What Assets are Exempt from Creditors?
Florida exemptions from creditors are the specific categories of property and income that Florida statutes set out as unavailable for collection by monetary judgment creditors. Many asset protection benefits for Florida residents are contained within the Florida Statutes. Florida statutory exemptions are available only to people who permanently reside in Florida. Some of the key assets that are exempt from creditors in Florida include:
- Head of household wages
- Tenants by entireties property
- Annuities and life insurance proceeds and cash surrender value
- Homestead (up to 1/2 acre in a city and 160 acres in the county)
- Retirement accounts, including Roth IRA, IRA, 401k, and various other types of accounts specifically listed under the Florida statutes.
Florida garnishment exemptions may include the wages and earnings of someone who is head-of-household. Section 222.11 of Florida Law states that garnishment exemptions over earnings include, wages, salary, commissions, and bonuses. A “head of household” is someone who provides the primary financial support for a family dependent. A dependent includes children or parents. The dependent may live in a separate residence and may even earn part of their own support.
Head-of-household should not be confused with rules regarding income tax dependents. You may support someone for purposes of establishing head-of-household exemption status even if you do not claim that person as a tax dependent.
Head of Household for Money in a Bank Account
One of the most used Florida exemptions from creditors is the head of household exemption—also known as the head of family exemption. A creditor may not garnish a head of household’s earnings even after they are deposited into a bank account (provided they are traceable and identified). Exempt earnings remain protected in a bank account for up to six months.
Can Both Spouses Claim Head of Household?
When it comes to Florida exemptions from creditors, when two spouses are both on a judgment, only one of the spouses can be head-of-household. Even with two spouses, it is not automatic that one of them will be head of household. It is not enough, for example, that a debtor earns more than his dependent spouse. The debtor claiming the exemption must earn enough money from all sources that the debtor is the dependent’s primary source of support when looking at the dependent’s income from all sources. Courts will also consider non-financial factors, including which spouse oversees financial decisions.
A debtor can waive his wage exemption so long as the waiver is informed and done in writing. Many lenders include head-of-household exemption waivers inside loan documents. A debtor may be surprised when a creditor garnishes wages even though the debtor is a head-of-household when the debtor inadvertently signed a waiver in credit documents.
Head of Household for Self-Employed Workers
Business owners may not be able to take advantage of the head of household exemption. There are court cases stating that “salary” paid to the sole owner of an LLC or corporation is not “earnings” for purposes of the garnishment exemption. The courts characterize the business owner’s earnings as profit distributions instead of salary when the sole owner controls the amount and timing of the payments. Business owners need to carefully organize their business and compensation structure to qualify for the garnishment exemption.
Annuity Creditor Protection
Are annuities protected from creditors in Florida? Yes. Annuities are perhaps the most popular financial product for asset protection planning. Under annuity creditor protection law, annuities are contracts for payment of periodic benefits. Most annuities are commercial contracts between an owner and a large insurance company. Two individuals may enter into private annuity contracts. Private annuities between family members are often utilized for estate tax planning.
Fixed annuity contracts provide for a fixed periodic payment amount over a defined period of time. A variable annuity contract invests the annuity principal and changes the payment amount from time to time depending upon the value of the annuity’s investment.
Florida courts have liberally interpreted this statutory exemption to include the broadest range of annuity contracts and arrangements. All annuities are exempt from creditors according to Florida Statute 222.13. Additional protection is available by purchasing international annuities. Particularly, Switzerland and Liechtenstein have laws which guard annuities from attack by creditors from outside countries including from the United States.
Annuity protection works even after receiving the annuity proceeds. Funds withdrawn from the cash value of a life insurance policy and annuity payments received by a debtor remain protected after they are deposited in a financial account if the funds can be accurately traced back to the exempt assets. The money does not have to be segregated in a separate account so long as it is traceable.
Cash value in insurance policies and all annuities are protected from creditors by Florida Statute 222.14. Florida law exempts the cash value of a debtor’s policy insuring the debtor’s own life. But the law does not protect the cash value of life insurance when the insured is someone other than the debtor. For example, a husband cannot exempt the cash value of a policy issued on the life of his spouse or child.
This distinction is important when there is a joint judgment against two spouses and one spouse owns an insurance policy for benefit of second spouse. When insured spouse dies the joint creditor may garnish death benefit payable to serving spouse. The money could be protected if the policy were owned by an irrevocable insurance trust.
In other words, if you have a judgment against you and you receive a life insurance payout, the benefits are not protected from your own creditors.
IRA Protection from Creditors
IRAs are protected from creditors in Florida pursuant to section 222.21 of Florida law. IRA creditor protection and retirement account protection are both strong under Florida exemption laws. To prepare for retirement and to defer income taxation, more and more individuals direct significant wealth into IRA accounts and other tax qualified retirement plans. There is strong public policy in favor of protecting retirement plans from creditors to avoid having debtors become dependent upon the State financially.
