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Asset Protection from Creditors - Part 1

Wed, Feb 26, 2020 at 2:35PM

Asset Protection from Creditors - Part 1

Many people are interested in protecting their assets from creditors. While the discussion frequently arises as part of estate planning, the techniques for protecting assets are not the same techniques used in the standard estate plan.

The first step in evaluating whether one needs to protect assets is to review how assets are held because some assets are protected automatically. This article will discuss the assets automatically protected by Florida or Federal Law. Next month’s article will discuss techniques to protect assets that are not protected automatically.

The following is a brief description of some of the assets that are automatically protected:

Homestead: The Florida Constitution and Florida Statutes offer protection for the homestead that is stronger than the protection of homes in most other states. A person’s homestead property is exempt from judgments, liens and forced sale, except for consensual liens involving the property itself (i.e., mortgage and construction lien). Florida law now has certain limitations on the protection for high-priced homes purchased a couple of years before an issue arises. 

Tenancy by the Entirety: Tenancy by the entirety means property owned by a husband and wife. It is like joint tenants with the right of survivorship, but has the added benefit that a judgment against one of the two does not attach because the ownership is deemed to be of single entity. Under Florida law, the protection is automatic as to some types of assets (like bank accounts), but requires special language on other types of assets (like real estate). The laws of other states are different. A Florida case held that ownership of bank accounts by a husband and wife would automatically create tenancy by the entirety, even if the accounts did not use those words. But, the case did not address brokerage accounts or other types of assets.

Death Benefits & Cash Surrender Values of Life Insurance: Florida Statutes state that if a person residing in Florida dies leaving life insurance on his or her life, and naming a beneficiary of the policy (so that it does not require probate) the proceeds shall inure exclusively to the benefit of the named beneficiary, and the proceeds thereof shall be exempt from the claims of creditors of the insured. Florida law provides that the cash surrender values of life insurance policies issued on the lives of Florida residents are not subject to attachment, garnishment or legal process in favor of any creditor of the insured unless the insurance policy was created for the benefit of such creditor.

Exemption of Pension Money and Retirement or Profit-Sharing Benefits: Florida law and federal law provide that retirement or profit-sharing plans are exempt from claims of creditors of the beneficiary or participant. This exemption does not apply to certain types of proceedings involving divorce or child support.

If one transfers assets knowing that a creditor is filing suit or has already filed suit, or even that liability already exists, a court can void the transfer so that the asset remains accessible.

One should seek the advice of an attorney in determining the particular asset protection procedures that will benefit a particular person regarding a particular person and situation. 

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