneficiary of the IRA to a trust. So long as the trust is drafted properly, the funds should be protected from the beneficiary’s creditors.

Prepaid Tuition and 529 Accounts

A 529 account is a tax-advantaged account used to pay for educational expenses. Funds in the account grow tax-free and are not taxed when withdrawn as long as they are used for an approved expense category. In contrast, some states, such as Florida, offer a pre-paid college tuition program. These programs allow residents of the state to pay a set amount to cover college expenses in the future, no matter how high tuition increases.

Florida law fully protects 529 accounts and pre-paid college programs from judgment creditors. The protection is valid even if under a particular plan the plan owner is permitted to spend the funds on themselves (with tax penalty).

The Florida statute protects the 529 plans from creditors of the plan owner and the beneficiary of the plan. Further, the protection extends to money withdrawn from the plan. For example, a person may withdraw money from a 529 plan with the intent to make an education expense and deposit the funds in a segregated bank account. The funds will remain protected.

Some Personal Property

In short, there is no exemption over your personal property. Personal property includes your car, furniture, computers, phones, and even your family pets. Very aggressive creditors could seek a sheriff’s levy to seize your personal assets for public sale. But usually, this is just a threat that is not carried out. Because personal property is sold at auction, it is often not worth the expense for the creditor to seize.

Some personal property is exempt. Medical devices being used to treat a diagnosed condition are exempt from creditors. The exemption can even apply to vehicles, such as vans, modified for an actual health condition.

Because personal property is hard to protect, most people protect the personal property using tenants by entireties ownership, LLCs, or with adequate insurance.

Quasi-Exempt Assets

Quasi-exempt assets are those assets that are not exempted by statute, but are still mostly protected from creditors for other reasons. The most common of these are limited partnerships and limited liability companies that are used for asset protection of businesses or investment assets.

LLC and Limited Partnerships

Under Florida law, a creditor’s sole remedy as to the interest of a judgment debtor in a multi-member LLC or limited partnership is a charging order. A charging order is a court-ordered lien on the distributions from the LLC to the particular member.

Because the charging order is the exclusive remedy, the creditor cannot get the underlying assets owned by the company, thereby protecting the assets from the creditor.

With a properly drafted operating agreement, an LLC can prevent a creditor from receiving any distributions even with a charging order. The law does not require distributions to be made at all, unless the operating agreement says otherwise.

Note that the LLC must be a multi-member LLC for the charging order protection to apply. Single-member LLCs are not protected. The creditor can force the sale of the entire LLC interest.

The inability of a creditor to get anything more than a charging order against a multi-member LLC gives a judgment debtor a strong negotiating position in settlement discussions. A charging order is difficult to enforce, and a patient judgment debtor can delay or stop distributions for the life of a judgment. Most creditors will tell their attorneys to go ahead and settle rather than wait forever.

Asset Protection Trusts

Some states have enacted specific laws allowing the formation of domestic asset protection trusts (DAPT), which are self-settled trusts that are nonetheless protected from judgment creditors. In contrast, in Florida, self-settled trusts are not protected from creditors.

The most commonly known domestic asset protection trust states are Wyoming, Nevada, Delaware, and Alaska. Over the years, many websites have been created touting the benefits of asset protection trusts in these states for U.S. residents.

However, Florida debtors should be cautious before rushing to set up asset protection trusts in these states. It is uncertain which state’s law would apply in a Florida court should a creditor seek to collect on the assets in the trust. Some courts have held that no matter what state the trust is formed in, Florida law—not the law of the trust formation state—applies.

Offshore LLCs and Trusts

An offshore trust is a trust formed under the laws of a foreign jurisdiction, usually the Cook Islands, by a person for the benefit of themselves and their family. A common setup is to have an offshore trust in one jurisdiction own an offshore LLC in another jurisdiction, which then owns the debtor’s assets.

