Protecting Your Assets in Trying Times

By Gene Glasser
October 2009

The subprime mortgage crisis, difficult stock market, and the decrease in the value of real estate have caused many individuals and families severe economic problems. The monthly cash flow in carrying real estate properties can erode liquidity and net worth. Fortunately for some, Florida has long been known as a debtor's state. If a family or individual has significant liabilities then certain exclusions unique to Florida law allow those assets to be exempted from execution by judgment creditors. In addition, in the event of a bankruptcy, the Federal bankruptcy laws acknowledge and respect these exemptions.

One major exemption relates to wages of the head of the family. Under Florida Statute 222.11 the earnings of a head of a family are exempt from the claims of creditors. The key to this exemption is to be a head of a family. Therefore, a single individual with no dependents would not qualify. However, if you have dependents or are supporting certain individuals and are classified as a head of a family then all of the wages are exempt. The exemption has no dollar limit. By way of example, an individual can earn employment wages of $200,000.00 a year and have a significant creditor, but the creditor cannot garnish the wages.

The major asset that is exempt from creditors in the State of Florida is Homestead. Under Article X Section 4 of the Constitution, the homestead property is exempt from forced sale. There is no dollar limit on the exemption. The exemption relates to an acreage limitation. A half-acre inside a municipality and 160 acres outside a municipality are exempt from the claims of creditors. Florida homestead law has been well known over the years. Individuals in debt move to the State of Florida to avail themselves of this significant exemption. In the event the homestead is purchased or increases in value within a certain time frame of a bankruptcy, then there are certain complications. However, under state law, there is no such impediment.

Pursuant to Florida Statute 222.13, life insurance is exempt from creditors. Therefore, if an individual owns a significant life insurance policy with cash value, i.e., whole life, variable or universal, then a creditor cannot garnish the life insurance. Also, annuities are exempt from the claims of creditors. Pursuant to recent cases, private annuities come within the protection of the annuity statute. Therefore, if property is sold and the seller takes back a private annuity, then those payments may also be exempted from creditors. On the other hand, if a sale is made and the debtor takes back a promissory note, there is no such exemption.

Interests in pension plans, profit sharing plans, 401(k)'s and IRA's and other Federally exempted retirement plans are exempt from the claims of creditors. Certain plans enjoy the exemption both under the laws of the State of Florida as well as the Federal law. For example, a 401(k) plan is exempted under Florida Statute 222.21 and also under the ERISA laws because a qualified plan requires a spendthrift provision.

In addition to the foregoing exemptions, in the event a husband and wife, when one of the parties has a liability, the assets owned by the spouse may not be subject to the claims of the debtor's spouse. By way of example, if the wife is driving an automobile that she owns and is in an accident, and a judgment is suffered against the wife, then the husband's assets would not be subject to the claims of the wife's creditors.

In these economic times there exists significant liabilities. Individuals will be prudent to consider asset protection. There are always uncertainties in life. Any protection which can be afforded should be utilized to protect the individual or family unit.

Gene K. Glasser is a managing shareholder at Greenspoon Marder, where he focuses his practice in the areas of tax, trusts and estates. Mr. Glasser is Board Certified by the Florida Bar in the areas of tax law and estate planning and administration. 954-491-1120 or