While a divorce proceeding terminates the marital status between two people, it also can impose financial obligations on the more well-off spouse. These obligations include child support, spousal support (alimony), and equitable distribution of assets. A court imposes the financial obligation through a final judgment of divorce, even when the parties have entered a marital settlement agreement.
The ability of an ex-spouse to enforce the terms of a final judgment of divorce depends on the type of financial obligation. In Florida, a person can attempt to use state law exemptions to protect their assets from divorce and these financial obligations. However, while Florida asset protection laws can safeguard a person’s assets against equitable distribution provisions, they do not do a good job against support obligations, such as child support and alimony.
How to Protect Assets from Divorce
To protect assets from divorce, a person should (1) review the divorce judgment to determine which financial are classified as debts, (2) evaluate whether current assets are subject to the divorce judgment, and (3) implement an asset protection plan to safeguard assets from an equitable distribution award. In Florida, protecting assets from a divorce judgment requires using Florida exemptions to safeguard property from the ex-spouse’s monetary judgment.
Types of Divorce Obligations
There are three types of monetary obligations that can be imposed by a final judgment of divorce:
- Equitable distribution
- Spousal support (alimony)
- Child support
In Florida, equitable distribution is the process where a court divides the marital assets and debt between two divorcing spouses. In general, marital assets include any assets acquired jointly or by either spouse during the marriage.
If the spouses agree on how their assets and debt should be divided, then the court will enter an order ratifying and enforcing the terms of the marital settlement agreement. But if the spouses cannot agree, then the court will divide the assets in a manner that the judge determines is most fair.
In either case, the terms of the equitable distribution are imposed by the final judgment of divorce.
An order awarding equitable distribution creates a debt from one spouse to another. A family law court cannot hold a non-paying spouse in contempt of court for failing to comply with an equitable distribution award, just as a civil court cannot hold a debtor in contempt for not paying a money judgment. Contempt is punishable by imprisonment, and the Florida constitution forbids imprisonment for unpaid debts.
Instead, a former spouse that does not receive property or money as required by the equitable distribution order can obtain a monetary judgment against the non-paying ex-spouse. It is then up to the former spouse holding the judgment to collect.
In the context of asset protection, an equitable distribution award is therefore not much different than a regular money judgment. An ex-spouse has no greater collection power than would a bank with a judgment for credit card debt, for example.
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Protecting Assets from Spousal Support
An award for spousal support includes temporary alimony, permanent alimony, and certain kinds of divisions of assets. For example, the allocation of real estate, while not technically a spousal support payment, is still treated as a support award.
Unlike equitable distribution, spousal support is enforceable by contempt of court. While asset protection exemptions can apply to spousal support orders, in practice most people are not willing to go to jail or face contempt of court orders just to avoid making spousal support payments.
Protecting Assets from Child Support
In Florida, a child support order directs one of the spouses to pay the other spouse to support their joint child. It is very difficult to protect assets from child support orders. Many statutory exemptions do not apply to child support orders. The court can hold the debtor in contempt for failure to pay child support. And failure to pay child support can sometimes constitute a felony.
We do not advise or help judgment debtors in protecting assets from child support obligations.
George and Mary were married for twenty years and are now getting divorced. They both reside in Florida. They jointly own the marital home. They bank separately, George having substantially more money in his bank account than Mary has in hers. George also has a valuable brokerage account. George provides all the income for the family. Mary does not work, but stays at home to take care of their three minor children.
A court would likely order George to pay child support to Mary for the children and to pay alimony (spousal support) to Mary. In addition, the judge would probably award the marital home to Mary. Finally, the marital assets would be divided equitably, with George being ordered to transfer to Mary some of the cash in the bank account and the stocks in the brokerage account.
Suppose George pays the child support, but nothing else. Mary could ask the court to hold George in contempt for failure to pay the alimony and failure to deed the marital home. George would be faced with jail time should he not comply.