The Cook Islands trust law has some of the most anti-creditor provisions in the world, and the jurisdiction is frequently regarded as the gold standard of offshore asset protection.

Under Cook Islands law, the assets of the trust are unavailable to creditors of the trust beneficiary so long as the trust was funded two years before the claim arose.

Like many asset protection techniques, offshore trusts are most effective when the trust is funded before a claim arose. Some bankruptcy and federal court judges have been able to force an aggressive judgment debtor to bring back assets located in an offshore trust when the court believes the debtor is trying to hide assets in the trust.

That being said, for smaller claims in state court, creditors may not want to invest the significant legal fees in attacking an offshore trust, even if made after liability arose.

Protected Bank Accounts

Certain domestic bank accounts in the U.S. are unable to be garnished under state law. While the law does not explicitly exempt the debtor’s funds in the bank account from collection, the inability for the creditor to garnish the bank makes judgment collection extremely difficult.

Fraudulent Transfers

The central issue in asset protection planning after liability has arisen is the threat of a fraudulent transfer claim.

A fraudulent transfer is a conveyance or conversion made by the judgment debtor for the purpose of avoiding collection by the judgment creditor. If a creditor successfully argues that the debtor has made a fraudulent transfer, the creditor can have the court void or undo the transfer, and sometimes even get a monetary judgment against the transferee.

If it were not for the threat of a fraudulent transfer claim, asset protection would be easy: just give your money away to a friend or family member.

The word “fraudulent” in fraudulent transfer does not mean that the action is illegal. A fraudulent transfer in a regular civil context is not the same thing as civil or criminal fraud.

That being said, if a debtor is down to the wire and must choose between making a fraudulent conveyance and leaving assets on the table for collection, the best answer is often to go ahead and make the fraudulent conveyance, particularly if it useful from a business or estate planning point of view.

Elements of a Fraudulent Transfer

Under section 726.105 of Florida law, a transfer is fraudulent if:

1. it was made with actual intent to hinder, delay, or defraud any creditor of the debtor; or
2. it was made was made without receiving a reasonably equivalent value, and the debtor was engaged or about to engage in a business or transaction for which the remaining assets of the debtor were unreasonably small in relation to the business, OR the debtor intended to incur, or believed or reasonably should have believed that he or she would incur, debts beyond the ability to pay as they became due.

The first element is hard to prove as it involves the debtor’s state of mind. Therefore, courts rely on a list of factors that indicate what the debtor intended. The more that these factors exist for a given transfer, the more likely it is that a judge will find that the transfer was fraudulent.

The badges of fraud for a fraudulent transfer include:

• The transfer or obligation was to an insider.
• The debtor retained possession or control of the property transferred after the transfer.
• The transfer or obligation was disclosed or concealed.
• Before the transfer was made or obligation was incurred, the debtor had been sued or threatened with suit.
• The transfer was of substantially all the debtor’s assets.
• The debtor absconded.
• The debtor removed or concealed assets.
• The value of the consideration received by the debtor was reasonably equivalent to the value of the asset transferred or the amount of the obligation incurred.
• The debtor was insolvent or became insolvent shortly after the transfer was made or the obligation was incurred.
• The transfer occurred shortly before or shortly after a substantial debt was incurred.
• The debtor transferred the essential assets of the business to a lienor who transferred the assets to an insider of the debtor.

If the judgment creditor wants to pursue a fraudulent transfer claim, it must usually do so within four years, or one year after the transfer could have been reasonably discovered.

Florida Asset Protection Planning

Asset protection planning in Florida is best done early. After an event occurs that gives rise to legal liability, your options for asset protection planning decrease.

Consulting with an Asset Protection Attorney

In Florida, asset protection planning involves developing a customized plan with an attorney specialized in Florida exemption law to protect assets from lawsuits and collection from civil judgment creditors. Going over your asset protection with an attorney has three steps:

1. First, the attorney will review the legal situation and circumstances of civil liability.
2. The attorney will then develop a comprehensive list of assets and income to determine what is currently protected or not protected.
3. Finally, for the unprotected items, the attorney will evaluate legal options to better protect those assets from creditors.

