Asset Protection Laws in Florida Mostly Favor Those With Debt - August 2011

by Alan B. Cohn, Esq.
Friday, August 5, 2011

One of the reasons people move to Florida – besides the weather – is to avail themselves of its asset protection laws. Florida's laws are superior to most other states, if one happens to be a debtor.

The first step someone must take to avail themselves of Florida's asset protection laws is to make sure that they are a Florida domiciliary. You should contact your attorney to make sure all the necessary steps are taken so that no other state or any creditor can contest your domicile. There are a number of factors entering into a domicile determination, some of which require an attorney to implement and some of which do not.

Creditor protection planning has become increasingly important for many individuals. In fact, in most cases, it is an integral part of the estate planning process. The best creditor protection device is the Florida homestead exemption. State law prohibits a forced sale of a debtor's home by their creditors. In fact, this protection will inure to an owner's heirs at law upon their death.

Property as homestead

In order to make real property a homestead, a person must live there with the intent to permanently reside at the property and make the property, in good faith, their permanent residence, and have legal and beneficial title to the property. A natural person, of course, must own the property. Most revocable trusts would qualify as a natural person for this purpose.

There are also acreage limitations. If the residence is in a municipality, the homestead protection only extends to a half an acre. If the residence is located outside a municipality, the homestead protection is 160 contiguous acres. If a person lives in an area that later becomes incorporated into a municipality, then their homestead would still be protected under the 160-acre rule as long as they continue to live there and otherwise make it their homestead.

There are certain limitations to the homestead protection. One of those is tax and assessments on the property or obligations contracted for the purchase or the repair of the property. Other limitations include obligations contracted for the house, field or other labor performed on the property. All of the above rules are Florida rules. The bankruptcy rules differ slightly. The debtor must have resided at their homestead for three years and four months to have it excluded as homestead in the bankruptcy estate.

Other assets are also protected under the Florida statutes. Included in these exemptions are life insurance proceeds (so as long as the death benefit is not the decedent's estate), cash surrender value on life insurance policies, as well as annuities. Retirement benefits payable from a qualified retirement plan, IRA or profit-sharing plan are also exempt from claims of creditors, as well as college funds and medical savings accounts. (This includes plans established under Section 529 of the Internal Revenue Code.)

Property held between spouses

Another important asset protection vehicle is property held between husband and wife as tenants by the entirety. If property is properly held as a tenancy by the entirety, then a creditor of only one spouse cannot attach the property as long as both spouses are living. The only way tenancy by entirety property can be lost to a creditor is if both the husband and wife are liable to the same creditor on the same obligation.

If a person owns an interest in a family limited partnership or a multi-member limited liability company, then the creditor's only avenue to obtain funds is through a charging order. This allows the creditor to receive distributions as they are made from the partnership or the LLC. However, the creditor cannot force distributions to be made nor does the creditor become an owner of the entity. In many cases, this frustrates the creditor. In a recent statutory change, an irrevocable inter vivos trust for the benefit of the spouse that then continues for the benefit of the original grantor spouse is protected from the grantor spouse's creditors.

Finally, one must be very careful in performing this type of planning so as to not be in violation of the Florida Fraudulent Conveyance Act, which deals with any type of transfers or conversions from non-exempt assets into exempt assets to hinder, delay or defraud creditors. This is why these types of transfers should be made after consultation with an attorney while also engaged in the estate planning process.

Alan B. Cohn is a shareholder with Greenspoon Marder, a full-service business law firm with offices throughout Florida. He is board certified by The Florida Bar in wills, trusts and estates. For more information, go to