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Florida's Asset Protection Laws: What You Need To Know

Over 40,000 civil lawsuits are filed in all 50 states every day. Asset protection is the process of safeguarding your property from the threat of frivolous or predatory lawsuits. Asset protection planning acts as your first line of defense against creditors’ claims.

As such, everyone should take advantage of Florida’s generous asset protection laws, regardless of age, health, and wealth. For business owners, asset protection is especially crucial given today’s litigious society.

In Florida, an asset protection plan can help you create a barrier around your wealth, making it difficult for creditors to collect on your assets. It’s important to work with an experienced estate planning attorney to create a personalized asset protection plan based on your unique circumstances.

Without asset protection, you could lose your holdings to divorce, court judgments, and nursing homes. For instance, when it comes to nursing homes, an irrevocable asset protection trust ensures you won’t have to pay for long-term care out of pocket. Instead, you can qualify for Medicaid and safely pass your assets to your beneficiaries.

So, how does Floridian law protect you?

Asset Protection Entities in Florida

Beautiful Modern Florida Homes in a residential area

1.  The Florida Homestead Exemption

The State Constitution of Florida provides unlimited asset protection for Florida homeowners through homestead protection. Unlimited, in that, there’s no dollar limitation for homestead exemption. For a piece of property to qualify for homestead exemption, it must be your permanent and primary residence, which means you must reside in Florida. Any co-owners should also live in the house.

The homestead exemption means creditors cannot seize or force the sale of the exempted property. Note that homestead exemption does not apply to investment properties. The best way to protect investment properties is through limited liability companies. More on this later.

2.  Tenants by the Entirety

Married couples can title their property as Tenants by the Entirety to protect it from creditors. This way, each party can hold an equal interest in the home as well as the survivorship. Equal interest does not equate to 50/50 ownership. Rather, each party owns 100% of the property. As such, neither spouse can sell their share of the property, plus creditors cannot reach the property unless they obtain a judgment against both spouses.

Tenancy by Entirety can provide you with limited asset protection because creditors cannot claim your property as collateral. The only way to terminate a Tenancy by Entirety agreement is through death, divorce, or mutual agreement.

3.  Limited Liability Companies (LLCs)

LLCs are some of the most popular asset protection planning tools. In a limited liability company, each member’s liability is limited to their investment in the company. Creditors, therefore, have limited ability to collect a judgment from a debtor’s interest in the company. Put simply, they cannot attack assets, financial accounts, or property owned under an LLC. Instead, creditors are given a charging order that allows them to collect against any distributions of cash or property by the LLC.

You can also form a corporation to protect your assets. However, there exist several tools available to creditors that help them pierce the corporate veil. Creditors can demand periodic accountings, get a judgment to levy the debtor's stock, grab corporate certificates and institute other measures designed to frustrate you and your partners. For this reason, LLCs are better when it comes to protecting an individual owner's assets.

Plus, the more members in an LLC, the harder it is to levy an attack on one specific individual.

4.  Head of Household Exemption

A head of household exemption can shield all or most of your wages from garnishment by creditors. As a general rule, you can claim this exemption if you provide over 50% of the financial support for a dependent. Florida is one of the few states where you can claim the head of household exemption for up to 100% of your earned income.

There are some exceptions applicable to business owners or when you’re dealing with government creditors. It’s a good idea to consult an experienced attorney to figure how best to protect your wages under such circumstances.

5.  Other exemptions

Florida asset protection laws also extend to certain financial products, like annuities and life insurance policies. These guidelines shield these asset classes from falling into the hands of creditors. There are several other exemptions available under Florida law that are best evaluated on an individual basis.

Common Asset Protection Mistakes

The most prevalent asset protection mistakes include:

  • Believing it’s too late to protect your assets. You can do so even after judgment has been passed.

  • Hiding assets. It's not really possible to hide assets anymore from anyone, be it the IRS or former spouses – not even in offshore accounts.

  • Fraudulent transfers to family. You’re just opening up your family members to litigation.

  • Confusing bankruptcy law and asset protection law. Debtors have less protection in bankruptcy court; therefore, filing for bankruptcy should always be a measure of last resort.

  • Confusing estate planning with asset protection. Just because you have an estate plan in place doesn’t mean you’re protected from creditors.

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