Some unique asset protection strategies may be effective against particularly aggressive creditors or unusual client situations. These strategies are difficult to implement without an attorney. Some of these asset protection techniques include:

• Conversion of a regular IRA to a Roth IRA and then payment of income tax with non-exempt cash
• For businesses, placing vehicles, including trucks and equipment, in separate companies and using independent contractor agreements for the drivers.
• Using LLCs to insulate owners from liability.
• Leasing rental property to a “leasing company” that then contracts separately with tenants in order to insulate the property owner from liability.
• For a business owner, have the business or practice guarantee debt that is owed by a related party.
• Have a business entity enter into a long-term lease with a property-owning entity, with the property entity getting a lien on corporate assets.
• Using a limited partnership or LLC to provide a barrier from liability stemming from properties owned.
• Converting assets already exempt from creditors into other longer-term exempt assets.
• Using an asset protection operating agreement to provide charging order protection or tenants by entireties protection for LLC assets.
• Purchase of an additional homestead when the existing homestead is already exempt for other reasons.

Pre-Issue Planning

Engaging in asset protection planning before you become aware of potential legal liability is the best way to ensure that exemptions over your property will hold up in court. Asset protection is perfectly legal, and individuals have the right to arrange their assets as they see fit, even to protect in general against future claims.

Protecting assets before issues arise affords individuals options that are simpler, more effective, and more flexible.

Keep in mind that asset protection planning in this stage does not simply mean planning that is done before a lawsuit. Instead, the relevant time is before you become aware of a specific, potential liability. As soon as you believe you may be sued for a particular event, then you have moved into the realm of post-issue planning.

Post-Issue Planning

Most people don’t think about asset protection until after something bad has happened. They get into a car accident, they realize they will not be able to pay a particular debt, they have a patient or client that had a bad outcome, and so on. Now they are worried they will be sued and lose their hard-earned savings.

The good news is that is it almost never too late to protect one’s assets.

The main problem with late-stage asset protection is the potential that asset titling or transfers can be undone as fraudulent conveyances or fraudulent conversions (which a court could reverse after a civil judgment is entered). Transfers done in the face of a legal threat may withstand fraudulent conveyance attacks with proper planning. For example, in most cases, Florida law permits the transfer of non-exempt assets to a homestead property even after a court enters a judgment.

Businesses

Protecting assets belonging to a business requires a different set of asset protection tools than protecting individual assets. Business asset protection involves structuring business assets and income to make it more difficult for a creditor with a monetary judgment against the business to collect any assets.

Bankruptcy

Most people who have accumulated wealth do not need to file bankruptcy even in the face of a judgment. In fact, many asset protection techniques are strongly outside of bankruptcy courts.

The most common type of bankruptcy is called Chapter 7 bankruptcy. In a Chapter 7 bankruptcy, the judgment debtor is discharged from all of their debt (with a few exceptions), but in exchange must give up all of their non-exempt assets. Depending on where you live, you may be able to use federal exemptions or you may have to resort to your state exemptions. Florida has elected to use its own state exemptions, which are typically more generous than the ones provided by the federal bankruptcy code.

The other two types of bankruptcies, Chapter 11 and Chapter 13, essentially involved making a payment plan to pay back some or all of your debt to your creditors over time. The benefit is that you get to keep your assets, including non-exempt property.

What about involuntary bankruptcy? In our practice we rarely see creditors attempt to put a judgment debtor in involuntary bankruptcy. Regardless, as long as the debtor maintains 12 or more active creditors, then 3 of them would have to agree to force the debtor into involuntary bankruptcy.