Retirement plans defer taxes, and the plans are well-protected from judgment by Florida law. Florida Statute 222.21(2)(a) provides that any money or other assets payable to a participant or beneficiary in a qualified retirement or profit sharing plan is exempt from all claims from judgment creditors of the beneficiary or participant. All forms of tax deferred retirement plans are protected. Florida statutory exemptions specifically include pension plans designated for teachers, county officers and employees, state officers and employees, police officers, and firefighters. IRAs are also exempt from creditors.
Inherited IRAs and Roll-over IRAs
Under the same IRA creditor protection law in Florida, a 2011 Florida statute amendment expanded the definition of an IRA to include both rollover and inherited IRA accounts. Florida’s statutory protection of inherited IRAs takes precedence over a U.S. Supreme Court ruling that inherited IRAs are not exempt under bankruptcy law.
Disability income benefits under any disability insurance policy are exempt from collection under a specific Florida Statute. The exemption includes health, life, and accident disability insurance.
Cars and Automobiles
Can a creditor take your car in Florida? Florida has one of the lowest automobile exemption allowances in the country. Florida residents may protect up to $1,000 of equity in an automobile pursuant to Florida Statutes.
The fact that a debtor needs his automobile to go to work does not protect the vehicle from creditors to the extent that the debtor’s equity (value less loan amount) exceeds $1,000. Leased vehicles are not at risk because the debtor does not own the automobile. No exemptions apply to other motorized vehicles such as boats or airplanes.
Prepaid College Plans
Florida law includes other, more narrow exemptions such as professionally prescribed health aids, hurricane savings accounts (with restrictions), medical savings accounts, and unemployment benefits. A debtor’s bank account held in a custodian financial account for the benefit of a minor child under the Florida Uniform Transfers To Minors Act is also protected from the debtor’s creditors because the account is considered property of the minor beneficiary.
Social security benefits, including both social security income and disability, are exempt from garnishment under Section 207 of the Social Security Act. These benefits are exempt even after they are deposited in your bank account.retain their exemption after being deposited in to the debtor beneficiary’s financial accounts. It is against the law to attempt, or even threaten, to garnish social security income. If that happens, you may be entitled to a monetary award against the creditor.
There are exceptions to federal protection of social security benefits. The U.S. Government may garnish up to 15% of your social security checks to collect money owed to the federal government. The same percentage (15%) of monthly social security payments may be garnished to enforce a court award of alimony or child support. In addition, the Internal Revenue Service may levy upon social security payments in order to collect a tax debt.
When a creditor obtains a judgment in another state against a Florida resident the creditor may enforce the judgment collection through the foreign court that issued the judgment. For example, the creditor could apply to the foreign court for garnishment orders when the foreign court has already established jurisdiction over the debtor.
Florida residents cannot use Florida exemptions to protect personal property located in states other than Florida. If you work in another state, you are subject to the wage garnishment laws of the state where the work is performed. Furthermore, if a Florida resident owns or maintains real or personal property outside of Florida, the property is exposed to the exemption laws of the states where the assets are located. Whenever a civil money judgment and Florida resident’s assets are located in a foreign state, the foreign state’s exemption law supersedes the debtor’s Florida exemptions.
Location of Assets
When determining what assets are protected from creditors, the location of financial accounts is determined primarily by the agreement between the customer and the financial institution. Most financial institutions provide that their customers’ financial accounts are situated at the branch office where the account is maintained or in the state where the customer resides when the account was opened. For example, if a Georgia resident opens an IRA account at a Georgia branch of a national financial institution, and the debtor then moves to Florida, Florida exemption laws might not apply to the IRA account. The account may instead be anchored at the Georgia branch where it was opened. The new Florida resident is better protected if he moves the financial account to a Florida branch of the same financial institution or to a new institution with Florida offices.
Out of State Wages
Wages, salary, and commissions are considered to be located in the state where the employee performed the work. A judgment creditor may garnish a Florida resident’s earnings in the court of any state where the Florida resident d worked to earn the money. A judge in the foreign state would not apply Florida’s head of household earnings exemption. Only earnings payable in Florida for work performed in Florida are protected from wage garnishment when the debtor is head of household.
If you’d like to discuss which Florida exemptions from creditors apply to your current situation and how to better avail yourself of Florida’s exemptions, give us a call to schedule a consultation.
What to Do Next
We help people go through their assets and income and determine what is at risk of collection from a judgment creditor. We then develop a plan to protect any exposed assets from collection. If you’re interested in protecting your assets from monetary judgment creditors, contact us or schedule an appointment online.