However, the court would not hold George in contempt for failure to pay the cash and stocks pursuant to the equitable distribution order. Instead, the court could award Mary a money judgment for the value of the unpaid cash and stocks. It would then be up to Mary to collect on that judgment.
George may be able to use state exemption laws to protect his remaining assets from Mary’s money judgment.
How to Protect Assets from Divorce
Proper use of state law exemptions is the best asset protection against equitable distribution awards in a divorce proceeding. Asset protection planning can safeguard your assets from an ex-spouse’s equitable distribution judgment and improve your negotiating position when attempting to modify the terms of the prior division of assets.
To protect assets from divorce, you should:
- Evaluate current ownership. Obtain records of precisely how your assets are titled.
- Review the divorce judgment. Assess which monetary obligations in the divorce judgment are treated as equitable distribution and which are spousal or child support.
- Develop a plan. Determine which assets are currently exempt from enforcement of an equitable distribution judgment and which require further protection.
- Implement the plan. Legally transfer, encumber, or change the form of any exposed assets in a manner that would not be characterized as a fraudulent conveyance.
The avoidance of any transfer or conversion that could be found to be a fraudulent conveyance is the most difficult step of asset protection planning. In general, a fraudulent conveyance is a transfer or conversion of assets done with the intent to hinder or delay collection from a judgment creditor, including an ex-spouse.
The most creative asset protection plans protect your assets while minimizing the risk of a fraudulent conveyance determination.
The Florida constitution completely exempts a person’s homestead from forced sale. The only exceptions are tax liens, mortgages, mechanics liens, and assessments. Notably, spousal support and equitable distribution awards are not one of the listed exceptions in the state constitution.
There is no monetary cap to the homestead exemption. However, there is an acreage limit. The home must be situated on 1/2 acre or less inside a municipality, or on 160 acres or less in an unincorporated area. In addition, the person claiming the exemption must actually occupy and reside in the home with the intention for it to be their lawful, permanent residence.
The actual award of a homestead in an equitable distribution order is considered a spousal support obligation, not an equitable distribution award. The failure to deed the property to the ex-spouse pursuant to the divorce judgment is enforceable by the contempt of the court. Yet, a person awarded a Florida homestead in a divorce order may then be able to enjoy complete protection of their home from other equitable distribution obligations.
In most circumstances, a court cannot impose a lien on a judgment debtor’s Florida homestead for unpaid alimony. However, in some limited circumstances, the failure to make alimony or spousal support payments can allow the ex-spouse creditor to obtain an equitable lien on the Florida homestead.
Florida law exempts from attachment the earnings of someone who is the head of their family. The head of family is one who provides more than one-half of the financial support for someone whom they have a legal or moral obligation to support.
The exemption applies to wages, salary, commission, or bonuses. In other words, payment for a person’s time and labor. It does not apply to profits from a business or any passive income. There is also no earnings cap on the wage garnishment exemption.
A former spouse with a judgment based on an equitable distribution debt cannot, therefore, garnish the wages of the non-paying former spouse. However, the wage garnishment exemption would likely not work against orders for unpaid alimony.
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Protected Bank Accounts
Money held in a bank account by a judgment debtor can ordinarily be garnished by a former spouse with a judgment for unpaid equitable distribution from the divorce.
However, if the bank account contains exempt money, such as federal benefits or head of family wages, then the judgment debtor can claim an exemption over the funds in the account to the extent the money can be traced to the exempt source. This step is easier if 100% of the account comes from an exempt source, but more difficult if the account has a mix of exempt and non-exempt money.
Some banks in the U.S. maintain accounts that are protected from garnishment regardless of whether the accounts hold exempt or non-exempt funds. But very few of these banks accept Florida residents as customers.
Finally, bank accounts held offshore, while not technically exempt from garnishment, pose significant hurdles to a former spouse’s collection efforts. Most collection attorneys do not know how to collect against an offshore bank account.
A judgment debtor’s interest in a corporation is subject to levy by a judgment creditor, including a former spouse with an equitable distribution judgment from a divorce. That means a sheriff’s deputy can force the sale of your stock to the highest bidder.