Common Sources of Liability

Before considering any asset protection strategies, a person should first recognize the most likely sources of liability. A person can face legal liability for a variety of reasons, including:

• Professional malpractice
• Automobile accidents
• General debt, including credit cards and medical bills.
• Premises liability. This refers to liability stemming from ownership of a building. For example, someone slips and falls on the premises. Or, a tenant is injured from an error made by a property manager.
• Liability stemming from relationships. This type of liability includes co-signing on loan applications, for example. In addition, some people face civil claims from exes in personal relationships.
• Employment liability. An employer is generally liable for the acts of employees when they act in the scope of their employment.

Professional Malpractice

A professional malpractice suit occurs when a client, or former client, files a lawsuit against the professional, claiming that the professional’s negligence damaged the client physically, financially, or emotionally. Doctors, lawyers, and accountants can all face malpractice claims in their line of work.

The threat of a malpractice suit puts the professional at a higher risk of legal liability compared to most individuals. This is even more true if the professional also owns a business for the professional practice.

As a result, it is even more important for professionals to engage in asset protection planning.

Automobile Accidents

Liability is not just limited to causing an accident. The owner of a car is responsible for the negligence of any permitted driver. For example, if a person owns a vehicle driven by their spouse, and the spouse causes an accident, the driver can be held liable.

In addition, under Florida law, a minor with a learner’s permit or license must have one of the parents agree to be held liable for the minor’s negligence. This is the parent that signs the minor’s application for a learner’s permit or license.

In a situation where one spouse has more at-risk assets or income than the other spouse, a typical strategy would be to have the spouse with less at risk sign the child’s application. Fortunately, the designation of which parent can be held liable can be changed should there be an existing issue in choice.

Furthermore, a business owner or the business entity can be held liable for allowing employees to use their vehicles. Most often this is a case of allowing a nanny or company employee to use the individual’s or business’s vehicle.

Who Should Own the Car?

For most married couples, the primary driver should own the vehicle. This limits the potential of joint spousal liability stemming from one person owning the vehicle and the other person causing an accident.

However, with adequate insurance, some families choose for the non-wage earner to own the vehicle. LLC ownership is also possible, but this could lead to higher insurance costs.

Boats

Florida residents who own boats should take care to set up ownership of their boats to minimize liability. Under Florida law, the owner of a boat can be held liable for the negligence of the boat driver if the owner is physically on the boat at the time of the accident.

Larger recreational vehicles, including boats, airplanes, or others, are sometimes better owned by a separate LLC.

Divorce

The concept of asset protection typically refers to protection from civil creditors. It is not generally effective when avoiding alimony, child support, or property settlements.

Family law judges in divorce cases have additional powers that a judge in a civil case would not. These judges can override state law protections for retirement accounts, asset protection trusts, state bank account protections, and even homestead.

A court can hold a debtor in contempt for failure to turn over assets in a marital settlement or failure to pay child support. This threat of contempt (and jail time) makes asset protection planning in a divorce context typically ineffective.

Not even offshore asset protection can save the day. Judges can order defendants to bring back assets to the United States. While an offshore trustee might not comply with an order directing the offshore trustee to send the assets back, the judge can take various actions that make the situation worse for the trust settlor.

Features of property ownership, rather than state law exemptions, can still help protect assets from child support and spousal support claims. For example, if a divorced spouse remarries, any newly acquired assets held as tenants by entireties are likely immune from collection from the ex-spouse, even for support purposes. That being said, it is a gamble as to how the family law judge will rule on the issue.

Federal Agencies

Florida statutory exemptions are not effective against certain “super creditors” under U.S. federal law. These super creditors include the IRS, Department of Justice, SEC, FDIC186, and FTC. Super creditors can seize assets that may be exempt under state law. For example, the IRS and SEC can take half of the personal property that otherwise might be exempt as tenants by entireties.

Federal agencies can also seize assets before a judgment is even entered against the Florida debtor. In this way, the federal agency substantially affects the ability of the debtor to defend themselves, which often forces a favorable settlement for the U.S. government.

Taxes

Asset protection planning usually does not shield tax debtors from U.S. income tax liability.

While some people believe they can move assets offshore to protect the assets from IRS collection or from the assets being subject to U.S. income tax, do not confuse offshore asset protection planning with offshore tax planning. Offshore asset protection with after-tax money is legal. Moving assets offshore to avoid the recognition of income amounts to tax evasion. Offshore tax evasion is criminal.

Reducing Risk of Liability

Asset protection starts with common sense planning. Insurance should often be the first line of defense when possible. Insurance includes auto insurance, malpractice insurance, homeowner’s insurance, and personal umbrella insurance.

People can reduce legal risks and lawsuits by planning and minimizing unnecessary risks in their business and personal dealings.

For example, people should not rely on oral promises and agreements in their business dealings as they often result in confusion and misrepresentation. Avoid getting involved in business and financial relationships with people you do not trust or with people who seem combative and adversarial.

Business agreements should be reviewed by a lawyer in advance. A few dollars spent on attorney fees before signing the contract can save substantial attorney fees in the future.

Auto Insurance

Adequate car insurance is the first line of defense to automobile liability. Under Florida law, drivers must maintain an insurance policy with a minimum coverage of $10,000 per person for bodily injury.

The minimum coverage is almost never enough. For people purchasing an umbrella insurance policy, the umbrella policy will require you to maintain a minimum level of automobile insurance that is much higher than the legally required minimum. After that point, it is usually more economical to increase the limits of the umbrella policy than it is to increase the limits of the underlying auto policy.

Umberlla Insurance

A personal umbrella insurance policy covers negligence liability above the limits of your homeowner and car insurance policies. For example, if you cause $1,000,000 in medical damages to a person in an auto accident, but you only maintain auto insurance of $300,000, then your umbrella insurance policy will cover the additional $700,000 of liability.

Make sure to consider adding uninsured motorist coverage to your umbrella policy. With uninsured motorist coverage, your carrier will pay you the amount of your damages up to your policy limit should the at-fault driver have insufficient insurance.

It costs significantly more in premiums to add uninsured motorist coverage to an umbrella policy. As a result, carriers typically do not include this coverage by default so that they can quote you a lower policy.

The minimum umbrella insurance coverage is typically $1,000,000. However, it is relatively inexpensive to increase the policy coverage to $2,000,000 or more.

Note that umbrella policies do not cover professional malpractice or claims incurred in your business or workplace.

Malpractice Insurance

Asset protection should not replace having adequate malpractice insurance. Sometimes professionals think that if they structure their assets properly, then they can avoid having to pay the high premiums associated with professional malpractice insurance. This line of thinking is generally a mistake.

Asset protection does not make a person judgment proof. And even with the best asset protection plan, most professionals do not want to live with a large judgment against them. Adequate insurance can solve a problem that could otherwise hamper the professional’s ability to practice efficiently for years.

Some professionals are concerned that insurance makes them more of a target. While this is probably true, it is not always. In addition, having insurance, even with a proper asset protection plan, more often than not still leads to better outcomes for the professional.

The opposite is also true—malpractice insurance alone, without asset protection, is not sufficient protection for most professionals. Plaintiffs do not always settle for insurance limits, particularly when there are multiple defendants. In addition, sometimes a plaintiff’s attorney has promised their client a certain outcome, and the professional’s insurance limit is too low to meet that outcome. Finally, sometimes insurance carriers will refuse to cover liability, particularly if it is due to intentional actions, bad faith, or malicious conduct of the professional.

Most professionals should choose the highest malpractice insurance limit that they can afford. While there may be advantages to lower limits, consider the following:

• Large claims that are not settled with the insurance company can result in significant threat to personal or business assets.
• Maintaining high limits allows a professional to keep high covereage for claims in the past, rather than having to get tail coverage.
• Some potential employees may decline to work for a firm that carries low or no insurance coverage.
• Ongoing litigation often results in an incredible amount of stress for the professional and their family, whether or not ultimately liable, and whether or not the professional has engaged in asset protection planning.