From a collection standpoint, an interest in a single-member LLC is treated just like stock in a corporation. A single-member LLC is an LLC that has only one owner. That means that the former spouse can force the sale of a solely owned LLC to satisfy a money judgment.
On the other hand, a debtor’s interest in a multi-member LLC is subject only to a charging lien. A charging lien is a lien on any distributions payable from the LLC to the judgment debtor. In other words, after obtaining a charging lien against the LLC, the LLC would have to pay to the judgment creditor ex-spouse any distributions set to be made to the debtor spouse owner.
The former spouse would have no other remedy against the debtor’s membership interest in the multi-member LLC. The former spouse could not force the sale of the debtor’s membership interest or get into the LLC assets.
In practice, a debtor’s interest in a multi-member LLC is not an attractive collection target. Charging liens against closely held multi-member LLCs are difficult to enforce, and with a proper operating agreement, the LLC might never make a distribution subject to the charging lien.
If the debtor ex-spouse remarries, then the debtor can take advantage of tenants by entireties protection. Under Florida law, property held as tenants by entireties is fully exempt from creditors of either spouse alone.
The exemption for tenants by entireties is based on common law, which means prior court cases. There is no statute or constitutional provision that exempts tenants by entireties assets. Still, Florida courts have consistently and repeatedly exempted tenants by entireties assets from creditors of a single spouse.
In general, to qualify as tenants by entireties, the asset must be acquired jointly in the same document, at the same time, during the marriage. Property acquired prior to marriage can usually be transferred to the spouses together as tenants by entireties.
In practice, tenants by entireties protection will likely only cover assets acquired after the remarriage. The debtor ex-spouse would not be able to easily convert their separate property to tenants by entireties ownership without such a conversion being deemed a fraudulent conveyance.
Domestic Asset Protection Trusts
A domestic asset protection trust is one created in a state with laws that protect self-settled trusts from judgment creditors, including ex-spouses with equitable distribution judgments after a divorce.
Although there are a lot of services offering domestic asset protection trusts online, Florida law does not usually recognize their asset protection provisions. Instead, Florida courts have repeatedly refused to recognize the statutory provisions in other states that would otherwise protect the assets within the domestic asset protection trust.
In Florida, a former spouse seeking to protect their assets from enforcement of an equitable distribution judgment is usually better off taking advantage of other asset protection techniques.
Protecting assets from a divorce does not involve hiding the assets. Instead, the best asset protection plans allow the debtor to fully disclose their assets, confident that the former spouse will not be able to successfully use state law to collect.
In addition, a former spouse that has a monetary judgment for equitable distribution can force the disclosure of assets through discovery, including depositions and subpoenas for documents.
An offshore trust is a trust created in a jurisdiction outside the United States. A judgment debtor can work with a U.S. attorney to find a reputable offshore trust company to serve as a trustee. The most well-regarded offshore trust jurisdiction is the Cook Islands, which is a small country in the South Pacific.
With an offshore trust structure, the debtor ex-spouse sets up the trust and is the trust beneficiary. However, the offshore trustee company serves as trustee and holds legal title to all of the trust assets, such as bank accounts or investments.
Because the offshore trustee is completely outside U.S. jurisdiction, a U.S. court cannot compel the offshore trustee to turn over any assets to the creditor ex-spouse.
It is difficult, but possible, to establish an offshore trust once a divorce is filed.
FAQs About Protection Assets from Divorce
Does your spouse get half of everything in a divorce?
In a divorce, your spouse will not necessarily get half of everything you have. Florida law requires an equitable (or fair) distribution, not an equal distribution. The judge will look at all family circumstances when dividing the marital assets.
Can a trust protect assets from divorce?
An irrevocable trust, such as an offshore trust, established prior to a divorce can sometimes protect assets from the divorce. The biggest risk to the debtor is that a transfer of assets into the trust could be deemed a fraudulent conveyance.
About the Author
Gideon Alper specializes in asset protection planning for individuals and their families.
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