Liabilities Not Covered by Insurance

Some types of liabilities are not covered by insurance, even an umbrella policy. These non-insurable liabilities include:

• Civil rights violations.
• Certain professional wrongdoing, such as bad faith or malicious conduct.
• Certain environmental liabilities.
• Criminal acts.
• Tax or other governmental liabilities.

What to Do If You Are Facing a Lawsuit

Asset protection works best when implemented before any legal problems are on the horizon. Reorganization of asset titles and asset transfers done before creditor problems arise are effective.

Think of asset protection as a form of legal insurance. Just like commercial insurance, asset protection works best when put in place before problems arise.

Unfortunately, just as most people do not visit a doctor until they experience illness or pain, most people do not consider asset protection until they feel vulnerable to creditor lawsuits in the foreseeable future.

Asset protection strategy in the context of threatened litigation, or even after a lawsuit is filed, is difficult but not impossible. It is not too late to engage in some asset protection before a judgment creditor obtains an interest in your property by lien or execution.

Asset protection tools put in place during times of legal threat may not cure legal problems and may not work as well as advanced protection planning. Still, even late-implemented asset protection tools put the debtor in a better position than they would be otherwise.

Don’t Panic

Sometimes we see clients make significant mistakes when suddenly faced with legal liability. For example, clients may make sudden transfers of assets to other family members, LLCs, or even friends. Other times, clients may convert a large amount of money into assets that they think are exempt, such as annuities.

It is best not to rush. Once an event has happened that makes you aware of potential liability, there is frequently very little to gain by taking any financial action immediately rather than waiting until you have sought asset protection advice. Potential judgment debtors can sometimes make a bad situation worse by moving assets around after becoming aware of liability.

Common Asset Protection Mistakes

The most prevalent asset protection mistakes include:

• Not understanding the purpose of asset protection. Asset protection will not make a debtor “judgment proof.” However, asset protection may improve the debtor’s settlement negotiating position by making it harder for the judgment creditors to levy on assets.
• Believing that it Is too late to protect assets. It’s never too late to improve protection. Late asset protection can still help if the debtor does not hide assets and lie to judgment creditors under oath.
• Thinking creditors are stupid or lazy. A debtor should never underestimate the creditor’s skill and intelligence. Creditors and their attorneys are not stupid. People should not invent asset protection schemes that they believe are beyond creditor’s discovery and comprehension.
• Hiding assets. There are no longer any secrets in this world. People cannot hide assets, offshore or anywhere else, to protect them from creditors, the IRS, or former spouses.
• Fraudulent transfers to family. Debtors cannot protect assets by giving them to family members. Such transfers will make other family members defendants in fraudulent conveyance lawsuits.
• Falling for asset protection promoters and scams. As asset protection planning has gained popularity, there are many companies promoting complicated asset protection. These promoters are usually not attorneys. Their plans are overpriced and usually will not work well in a courtroom. Beware of non-lawyers selling asset protection plans.
• Confusing estate planning with asset protection. Asset protection is a part of estate planning, but a living trust or self-settled irrevocable trust does nothing to protect assets from creditors.
• Confusing bankruptcy law and asset protection law. Bankruptcy law does not affect Florida’s unlimited homestead exemption and other exemptions outside bankruptcy court. Debtors have less protection in bankruptcy court than they do in state court, and filing bankruptcy should be a last resort.
• Giving up control over your assets. The easiest asset protection plan is to give someone else control over your wealth. This is not a good solution in most cases.
• Paying large fees for complicated asset protection plans. The best asset protection is the simplest asset protection. Many promoters and some attorneys try to convince clients that effectiveness is a function of how much money is invested in overly complicated asset protection devices and multiple layers of entities. Good asset protection is not necessarily the most expensive and complicated plan.

Asset Protection FAQs

Below are answers to commonly asked questions about asset protection in Florida.